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SIACI SAINT HONOREis a leading French independent broker specializing in property & casualty, life & health and management consulting with strong market positions in Europe and around the world.

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Property & Casualty Market Report

2018 Renewals

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MARKET STATUS IARDT Market Report - 2018 Renewals 2


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The SIACI SAINT HONORE Group and its teams are pleased to have the opportunity, for the first time this year, to contribute to the forecast of renewal conditions in the property, casualty and marine insurance market at January 1, 2018.

This task has been made all the more delicate and thought-provoking by the global impact in recent weeks of a number of major natural disasters (hurricanes and earthquakes) which have affected us all at a time when new large-scale or complex risks are emerging: multiple terrorist attacks, political tensions and large-scale cyber attacks the impact of which has been intensified by the digitization of many sectors. 2017 was a year in which several key players in the insurance sector underwent major restructuring and made significant changes to their underwriting policy against a continuing general backdrop of overcapacity and substantial financial liquidity.

The specialist teams at SIACI SAINT HONORE have made every effort, based on their day-to-day dealings with their clients, the insurers and reinsurers, to provide the most accurate forecast of renewal conditions in their own fields. They have endeavoured to remain as objective as possible, not an easy task in light of the media coverage of major events.

We have designed this report to be shared with you. You are very welcome to contact the teams at SIACI SAINT HONORE to continue this conversation and we look forward to working with you as we approach the end of 2017.

Yours,

Stanislas ChapronCEO Property & Casualty and International Member of the Executive Board

The specialist teams at SIACI SAINT HONORE have made every effort to provide the most accurate forecast of renewal conditions.

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nsurance marketI

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In this challenging environment, France remains the fifth largest

player in the global life and non-life insurance market in terms of

premium volume

Although in 2016 the European insurance market felt weakened by Brexit, today the outlook seems to have changed. Brexit no longer appears to be one of the key influencing factors on insurance markets in Europe with all of the players awaiting the next pronouncements.

From here on, there will be three main adversity factors: the first is regulatory (SolvencyII/ Directive on the Distribution of Insurance increasing regulation and consequently pressure on insurance professionals). The second is political (including Brexit) and the third is technological with the digital revolution.

In this changing environment, France remains the fifth largest player in the global life and non-life insurance market in terms of premium volume - source Sigma 2017.

There has however been a change in the world ranking of continents; Europe, which was previously in second place worldwide in terms of premium volume, has dropped to third place behind Asia.

Source Sigma 2017

20162015

Amérique - 1 593 791 M$

Europe - 1 491 430 M$

Asie - 1 351 566 M$

Afrique - 63 942 M$

Océanie - 96 951 M$

Totale mondial - 4 597 680 M$

20162015

Amérique - 1 615 407 M$

Europe - 1 470 021 M$

Asie - 1 493 527 M$

Afrique - 60 709 M$

Océanie - 92 524 M$

Totale mondial - 4 732 188 M$

America - USD 1 615 407 million

Asia - USD 1 493 527 million

Africa - USD 60 709 million

Asia Pacific - USD 92 524 million

Total worldwide – USD 4, 732,188 million

America - USD 1 593 791 million

Europe - USD 1 491 430 million

Asia - USD 1 351 566 million

Africa - USD 63 942 million

Asia Pacific - USD 96 951 million

Total worldwide – USD 4,597,680 million

Global insurance market in terms of premium volume

Europe - USD 1 470 021 million

Stéphanie MartinMarket Director,

Head of Group Strategy and Sales Coordination


nsurance market

It is important to highlight that the crisis facing the industry in Europe has resulted in a continuing decline in insurable risks.

With falling rates, the trend among insurers is for greater selectivity of new risks. Some insurers are going as far as reviewing their underwriting policies and withdrawing from certain markets.

Nevertheless, the Corporate Risks market retains significant capacity and the majority of insurers are making every effort to maintain their portfolio and their share of the market.

New coverage requirements are emerging such as the risk of a pandemic while other risks such as cyber attacks are evolving. We have now moved on from cybercrime to cyberwar.

Moreover, businesses are becoming increasingly sensitive to risks that are being managed more effectively by insurance companies such as the Supply Chain.

The fourth industrial revolution is on its way and tomorrow’s insurer will have different competitors. Artificial intelligence will fundamentally revolutionize our society and bring about profound changes in the economy.

Economic development in Africa and the Middle East is also an opportunity for the continental insurance market, and in particular for brokerage.

What coverage will we need to provide for driverless cars and buildings constructed with the aid of 3D printers?

We have observed that the corporate risk sector remains unconcerned by these issues which will profoundly change the current economic model of the insurance market.

There will also be serious consequences for reinsurers as the possible intervention of new players may mean changes to reinsurance arrangements and the transformation of risks and liabilities.

“What coverage will we need to provide for driverless cars and buildings

constructed with the aid of 3D printers?

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ontentsC

01 Motor Fleet 8

02 Construction 11

03 Credit - Surety 15

04 Property 18

05 Third Party Liability 23

06 Financial Risks 26

07 Political Risks 32

08 Marine 37


General trend

There is a high demand for self-insurance in companies with large motor fleets.

This demand is satisfied by means of partial or total self-insurance arrangements (with no transfer to the insurer) or significant Third Party Liability deductibles.

Although most insurers are resistant to it, the setting up of self-insurance funds which are directly managed by the broker (and so eliminating a large portion of frictional costs) can be an effective solution for clients.

It is worth noting that some insurers will still agree to reinsure this type of self-insurance fund which provides protection for the insured if something goes wrong.

The trend is also towards higher deductibles (especially true for large fleets) as this means the self-insurance scheme can be set up indirectly and the Business Units can be made more accountable in large automobile programs.

Motor Fleet01

Market capacityThe automobile market is mature enough to allow its players to operate there with effective management of placements.

This is also what drives insurers to maintain and develop their automobile fleet products as long as these products remain within predefined standards.

The appetite of insurers over the last 3 years can therefore be described as significant.

It is worth noting, however, that it can be difficult to place business in short-term leasing, passenger transportation, freight and, especially, delivery services.

Pricing trend Where there is strong competition between insurers, prices tend to drop overall on balanced risks.

On the other hand, there may be significant variations from one insurer to another for a given risk, which means the broker must carry out ongoing risk analysis and consult the market more and more frequently.

Coverage improvementThe coverage provided by automobile insurers is by definition extremely stable and innovation in this field is almost non-existent.

However, policy wording continues to improve and exclusions from coverage for large fleets are becoming very rare.

A new type of riskThe last five years have seen the emergence and development of a new way of using vehicles: very short self-service hires (Autolib, Wattmobile, Citiz, Ubeeqo, Communauto, Zipcar etc.) where a vehicle can be hired ten times a day.

This type of risk requires IT tools to closely monitor. The hires and the resulting loss experience.

Short-term hires tend to be excluded from insurers’ underwriting policies and the rapid development of this activity has prompted them to review their position and expand their scope of insurability, in particular for hire companies which are backed by large groups.

Motor Fleet


MARKET STATUS IARDT Market Report - 2018 Renewals 10 MARKET STATUS IARDT Market Report - 2018 Renewals 10

Loss HistoryThe average cost of property & casualty claims is continuously increasing (around 3% per year) although this is offset by a drop in frequency, particularly in large fleets where the prevention measures introduced several years ago are successfully bearing fruit.

On the other hand, the increase in serious bodily injuries observed over the last ten years continues to build and poses real problems in terms of balancing profit and loss accounts and the placement of business.

It is no longer unusual to see claims exceeding € 5 million which destabilizes not just the profit and loss account but also the broker’s portfolio.

Moreover, the insurers’ risk retention, which is generally very high, means they bear the full cost with reinsurers only intervening on exceptionally high claims.

Average cost of property and casualty claims increasing by+3% per year

+3%

Electric carOn fleets of electric vehicles the frequency of Third Party Liability claims, although still fairly low, seems to be better than for traditional fleets.

This is undoubtedly due to the behavior of their drivers who have a distinctly “green” approach to driving.


General trendGiven the better-than-expected start to the year in building and civil engineering in France, the French Building Federation (Fédération Française du Bâtiment or FFB) is more optimistic although without going as far as to raise its annual forecasts due to ongoing restraints.

In its previous quarterly market report published before the presidential and parliamentary elections, the federation predicted an upturn in the sector’s activity in volume terms in 2017, with an expected increase of 3.4% driven by new housing and an upsurge in employment with a projected net balance of 10,000 jobs.

2016 saw a revival of the construction sector in France with growth of 1.9% and the stabilization of its workforce after eight years of crisis.

New housing developments totalled 391,500 over 12 months, the highest level since September 2013.

The combined factors of strong economic growth, interest rates which remain very low and the contribution of the ‘Grand Paris’ infrastructure projects have boosted market conditions. The prospect of the Olympic Games will also be an important factor in the recovery.

International redeployment is on the rise across all construction industry players with greater variation when major companies are excluded.

The upsurge in activity is attracting insurers, including those for whom this is not their traditional business. A watchful eye should be kept on this new capacity and partnerships should be sought with these new players who are stimulating competition.

Between opportunities and partnerships, the broker must present these different prospects objectively.

Construction02


Market capacityCapacity in terms of Technical Risks/Construction All Risks (France) continues to increase in this competitive market.

In Contractor’s Liability, capacity continues to increase but remains capped at € 400 / 450 million which is insufficient for major French projects.

New players are positioning themselves in the Contractor’s Liability market, historically the territory of the major traditional insurers.

As a result, there is now real competition for median risks that do not require significant capacity.

The “Grand Paris” construction sites will mobilize a significant level of capacity for the benefit of the Contracting Authority which means that the contractors (companies, prime contractors and engineering consultants) will not always be able to access this capacity at a reasonable cost.

In Decennial Liability, there remains the problem of the classification of works for which insurance is or is not required and where the response from insurers has been inconsistent.

We are seeing the withdrawal of some players from the engineering sector (prime contractors, engineering consultants and geotechnical engineers), which further restricts this market.

Pricing trendIn Technical Risks/Construction All Risks (France), budgets continue to fall. They have practically halved on average over the last 5 years over all classes of works. This decrease is a consequence of the overcapacity of insurers and the appearance of several players, some of whom are very aggressive.

Only certain risks, such as drilling and offshore, remain at a high level due to the lack of players operating in these markets.

In Contractor’s Liability, the decline in premium rates continues, with the social housing sector at a historic low. Nevertheless, we may see a pause in the downward trend from the second half of 2017.

In General Liability, pricing conditions remain more or less stable, although it is essential to ensure the same scope of coverage is retained.

In engineering, the trend is towards a tightening of conditions for risks where claims have been made or those in more exposed business sectors.

The construction insurance market remains as narrow as ever and studies are becoming more and more technical.

MARKET STATUS IARDT Market Report - 2018 Renewals 13MARKET STATUS IARDT

Market Report - 2018 Renewals 13

Coverage improvementIn Technical Risks / Construction All Risks (France), some types of coverage which were no longer being offered by insurers are once again available. Construction All Risks insurers have become more flexible in order to expand their offerings with insured amounts for each loss.

In Contractor’s Liability, a sector that does not often see innovation as it is subject to standard clauses, there is nevertheless a real desire on the part of insurers to support their clients with more qualitative and differentiated coverage such as the duration and nature of additional benefits.

In respect of Consequential financial loss, the market is open and it is now possible to transfer some contractual obligations to the Insurer.

However, in recent years, which have been marked by major fire claims, reinsurers have tended to tighten up on their requirements in terms of prevention during the works.

In Decennial Liability, there are still not many insurers working on subjects such as the involvement of foreign companies in French markets, renewable energy and innovative techniques, due mainly to the absence of any claims experience data.

In the engineering sector, with energy performance and digital, new roles are emerging: BIM Management, Smart Building ACA and Building Automation Integration. Insurers are currently looking into these areas with a view to adapting coverage and providing support to their clients.

Macron law and Decennial Liability certificatesMacron Law of August 6, 2015 made it a legal requirement to produce a Decennial Liability certificate containing the minimum mandatory information along with the invoices and estimates issued by construction professionals.

The Decree of January 5, 2016, published in the Official Gazette of January 13, 2016 sets out the minimum information to be included in Decennial Liability certificates from July 1, 2016 and states that “no reference may be made to contractual provisions if these provisions are not also mentioned in the certificate” (article A.243-5 of the French Insurance Code).

Since July 1, 2016, new restrictions have been introduced with the requirement to produce Decennial Liability certificates which comply with this new standardized format, both for insurance policies purchased on an individual basis (including property developer certificates) and for group decennial liability policies.


Loss history The Contractor’s Liability sector remains in deficit as the number of claims continues to rise coupled with a drop in premium levels.

The management of Contractor’s Liability claims, and its counterpart, Decennial Liability, under the Construction Insurance Settlement Agreement, (Convention de Règlement d’Assurance Construction or CRAC) is now so complex that insurers are no longer able to deal with it. As a result, there is a lack of interest in managing this type of claim, delays and a lack of support for contracting authority clients and businesses.

In Construction liability, players in the construction industry are facing exponential claims for financial losses.

These large claims, which are often unjustified, are the result of an economic environment in which the insurer is systematically pursued. In addition, Solvency2 makes it a requirement for insurers to overfund claims.

These parameters have an impact on the economic equilibrium of corporate liability programs over the long term and make it much more difficult to accurately assess the actual claims experience.

Technical Risks / Construction All Risks (France) claims are balanced, with technically complex claims management.

This complexity hampers the investigation of claims in a challenging financial climate even though this type of claim must be paid within restricted timescales if project delivery deadlines are to be met.

InternationalThe markets are also in decline. However, Natural disasters risks in exposed regions are often subject to reserves such as the Contractual Limit of Indemnity or high levels of deductible.

LEG3 and Maintenance coverage is still not the norm even if it is becoming increasingly easy to negotiate it locally, with local practice continuing to operate on a LEG2 basis.

There is a clear move away from the Munich Re standard policy wording, which is being used less and less.

In France, we are seeing a tightening up of the wording of the penalty clause in global programs, making it stricter and requiring regular renegotiation.


General trendThe market is still largely dominated by three major insurers: EULER, ATRADIUS and COFACE.

There have been no major events in the Trade Credit industry over the past year.

The leading insurers are in strong competition while facing weak growth in new business, particularly from large companies who are choosing to purchase this type of insurance for the first time.

Market players have also experienced a classic scissors effect: a price drop (Atradius reported a reduction of around 5%) combined with a fall in the level of turnover reported by the insured.

The French market is dominated (more than 50% share) by Euler whose pricing policy was strict in 2016 to enable them to retain their margin.

Coface experienced a year of transition following the arrival of a new management team and Atradius has continued to develop its international programs, particularly from France.

The development of credit insurance is also linked to the need to develop funding programs (particularly in factoring) which are being developed by large pan-European programs.

In France, insurers report that around 50% of new business is written as backing to a funding program.

Credit - Surety03


Market capacityThe crisis years (2008 to 2010) during which the capacity of insurers was greatly diminished are over.

Nevertheless, some players remain cautious, some exceedingly so, and are taking restrictive measures in terms of coverage.

Because an insurer’s risk policy is based on three main factors, i.e. the macroeconomic situation (global and national), conditions within the debtor’s sector and its financial situation, the capacity allocated to an activity and a zone can fluctuate greatly depending on the insurer’s analysis.

These analyses are, however, sometimes contradictory, which allows the clients to make their partnership choices based specifically on local risk policies.

In this environment, which can be challenging, alternative solutions can be developed, such as introducing a captive into a credit insurance program.

If there is a low level of claims under a program due to a cautious risk policy, the introduction of a captive to cover more risks and share the premium makes perfect sense.

This makes it possible to revitalize the market and challenge the insurer who, if they do not increase their level of coverage, will have to share their remuneration and in the end this allows the client to benefit from a better “risk/price” ratio.

Pricing trendIn the French market, Euler use their leading position to attempt to fix the market price. These attempts are made regularly but come up against the commercial dynamism of their competitors.

This being so, there is no global pricing policy for the world market but rather an amalgamation of local policies. Each entity of each insurer operates a pricing policy based on its growth requirements or the preservation of its margins.

The results published by the three major insurers lead them to pursue sometimes divergent policies, which can be of benefit to the insured.

Credit Insurance MarketThe credit insurance market often comes down to 1st euro offerings which are widely available from the three leading market players. But credit insurance is a much more flexible and scalable tool than we might think. Because it is still too often presented as a package (information, recovery and compensation) with broad coverage, alternative or more confidential solutions are not often used.

Sharing the risk with a captive and setting up an excess solution with varying levels of retention are more specialized solutions, perhaps less profitable for the market players, but which meet a real need and allow them to work with large groups who might be tempted to self-insure.These solutions also make it possible to increase the number of players and obtain a wider range of offerings.



EULER combined net ratio

79,8%

ATRADIUS combined net ratio

76,8%

COFACE combined net ratio

92%


Coverage improvementIn credit insurance, credit limits are cancellable and evolve on a daily basis. As noted above, there is no strong downward trend but increased caution is evident in certain sectors (such as paper, for example) leading some insurers to limit their liabilities.

In this environment, the role of the broker is to support their client on a day-to-day basis to negotiate the best coverage, limit reductions in coverage and provide information. Here again, the setting up of a captive solution may provide useful added value if it is properly adapted to the local risk.

Loss historyClaims experience is linked to developments in the conditions of local economies and varies greatly from one year to the next. It is backed by sectorial analysis causing insurers to demonstrate caution in certain sectors.

Euler has a net combined ratio of 79.8%, Atradius-Credit y Caucion 76.8% and Coface 92%.

The economists of the three leading insurers are tasked with forecasting worldwide claims in the short and medium term. Their role is crucial as their findings will strongly influence the positions adopted by risk analysts (adjudicators).

The 2008 crisis was in no way predicted by economists, and analysts reacted sharply to the increase in the number of claims (as was the case for Greece which benefited from years of coverage at odds with its actual situation).

Conversely, overly pessimistic forecasts will lead to a reduction in acceptance rates bearing no relation to the debtors’ actual situation.


General trendThe Property market, where there is excess capacity, offers a range of competitive solutions which continue to generate significant premium reduction levers for quality business.

Market players are looking for a steady rise in premium inflow from a profitable market in spite of continual cuts in pricing over the past 13 years. This can be explained by the positive claims experience in the property and casualty market, the lack of major natural events worldwide since 2012, the efforts made by the insured in terms of prevention and retention but also the basic quest for turnover in the Property sector deemed profitable but requiring significant overheads (prevention engineering, cost of reinsurance treaties, acquisition costs etc.).

The market rewards insured companies who have an ambitious risk management policy. Insurers are prepared to disregard a major loss if lessons have been learned and corrective actions have been taken, provided it is not a recurring loss.

Although deductibles remain stable, insurers became much more generous in terms of scope of coverage in 2016 and 2017, including the development of Non-Damage Business Interruption (NDBI) extensions.

However, the generosity with regard to failing in 2015 and 2016 was less marked following the Recticel incident in January 2017 whose potential impact on the market has been estimated at around € 1 billion.

Property 04


As a result, insurers who had been providing more and more indirect failure extensions since 2015 (i.e. failure on the part of a Tier 2 supplier or above) are now showing restraint by limiting capacity for non-named suppliers (or clients) and/or tier 2 suppliers and above.

This restriction could be eased by the carrying out of risk assessment initiatives, the setting up of Early Warning Systems such as the one provided by SIACI SAINT HONORE through DELOITTE) and, more generally, the implementation of Business Continuity Plans across the entire Supply Chain.

Market capacityWith overall capacity of almost 5 billion euros, the market benefits fully from a supply and demand ratio which favors the insured.

Growth in 2017 is estimated at 5% due to the increase in capacity delivered by some insurers (XL CATLIN, MMA and ALLIANZ France) and since mid-2016 the increased willingness shown by high-capacity insurers who were previously less visible (AGCS & ZURICH in particular) to underwrite risks.

The market for lead insurers has therefore developed. There is a growing propensity among unsuccessful bidders for the role of lead insurer to claim a share of the co-insurance on terms they had not initially accepted.

Capacity and/or interest in co-insurer markets is also growing.

€ 5 billion overall capacityup 5% in 2017

+5%

Pricing trend

Existing partnerships

-10% à-15%

Invitations to Tender

- 20 % +

Insured and insurers continue to favor the extension of long-term agreements. These so-called rollover negotiations help to maintain partnership capital, an appeasement factor when complex situations arise such as increased risk or short-term economic problems making it difficult to adopt prevention plans, or the occurrence of a major loss.

Against the backdrop of a soft market, throughout 2016 we saw several key accounts undergo a change of lead insurer following invitations to tender even though the performance of the previous supplier had not been wanting.

Insurers can be aggressive on business as long as the technical and statistical aspects of the account are satisfactory.

The occurrence of a major loss does not necessarily make it impossible to negotiate a price reduction if the insured has learned from the experience and is taking corrective action, and if the loss is not likely to reoccur.


A less soft market Certain sectors of activity are subject to more selective capacity due to the nature of direct damage and/or Business interruption risks and the constraints of reinsurance treaties:

Waste and waste-to-energy: this sector again suffered significant losses in 2016 and 2017 meaning that prices remain bullish and prevention requirements are considerable. Available capacity, excluding excess lines, is less than € 500 million.

The wood sectors (sawmills and mechanical woodwork), traditional textiles, Mining and Energy production : Power & Utilities remains a more selective

activity than Property with capacity of 1.5 to 2 billion euros.

Business with good levels of retention and prevention can nevertheless see price reductions of between 10% and 20% if results are good and the prevention policy for fire/explosion and damage to machinery meets certain standards.

Unlike the period from 2014 to the beginning of 2016, there have been no major losses since the second quarter of 2016 (a major loss involving an Eon coal-fired power station in Siberia on February 1, 2016).

Coverage improvementWhile 2015-2016 saw the arrival of a Worldwide Terrorism extension of between € 5 and € 10 million in large Property programs and even First Party Cyber extensions, 2016-2017 marked the advent of Non-Damage Business Interruption (NDBI) coverage.

The aim is to cover operational losses resulting from a chance event where the insured did not suffer material damage. These extensions can range from a few million euros to sometimes € 10 million or more depending on the premium budgets and the level of retention by the captive.

This type of insurance can cover financial losses resulting from a threatened collapse, a localized epidemic, a cyber attack or an exceptional weather event which did not necessarily cause material damage to the insured property. It can also cover the disaffection of clients due to the psychological shock generated by attacks, threatened attacks, and crime scenes.

FM Global released a new rider in 2016 (Advantage 2016) which set the tone with a strengthening of NDBI products (business interruption following a communicable disease, a strengthening of the Cyber offering by extending it to transmission lines and damage to satellites, even if these extensions only provide a partial answer to the cyber problem which is first and foremost a combination of first party and third party liability).


NDBI SolutionsAlongside these extensions to property & casualty programs, we are seeing the emergence of NDBI solutions delivered as such by insurers and often associated with Supply Chain coverage with capacity ranging from € 50 to € 100 million.

The two leading insurers to date are AGCS and CIP (MUNICH RE), with this coverage being offered in return for a demanding risk assessment process and premium levels of 1% or more based on the incurred risks and the current low level of pooling.

This provides an alternative to Financial loss solutions using a captive or structured coverage.

Natural disastersCritical CAT excess line rates remain stable and Property insurers continue to impose restrictions on the most exposed regions together with high levels of deductible.

The trend is still towards a slight easing, as has been the case every year since 2013.

Insured losses arising from natural disasters increased by more than 35% between 2015 and 2016, from € 37 billion to € 50 billion.

This has been the most difficult year since 2012 (€ 77 billion) but the amounts of compensation remain modest for the market, far behind 2005 (€ 120 billion) and 2011 (€ 110 billion).

Current Events

Until that point 2017 had not yet produced a heavy loss in Natural Disasters but the heavy flooding caused by Hurricane Harvey on August 26, 2017 and Hurricane Irma on the Caribbean islands of Saint Barthelemy and Saint Martin on September 6, 2017 will be very likely to generate significant losses for the insurance and reinsurance market.

Contingency Business InterruptionContingency Business Interruption (CBI) remains a sensitive subject, a view reinforced by the Recticel incident of January 22, 2017.

The fire at the premises of this supplier of plastics to the automobile industry generated several tens of millions of euros in operating losses at many individual automobile manufacturers but also at their parts manufacturers. The impact is of the order of 1 billion euros, which is substantial considering this coverage is intrinsically damaging to the market.

The market which had opened up to indirect losses in 2015 and 2016 (suppliers deficiencies higher than rank 1) and unnamed suppliers/clients, has once again been adopting a more cautious approach since then.

The key to overcoming this adversity is the implementation of risk assessment procedures, business continuity plans and an Early Warning System, such as the one provided by DELOITTE, a partner of SIACI SAINT HONORE.



General trendThe French third party liability insurance market remains very competitive with extensive coverage compared with other European countries, both in terms of General Third Party Liability and Environmental Liability.

It is a market with surplus capacity which offers attractive budgetary terms and the mergers seen in the sector have not led to price increases, particularly as the new players entering the Third Party Liability market are keen to grow.

The stated objectives of retention and development of all insurance companies help keep this a soft market.

Insurers continue to offer long-term agreements (LTAs) of 2 or even 3 years and always with the possibility of negotiating a rollover. However, more stringent underwriting procedures are in place, with more rigorous and technical risk assessment and the increasingly strict application of compliance rules (exclusion of prohibited, non-admitted countries/sanctions and embargo clauses etc.).

Third Party Liability05

Market capacityWith surplus capacity and a constantly decreasing amount of insurable risks, the French market offers companies overall capacity well in excess of one billion euros.

Mergers between a number of companies (XL-CATLIN, ACE-CHUBB, MITSUI-AMLIN etc.) have not reduced overall capacity as some of the companies involved continue to operate with their own reinsurance treaties.

Moreover, some players are opening up and want to develop Third Party Liability insurance on the French market (ERGO, MAPFRE).

However, we have also seen some reduction in capacity and even the withdrawal of some companies from Professional Third Party Liability, offset by new interest from other players.

Pricing trendThe market remains on a downward trend and we are seeing an overall erosion of non-life premiums of more than 2%.

In Corporate Third Party Liability, the number of renewals is generally declining.

Despite the pricing reductions seen over the last few years, insurance companies remain profitable and the combined ratios in Third Party Liability are still for the most part excellent.

Coverage improvementThe emergence of new risks and new technologies, as well as changes in regulations and legislation, has widened the scope of coverage without any real impact on prices.

Insurers respond to changes in risks and legislation by adapting policy wording and coverage.

However, levels of retention and deductibles remain stable and have not changed noticeably since the periods of increases and adjustments in the round of renewals post September 11, 2001 which explains the contained claims experience and good combined ratios.


Loss historyThe number of Third Party Liability claims has been on the increase for the last 5 years. Product recalls and losses related to defective work account for more than half the claims made by businesses in France.

The American claims culture is spreading all over the world, favored by the development of increasingly strict regulations, in particular with regard to product safety, the possibility of class actions and rules governing the protection of personal data (cyber liability).

In addition, increased awareness of environmental issues and the development of regulations in this area has led to an increase in claims.

Exposure to Third Party Liability risks is also changing with the development of new technologies (driverless cars) and the potential for new types of claims.

In general, we are seeing the internationalization of claims for compensation which are becoming increasingly large and increasingly complex.

InternationalInsurance companies continue to roll out international third party liability insurance programs, often using extensions, but underwriting rules are becoming increasingly strict, compliance rules are increasingly applied and it is becoming almost impossible to avoid embargo and sanctions clauses and compensation payable to the parent company.


Regulation improvementAs previously mentioned, legal and regulatory developments are changing companies’ exposure to the risk of Third Party Liability and insurers are adapting coverage and policy wording accordingly.

We are referring mainly to :

❙ The biodiversity law on environmental damage which enshrines ecological damage in law and provides for compensation under the French Civil Code.

❙ Legislation on personal data protection which extends corporate third party liability to Cyber risks and exposes businesses to heavy fines and penalties.

❙ The option available to consumers of bringiing a class action, as in the United States, even if to date we are not seeing an increase in the number of claims using this method.

❙ Legislation relating to the duty of care of parent companies and corporate ordering entities.


Directors’ and Officers’LiabilityThe D&O market remains very competitive with a large number of insurers and significant theoretical overall capacity of more than € 400 million, and more than € 800 million if we include the London market.

However, we saw market consolidation and mergers between insurers in 2015-2016: ACE / Chubb, XL / Catlin and Mitsui/ Amlin.

Fierce competition and pressure on premiums from insurers in recent years has resulted in the maintaining of a soft market (stable premiums).However, there are signs that this cycle may be coming to an end with a rise in the number of claims (in terms of frequency in Europe but also size in the USA with the growth of class actions), the emergence of major risks

and the tightening up of Ethics and compliance regulations (SapinII, CSR, environmental and GDPR for personal data protection) which could generate secondary claims against company directors.

The drop in premiums seen in some programs relates mainly to Excess lines and remains modest in the 5% to 10% range, which is comparable to trends in other European and American markets.

Some insurers are becoming more demanding in respect of the most exposed key accounts and may restructure or limit their liabilities on a case-by-case basis from January 2018.

Financial Risks06


Scope of coverage remains stable from one insurer to the next, with the introduction of a number of coverage extensions granted with no additional premium on a sub-limit basis to comply with current legislation and regulations.

The question of the insurability of administrative financial penalties, or at least the cost of regulatory procedures, is becoming an issue to be dealt with at the next round of renewals.

Leading insurers will incorporate these factors into the wording of policies due to be issued in 2018.

SIACI SAINT HONORE carried out a review of 300 D&O claims handled over the period 2001 - 2013 and updated in 2017. This review covered all types of activity and company profiles.

This study highlights that, while stock market claims account for only 10% of claims, they account for 30% in terms of funding (expressed as the amounts paid by insurers in respect of defense costs and damages).

Conversely, criminal claims, by far the most frequent, represent only 15% of the sums paid out by insurers whereas they account for 45% of the number of claims.

Coverage of the cost of regulatory procedures and the insurability of administrative financial penalties will strongly influence the next round of renewals. However, overall, insurers do not anticipate any major changes to their policy wording or an increase in global premiums in their portfolio but will instead adopt a case-by-case approach.

The Sapin II law The SAPIN II law could be seen as increasing the risk to directors. This is because they are now responsible for new requirements relating to the prevention and detection of corruption under a new administrative authority with powers to impose financial penalties (the French Anti-corruption Agency or “Agence Française Anticorruption – AFA”).

If any failures are identified, all of the company executives (Chairman, CEO, Directors etc.) could be targeted, whether or not authority has been delegated, in particular to the Technical Specialist (Référent Technique). This is a new role introduced under the Sapin II law to provide a dedicated point of contact with the AFA.

European regulation on data protection The European regulation on the protection of personal data comes into force on May 25, 2018.

Its provisions include the appointment of a Data Privacy Officer, increased supervisory and enforcement powers for the regulatory authorities, such as the French Data Protection Authority (CNIL), which can impose administrative fines. These fines apply only to the company and can be as much as 2% to 4% of the company’s annual worldwide turnover depending on the nature of the infringement.

Although directors will not be directly affected by the regulatory procedure, they may have to account to their shareholders for the consequences of this type of incident.


We are seeing a new cycle of high-level claims in the United States linked to the growing number of securities class actions.

It is important to note that claims (criminal and regulatory risks) increasingly involve the subsidiaries of French groups in Europe (particularly in Spain and Italy) as well as Latin America (Brazil and Argentina) and Asia (Japan and South Korea).

Setting up an international insurance program to comply with local regulations (non-admitted and unlicensed) becomes essential if claims and local risks are to be managed effectively. Some insurers such as ZURICH have made it a mandatory precondition of insurance.

However, insurance may not be possible in some countries where there is no market, if there is local legal prohibition or as a result of embargo measures.

The position of insurers on the subject of embargo clauses or on the effectiveness of FINC (financial interest) clauses can still be unclear and nuanced from one insurer to another. It is important to factor this into the criteria for choosing a lead insurer.

Employment Practice Liability (EPL)Capacity in the historically narrow French market remains stable and can still meet the needs of companies, even those with high-risk exposure in North America. However, the limited number of frontline insurers is a barrier to competition.

Pricing remains broadly stable unless a claim has been made. However, the increase in the number of claims is reflected in new studies, with premium levels rising slightly.

The EPL coverage available on the market remains stable and is similar from one insurer to another. The reform of labor law (caps on redundancy payments, extension of class actions to cases of discrimination) has not yet had an impact on coverage and pricing.

Deductibles remain relatively stable for the moment, with the exception of those applicable to the USA, which have been progressively increased by insurers in recent years. This trend is expected to continue in 2018.

The EPL policies available from insurers in France are tailored to risks in France and Europe but also in the United States where this risk is historically greater. We are seeing an increase in the purchase of capacity on local policies which are part of Master programs, in particular to cover North American risks, with actual local capacity standing at USD 10 million.

CrimeInsurance capacity remains generally limited in the continental market. Insurers have theoretical capacity of € 25 million per claim and per year per policy, but in practice, and under the impact of claims, they are limiting their liabilities, which rarely exceed € 10 to € 15 million on the front line.

However, overall theoretical capacity in the French market is sufficient to meet the coverage requirements of CAC 40 or SBF 120 companies which are rarely insured for more than € 50 million (excluding banks).

The increase in claims frequency for both external fraud by identity theft and internal fraud and the size of the claims seen in recent years has led to more cautious underwriting by insurers and an increase in the level of deductibles.

Some insurers have decided to apply a more rigid framework to coverage, to review deductible levels and reduce their capacity by favoring co-insurance or lower front-line capacity. Special attention is also paid to prevention and internal control within companies.

Moreover, the likely risk of a crossover between several policies, RCMS, Fraud and Cyber (with blurred coverage boundaries and inevitable overlap) encourages insurers to be more cautious.

It is important to note that no geographical area is spared the phenomenon of increasing claims. As reported over the last five years, claims made by the subsidiaries of large groups are increasing in line with the number of company mergers (an opportune time to uncover a potential claim pre or post-closing) and with developments in the level of operational controls in place in businesses and their improved effectiveness.

This market trend is conducive to premium increases to be expected in 2018, including by resorting to transfers to insurance or reinsurance captives where possible.

Against this backdrop, it is increasingly difficult to maintain current insurance conditions despite effective risk assessment, and upward adjustments to premiums have been made by the leading insurers in this market.

As regards existing policies, premium rates remain stable unless there has been a claim. Where a claim has been made, premiums are more likely to be increased on renewal.

In addition, we are seeing an average increase of 10% in quotes for new fraud policies, even though, at the discussion and negotiation stage, the determining factor remains the quality of the risk.

Unlike other insurance programs, few international fraud programs have so far been rolled out. The development and use of the FINC clause mechanism (financial interest of the parent company policyholder) seems to be becoming more widespread.



CyberThe market will need to adapt to the consequences or impacts of new local regulations such as the European regulation on data protection (GDPR), and the development of cyber risks (see Wannacry and Not Petya below) which could impact strongly on the business continuity of industrial and commercial companies who have been spared until now.

In 2017 the leading CAC 40 groups were able to purchase insurance with deductibles of between € 500,000 and € 2,000,000. These could be increased on programs which had been purchased more than two years ago at a lower level.

Waiting periods applied in respect of business interruption coverage may be reduced or even waived depending on the information collected when the insurance is purchased. The process for triggering these waiting periods has been specified.

The market’s overall theoretical capacity has increased over the last two years to more than €500 million from leading players such as AIG, AGCS, BEAZLEY, CHUBB, MUNICH RE, XL CATLIN and ZURICH but also with the arrival of new capacities like GENERALI, TOKIO MARINE/HCC, MITSUI or QBE, and the development of reinsurance bringing theoretical total capacity to €500 million.

However, in exposed sectors (digital and financial services), it is sometimes difficult to reach the required capacity.

The French market remains very competitive compared with the North American and Anglo-Saxon markets with the ability to cover international risks from France, including those in the USA.

Premium reductions observed since 2015 as a result of competition averaged around 5% per year on the first 15 million euros: in France, programs of € 50 million or more were placed or renewed at a rate of between 0.8% and 1% for the best risks (excluding banks). Future studies are expected to show an increase.

The enactment of the European regulation on data protection (GDPR) should not have a direct impact on pricing.

The ransomware attack, “WannaCry”, and its successor, “Not Petya”, which hit more than 150 countries in May and June of this year have not yet had a significant impact on insurers.

However, the identified risks which go far beyond the payment of a ransom, mean that leading insurers and reinsurers now fear the consequences of a new attack which would lead to a total blackout or a block on an activity, a geographical area, a country or a city.

The US market has already begun to adjust its business objectives and many insurers and reinsurers have revised their underwriting strategies by specifically reducing their liabilities or by no longer providing coverage such as Contingent Business Interruption extensions. This will undoubtedly mean the same players taking the same decisions worldwide in each of their locations, including France.

Few players are currently providing international programs with local policies with the exception of a few countries such as the USA or Brazil. For countries with coverage on a non-admitted, unlicensed basis, insurers are planning to implement the FINC clause (financial interest of the corporate policyholder).

Kidnap & RansomThe Kidnap & Ransom market is stable and very mature, including 3 active insurers who share 80% of the French market: AIG, Hiscox and Liberty. However, it is also worth noting the development of new players in recent years.

The level of capacity remains stable at an average of €10 million with little capacity above €15 million and the largest rarely exceeding €25 million.

Co-insurance or online arrangements remain rare but could develop under the double impact of an increase in claims and a demand for additional capacity warranted by the development of the company and its exposure.

The insurability of this risk from France will remain a matter for analysis on a case-by-case basis, particularly with regard to the legal risks linked to the funding of terrorism. Many countries have already taken the decision to legislate on the limits and scope of insurable consequences.

No restrictions are imposed by insurers with respect to the coverage of direct losses, the consequences in terms of physical or moral damage and the cost of handling the claim (including as a consultant). On the other hand, there is a great deal of uncertainty regarding the possibility of covering the amount of the ransom and it would seem logical for insurers to continue to manage this issue on a case-by-case basis.

The principal coverages provided are identical from one player to another and for several years insurers have been trying to differentiate themselves through the provision of new types of coverage (disappearance, armed assault and express kidnapping). Some countries can now no longer be fully or partially covered and, as in the case of sanctions and embargo clauses, insurers have tightened up their underwriting process with increasingly specific screening when the insurance is being purchased or renewed.

The key factor in choosing an insurer remains the choice of the partner consultant who may be required to intervene in the event of a loss. Some insurers have formed exclusive partnerships with consultants, such as HISCOX with Control Risks Group, and will not agree to the involvement of consultants previously identified by the insured.

Moreover, in order to improve the prevention and management of this risk, insurers or brokers are developing services in partnership with their consultants: risk analysis by country, presentations on risks and best practices within companies, etc. Some of these services may be partially funded by the insurance when the policy is purchased.

The worsening of the international situation in recent years has led to an increase in threats against individuals. These may be political or social or connected to the displacement of people and local insecurity in certain geographical areas.

Although the risk has increased in many geographical areas, the claims experience has not yet had an impact on premium levels. However, we must remain cautious as this risk is now increasingly volatile and insurers are becoming increasingly reactive.



General trend

The Political Risks market, formed over the last forty years, was first developed in London by the Lloyd’s of London syndicates and later by insurance companies. It has continued to grow by developing local markets, particularly in France, Asia, the Middle East and the United States.

The Political Risks market has been soft for several years with the creation of numerous insurance companies providing significant capacity.

Nevertheless, the risks related to geopolitics or corporate or banking failures have rarely been as extreme as they are today. As a result, some countries or counterparties can be very difficult to insure or can only be insured at a high rate of premium.

The Terrorism and Political Violence market came into being in 2001 following the terrorist attacks of September 11, 2001. This market is historically centered on the Lloyd’s of London syndicates and the insurance companies operating in this marketplace. In recent years, a market has developed in France through specific insurance companies and representatives of Lloyd’s syndicates in Paris.

The terrorism and political violence market is dynamic and developing in terms of both capacity and new products. These innovations make it possible to respond to the new risks faced by the insured such as non-damage business interruption following a threat or a terrorist or malicious attack.

Political Risks07

Political Risks

USD 1,8 bn /transaction

TerrorismUSD 3,5 bn

in total


Market capacityThe global capacity of the Political Risks market is over USD 3 billion.

There are approximately 55 insurers, Lloyd’s syndicates and insurance companies in this market which is divided into 3 segments: a long-standing mature and structured market in London, a Parisian market which could be more dynamic in terms of appetite for risks and new coverage, and the developing local markets in Asia, the United States and the Middle East.

The theoretical capacity of the market by type of coverage (see table below) is in practice weighted by market appetite for a risk or country, a country’s aggregate risk, the premiums and the terms and conditions of the required policy.

Maximum capacity (millions of dollars) / transaction

Duration of policy Contracts / Contract Frustration

Non-payment / Structured Credit

Investments / Investment Risks

Up to 1 year 2 400 1 950 2 400

1 to 3 years 2 400 1 800 2 400

3 to 5 years 2 365 1 750 2 200

5 to 7 years 2 100 1 200 2 100

7 to 10 years 1 500 400 1 450

10 to 15 years 1 050 200 1 050

The Terrorism and Political Violence market is dynamic. There are now over 35 Lloyd’s syndicates and companies working in the private market which can provide Terrorism and Political Violence coverage.

This market, initially formed in London, is developing in France with insurers offering traditional Political Risks coverage and Property & Casualty insurers who have developed specific Terrorism and Political Violence expertise in Paris (AIG, AGCS, CHUBB etc.).

Around ten London-based Lloyd’s syndicates have set up a facility covering acts of terrorism and, on an ad hoc basis, political violence. This facility with total capacity of € 500 million per event is headed up by Beazley and Hiscox.

Overall capacity in the Terrorism and Political Violence market is around USD 3.5 billion for coverage of acts of terrorism only and around USD 3 billion for coverage of acts of political violence, including acts of war.

With regard to new Threats/Loss of Attraction/Active Assailant products which provide coverage of non-damage business interruption, capacity is currently around USD 100 million per transaction but this is expected to rise over the coming months.


Pricing trendDespite the relatively soft nature of the various markets, the demands and restrictions imposed on policyholders limit capacity in certain geographical zones. This is particularly important for some countries such as Turkey in terms of terrorism and political violence, or Congo, Nigeria and Russia for traditional political risks.

Demand for coverage is currently well above the very limited capacity of insurers in these countries due to the current geopolitical climate and the number of claims in these countries.

As a result, premium rates are often negatively impacted on the Paris and London markets when these markets demonstrate an appetite for these risks.

In order to mitigate this impact and ensure the best coverage at the most competitive prices, our special relationship with the insurers working in the continental and London markets is one of the key strengths of our team.

Coverage improvementCoverage in the Political risks market has changed little as it covers each company’s specific risks. The setting up of coverage is individualized based on the client, the investment project, the contract obtained and the country of operations. For traditional risks, our team provides modular ad-hoc solutions.

Three innovative productsWith respect to the Terrorism and Political Violence market, most insurance-related innovations and improvements in coverage have come from the Lloyd’s market. The Hiscox, Beazley and XL Catlin syndicates in particular have been at the forefront of innovation.

There are three innovative products in the market which offer new capacity and solutions in terms of the coverage of non-damage business interruption:

Threat Solutions : these policies cover lost profits arising from business interruption due to a terrorist threat, a targeted malicious act or a more widespread threat over a given perimeter. They take into account the closure of the premises, the inability to gain access or leave the premises until the situation has returned to normal.

Loss of Attraction Solutions : These policies cover loss of profit resulting from acts of terrorism. These differ from single risk terrorism policies as they take into account the financial losses suffered by companies and businesses which were not physically harmed during the attack.

Active Assailant Solutions : these policies cover loss of profit resulting from business interruption following an attack by a violent person who does not claim to be motivated by political or religious ideology or an attack carried out by employees or clients of the Insured. It takes into account the closure of the premises, the inability to gain access or leave the premises until the situation has returned to normal.


Political Risks Claims2016 and the beginning of 2017 were marked by losses in the political risks market with major non-payment claims in Egypt and India but also by claims related to expropriations in Colombia and Thailand.

Non-exhaustive list of traditional Political Risks claims

Country Year Sector Reason for claim

Brazil 2016 Trading Non-payment under a prepayment contract for a delivery of sugar

India 2015 Trading Non-payment of raw materials

Mozambique 2016 Banking Non-payment by the Finance Ministry

Venezuela 2016 Gas Expropriation of a natural gas company

Indonesia 2015 Banking Inability to export

Marocco 2015 Banking Inability to adhere to a new payment schedule

China 2014 Banking Termination of contract

Mexico 2014 Trading Non-payment

Egypt 2011 Mining Forced abandonment

Regulation improvementIn the United Kingdom, a new law passed by parliament brought about major changes to insurance law in an attempt to make it more equitable for both insured and insurers. This law, known as the 2015 Insurance Act, came into force on August 12, 2016.

Given the importance of the UK market (Lloyd’s of London/insurance companies) in covering political risks, this new law will have to be applied to a large number of policies placed on behalf of French insured and subject to English law.

The 2015 Insurance Act fundamentally altered three aspects of insurance law which had not changed since the Marine Act of 1906. These reforms address the duty of utmost good faith, the role of warranties, and the penalties applicable in cases of fraud.

The effect has been to rebalance the rights of policyholders and insurers.


Terrorism and Political Violence ClaimsIn terms of risks of terrorism and political violence, the number of events has increased in recent years and the nature of these events has changed.

Non-exhaustive list of Political Risks

Country Year Sector Reason for claim

Argentina 2017 EnvironmentBlocking of oil exploration sites, business interruption and protests by the indigenous population

France 2015 - 2017 Public / Private/Place of worship

Terrorist attacks against the military and police in Paris, civilians in Paris and Nice and a priest

UK 2017 Public / Entertainment

Terrorist attacks against civilians in London and Manchester

Russia 2017 Public Transportation

Terrorist attack in a metro station in Saint Petersburg

Belgium 2016 Public Transportation

Zaventum airport and Maalbeek metro station in Brussels

Brazil 2016 Other National day of protest against government policies in November 2016

Ivory Coast 2016 Hotel Attack at the Grand Bassam Beach Resort

Egypt 2016 Energy Attack on a natural gas pipeline in northern Sinai

Indonesia 2016 Retail Terrorist attack in Jakarta in the parking lot of an American consumer brand

Lybia 2016 Oil & Gas Political violence on oil installations

Turkey 2016 Public Transportation Attack on Ataturk airport in Istanbul

Ukraine 2016 Trading Civil war / Political violence in the Donbass region

Mali 2015 Hotel Attack on the Radisson Blu hotel in Bamako

Algeria 2013 Gas Attack on the gas facility in Tigantourine

Kenya 2013 Shopping mall Terrorist attack on the Westgate Mall in Nairobi


General trendThe 2016 data released in Tokyo on September 18, 2017 at the annual conference of the International Union of Marine Insurance (IUMI) showed a fall in global sales of almost 9% compared with 2015, representing premiums of USD 27.5 billion in 2016, compared with USD 30.5 billion in 2015, a year which was also down by 10% compared with 2014.

Underwriters agree that the main reason for this fall was the stronger dollar in 2016, particularly in the Marine market where policies are frequently drafted in the local currency, including the euro.

This fall is also attributable to the drop in commodity prices and to the lean period in the shipping and offshore sectors which resulted in a fall in the insured value of ships estimated at 5.7%.

Although a reduction in rates no longer seems to be on the agenda, according to underwriters this slightly contracting market is not seeing the turnaround it needs to make up the provisions required to cope with major claims.

The significant decline in frequent claims, particularly in Hull insurance, combined with the limited occurrence of large-scale claims to date, has made it possible for the market to reach a certain level of equilibrium.

What developments will we see as a result of the damage to the port of Tianjin in August 2015, the losses resulting from the bankruptcy of Hanjin Shipping in August 2016 and, most recently, hurricanes Harvey, Irma, José and Maria which will certainly have an impact on 2017 ?

Marine08

Europe retains its leading position (a 50% share of the market). It is regressing very slightly, as is the case of most of the other zones with the exception of South-East Asia, whose market share rose by almost 1% in 2016, with a total share of around 28%.

Global capacity seems to have stabilized and we are no longer seeing the emergence of new start-ups, but neither are there any large-scale withdrawals from the market.

According to IUMI members, the South-East Asian market still has latent capacity as they wait for better days to open their underwriting floodgates.

Under these circumstances, any hypothetical recovery in the market may not come from a reduction in capacity but from a sudden worsening of results due to a series of major losses.

Marine and Cargo MarketEvery year, without fail, we witness a turnaround in the market, or at least the onset of an upward trend which appears necessary if we look at the figures produced by IUMI over the past 4 years. 15 years of a soft market, combined with a reduction in the volume of insurable risks, means it is no longer possible to absorb the increasingly frequent large-scale claims (Sandy, Tianjinn, Hanjin, etc.).

Despite the change of rhetoric from most insurers, and their withdrawal from certain sub-segments, the expected turnaround still appears to be far off. Taken individually, insurers, as well as some agents, are seeking greater risk selectivity, the optimization of their share strategy and are placing increasing emphasis on prevention.

This is no longer the time to be seeking growth in turnover but rather a reduction in combined ratios.

In fact, some market leaders have applied this new strategy, carrying out drastic portfolio restructurings or dropping their pro rata rates on certain niche areas to reduce their exposure to sudden increases in the number of claims. Nevertheless, this has not led to any global reaction from the markets to date.

Source : IUMI


From the increase in the number of invitations to tender we can see that the fierce competition within our market is prolonging the soft conditions which can be explained by a number of structural factors :

❙ The French market remains attractive and, above all, very accessible. Delegations of authority to brokers and the drive demonstrated by underwriting agencies make it possible for medium-sized international players to set up in the French market in just a few months.

❙ We therefore find almost all of the major international insurers in the French market. Although the historical actors are withdrawing or trimming their sails, new capacities are emerging and some are setting up with the ambition of gaining a significant share of the market.

❙ Claims distribution is highly mixed. The industrial middle-market segment and some highly specialized niche areas are still profitable and are of interest to marine insurers. However, these insurers cannot afford to apply an overly aggressive ‘pick and choose’ strategy to their business introducers if they want to be allowed access to these profitable markets.

❙ Competition between brokers remains intense despite a trend towards consolidation. Even if traditional investment solutions are no longer possible, there are always fallback solutions, in France or in other markets.

Although it is too early to talk about market recovery, there are signs of a medium-term shift in trend. A flat market could be envisaged, one that would come from a more structured strategic change of direction by insurers :

❙ Today, insurers have their eye on a number of segments; the market is now vigilant when it comes to automobiles, raw materials and storage risks for example. The French market has a large number of players but the number of lead insurers is falling in some segments and some oligopolistic positions which could lead to premium increases or reductions in coverage over time.

❙ The markets are organizing themselves and working together to provide clearer and more standardized responses in respect of some types of coverage, which shows a willingness to take collective action. The Misappropriation clause recently approved by the English market’s JCC, or the Belgian market’s Piracy clause are good examples. The ParisMat initiative (the new brand name for the French market) is clearly in line with this market approach.

❙ The results from the English market in 2016 (106.2% combined ratio in Marine) and the closure of cargo desks in some syndicates are a good indicator of market performance in general. Lloyd’s remains the marine insurance market leader (13.3% of the global market - source IUMI) and the driver of global trends. It should also be borne in mind that many of the continental companies work with London underwriting desks.

At a time when mergers between brokers and companies are on the rise in an attempt to lessen the effects of a depressed market and the lack of organic growth, strategic redirection is becoming increasingly frequent and increasingly merciless. The hard market is not only about price increases. It may be that the first signs will come from the redrafting, no doubt making them more restrictive, of certain coverage extensions deemed to be responsible for the rise in the number of claims in recent years.


Market capacityThere is still over capacity in the French market which was further increased by two new arrivals in 2016 :

❙ Ergo, a subsidiary of the German reinsurer, Munich Re ❙ WeSpecialty, an agency underwriting on behalf of CNA and four Lloyd’s syndicates

Pricing trendThe trend remains bearish with some signs of recovery in certain segments where there have been losses. Overall, the level of premiums has dropped in recent years in the French market (almost 10% in 4 years).

Figures from the French Insurance Federation :

20121.8 %

2013- 2 %

2014- 2 %

2015- 4 %

By comparison, global premiums in the marine market were USD 15.8 billion in 2015, a drop of 9.1% compared with 2014, explained mainly by the strength of the dollar. The French market accounts for 4.5% of the world cargo market (source IUMI).

Coverage improvementThe current competitive environment and the atomicity of the market are driving brokers and insurers to innovate more than ever. As insurance rates have almost reached rock bottom, Risk Managers are now placing more emphasis on servicing but also on innovation in coverage. It is important to remember that the marine market is mature and is based on All-Risks conditions which are already very extensive.

The solutions offered in terms of stock-throughput, financial guarantees (PE, DSU, TDI, LOH) or more specific coverage of insured goods are well entrenched in the market, leaving little room for companies to create new products.

Some insurers have nevertheless found one area for innovation: war risks. This is not, strictly speaking, an innovation, but rather an improvement to existing insurance products in the Political Risks market by extending them to stock-throughput policies covering normal risks.

The strategic withdrawal of CCR from the stock aspect has opened the door to a number of new insurance products from individual insurers (Cogeas, WeSpecialty and Amlin) or groups (Garex)


Loss historyRecent loss history was strongly affected by the explosion at the port of Tianjin which had a global impact on the market in 2014 and 2015. This loss was the most important event in the history of the marine market. Although the impact in terms of claims experience is not easily quantifiable, the collapse of the Korean shipping company Hanjin severely shook the market in 2016 and showed that the theory of “too big to fail” did not apply to the maritime sector.

The French market’s gross claims/premium ratio (Marine excluding aviation) has however remained stable with ratios not exceeding 70% over the last 4 years (source FFA). Nevertheless, margins remain low and the market is finding it more and more difficult to absorb the increasingly frequent surges in the number of major claims.

Global figures (source IUMI) give gross claims/premium ratios in excess of 70% and up to almost 75% for 2013 and 2014, including reserves for the Tianjin claim. Combined market ratios have now consistently exceeded profitability thresholds since 2011, indicating that premium levels are at their lowest.

As for the 2016 fiscal year, which opened at 62%, it is highly probable that in 2018, due to recent climatic events, there will be a sharp worsening of results. In the Asian and Latin American markets, the available data, which is limited to claims which have been settled, makes comparison with other markets and an overall vision of worldwide consolidated results impossible.

Uncertain is how the IUMI marine underwriters describe their market.

InternationalThe rising number of insured persons worldwide presents an increasingly complex challenge for marine insurance companies. Growing protectionism in some parts of the world and the complexity of local regulations on compulsory local insurance (Africa and South America) mean that brokers and insurers must constantly adapt by developing their networks and their integration solutions.

The number of integrated international programs is therefore very much on the rise in the French market and the effective management of international programs is becoming a key issue in the supply of insurance in the marine sector.


Regulation improvement Following on from the previous point, the European, United Nations and US international sanction regimes have had a significant impact on the marine insurance sector.

The sanction regimes are both complex and constantly evolving and are applied differently depending on the company’s origins, their experience in that field and their internal compliance policies.


Hull & PI MarketHull insurance accounts for 25% of total turnover in marine and transport insurance.

With estimated global premiums of USD 7 billion in 2016, this market shrank by 10% compared with the previous year. The total reduction in premiums from 2012 onwards is estimated at -24%. This may seem paradoxical as, in terms of global tonnage, the worldwide fleet has increased by almost 16% over the same period.

It is in fact the decline in ship values (total decline estimated at 37% since 2012) due to overcapacity in the shipping market, which explains this fall in premium levels.

Since 2002, the market trend has been towards better results, with loss ratios on gross premiums fluctuating between 65% and 77%, with the exception of 2006 and 2011 (with the total loss of Costa Concordia). While remaining within this range, we saw a slight increase in claims in 2014 and 2015 although at this stage it is difficult to assess whether this is an underlying trend or an epiphenomenon.

The frequency of individual losses continues to decline and reached 20% probability in 2016 against 35% in 2008. The total loss curve also shows a significant decrease over the past 10 years, with the probability of occurrence estimated at 0.07%. In respect of total losses, the oscillations of the curve between 2010 and 2016, although erratic, may suggest an upward trend.

If that is the case, underwriters suggest this upward trend is the mechanical result of a reduction in values and not a real increase in the number of claims.

The average cost of individual losses is also markedly on the decline and in 2016 was just under USD 40,000.

The market is currently more focused on a variety of other issues rather than its results. Among these issues are Cyber risks and new shipping routes.

The impact of the recent hurricanes on the 2016 and 2017 underwriting years cannot yet be measured but, naturally, there is speculation in the market.


P & IThe International Group (IG) of P&I represents the main mutual associations of shipowners and provides them with ship operators’ liability coverage. It underwrites joint reinsurance programs for the mutual associations. IG members cover approximately 90% of the world’s tonnage. They are mainly English, Scandinavian, Japanese and American.

In his annual report, Hugo Wynn-Williams, Chairman of the International Group of P&I described the financial year 2016 to 2017 in terms of a 4% increase in tonnage covered by the International Group, a reduction in the number and severity of claims, and a fourth consecutive year of significant savings in reinsurance costs, therefore, in terms of results, a positive year.

However, if tonnage covered is actually increasing, the global level of premiums collected is down by 5%. The claims/premium ratio made it possible for the associations to make some concessions towards shipowners who are facing a still challenging freight market, but one where there are some signs of improvement.

With 61% of turnover, the UK is a dominant market for the associations and, following the Brexit vote they are looking at the possibility of setting up new operations outside the UK.

Another area for concern is the possible consequences of the increasingly frequent challenging by national courts of shipowners’ liability limits.

The ruling of the Spanish Supreme Court in 2016 prohibiting the owners of the ‘Prestige’ from setting their liability limits has fuelled concerns.

Offshore Energy Given the reduction in oil and oil-related activities due to rock bottom prices per barrel and following a 20% drop in turnover in 2015, the Offshore Energy insurance market fell by another 21% in 2016.

The correlation between the drop in crude oil prices and the drop in premium inflow is undeniable.

Nevertheless, underwriting results are good with loss-ratios systematically less than 25% over the last three years.

As for Hull insurance, the impact of the recent hurricanes on financial years 2016 and 2017 is not yet measurable, but there is speculation in the market.


our ExpertsY

1Laurent NicoletDirector Motor Fleet Department Member of the Property & Casualty Management [email protected]

5Pascal HerviouDirector Third Party Liability Department Member of the Property & Casualty Management [email protected]

2Philippe OntenienteDirector Construction Department and Energy Member of the Property & Casualty Management [email protected]

6Mickael RobartDirector Financial Risks Department Member of the Property & Casualty Management [email protected]

3Gilles RollandDirector Credit Insurance & Surety [email protected]

7Emmanuelle Biehler-MarghieriDirector Political [email protected]

4Frédéric DurotDirector Property Department Member of the Property & Casualty Management [email protected]

8Pierre DeleplanqueDirector Transport & Specialties Department Member of the Property & Casualty Management [email protected]


Laurent Nicolet Philippe Onteniente Gilles Rolland

Frédéric Durot Pascal Herviou Mickael Robart

Emmanuelle Biehler-Marghieri Pierre Deleplanque

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4 5 6

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SIACI SAINT HONORE has made an ambitious commitment to

forward planning, creativity and digitization

In this report we have seen that the insurance market has only partially responded to the global economic and political situation; the effects on the worldwide insurance market will be strongly felt over the next few years or even decades with an associated ratchet effect.

In a market that remains soft, if more selective, how can we help and support our clients as they negotiate their renewals in 2018 and in years to come?

SIACI SAINT HONORE, with the backing of its majority shareholder ARDIAN, has made an ambitious commitment to forward planning, creativity and digitization. The S2H Property, Casualty & Marine I-LAB has been set up to support development and new thinking and is a real vehicle for this short-term and long-term demand for innovation. One of our aims is to act as a lever in the dynamics of the insurance market and its suitability for the needs of our clients.

Over and above our teams’ day-to-day ability and capacity to challenge existing arrangements during renewal campaigns, SIACI SAINT HONORE represents the interests and concerns of its clients and works to influence the insurance market to:

❙ Change the insurers’ underwriting position by encouraging them to include new types of coverage in their policies and develop new products in response to emerging risks

❙ Adapt their coverage to comply with new European regulations which affect our clients

❙ Develop joint actions involving consultants, insurers, lawyers and brokers with an emphasis on risk assessment

❙ Lift embargos on certain countries where our clients want to develop new markets

Continuing to push the boundaries of insurability of situations which today are classed as corporate risks with a view to their insurability tomorrow.

This equation - the needs of our clients, a laboratory for innovation and the delivery of these new products to the insurance market- is the cornerstone in SIACI SAINT HONORE’s commitment to planning for the challenges of tomorrow.

To complete this equation, SIACI SAINT HONORE is also looking at new ways of delivering expertise to our clients, traditionally the domain of the insurance market.

Mylène Poisson LebelDirector P&C Market

Member of the Property & Casualty Management Committee

he last wordT


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Our strategy is to become the leading independent worldwide

player in the European market providing services to large companies.

SIACI SAINT HONORE, a French group and the European leader in risk management consulting, human resources consulting and insurance brokerage, serving companies worldwide, has undergone significant and continuous growth over the last 10 years.

In 2016, our growth rate was 14% with turnover of € 306 million. Our ambition is to double in size by 2020 and achieve turnover of € 500 million.

We aim to reach this ambitious goal through a combination of internal and external growth, with several targeted acquisitions both in France and abroad including, recently, Cap Marine and Dufaud in France and Alpha Lloyd’s, BDAE group and Ingle International abroad.

Our strategy is to become the leading independent worldwide player in the European market providing services to large companies.

We are already a key player in the top 1,000 French companies with more than 200 international programs managed from Paris and we insure more than 2.5 million people in France and around the world.

We provide a high level of added value to our clients in terms of advice and services with a customized offering covering all of their risks including property & casualty, liability, personal insurance, employee benefits and HR performance.

Our teams work on a daily basis with two major international networks, JLT and Gallagher, to assist and support our clients all over the world. With more than 40% of our workforce working outside France, more than 40 languages spoken and more than 60 nationalities, our group has a strongly international culture.

Hervé HoudardVice Chairman & CEO

Our Group


Group turnover in 2016Breakdown by activity

Property & Casualty and Marine: € 104 million (including € 73 million in Property & Casualty, € 29 million in Marine and € 2 million in Swiss Risk & Care).

Employee benefits and Total rewards: € 135 (including € 84 million in employee benefits, € 15 million in pensions and € 36 million in Swiss Risk & Care).

International employee benefits: € 67 million

Key figures

€ 306 million Group turnover

14% growth on a like-for-like basis for corporate activities

Key player in the top 1,000 French companies

More than 200 international Property, Casualty & Marine programs managed from Paris

More than 2.5 million insured persons in France and around the world

99 % of our portfolio in corporate risks

More than 2,200 employees

International healthcareand life & disability

Protection of assetsand liabilities

Employee benefits and Total rewards

34%22%

44%

Market Position

❙❙ Group life & disability and healthcare

❙❙ Group pensions

❙❙ Construction

❙❙ Marine, logistics and supply chain

❙❙ International mobility

N°1


Key figures International

MOYEN ORIENT

AMÉRIQUEEUROPE

AFRIQUE

ASIE

More than 40 languages spoken more than 60 nationalities

40% of employees working abroad

Subsidiaries in France and AbroadBroker : Alpha Lloyds (Dubai, Abu Dhabi and Saudi Arabia)Jewelry and special risks insurance: Dufaud Assurances (Lyon)Cargo Insurance: SIACI & PARTNERS (Luxembourg and Switzerland)Maritime and Transport : CAP MARINE (Rouen, Nantes and Paris)Insurance and reinsurance captives : 2RS(Risk and Reinsurance Solutions SA) (Luxembourg) Oil & Gas : JLT Energy (France)Insurance intermediary : Swiss Risk & Care (Suisse)Financial risks : Assurance & Capital Partners (Paris)


Design & Production

Naguib Boudjellal | Director Corporate CommunicationsAlexandra Maquenne | Corporate Communications Officer

Communication & Diffusion

Cécile Jeanneau Dirctor Property & Casualty Administration Member of the Property & Casualty Management Committee

E ditor-in-Chief

Aurore Foukissa | Project ManagerP roject Management

Poungody Paranjothi | Graphic Design ManagerElisa Blanchard | Graphic Designer

G raphic Design

Design & Production Note

This Market Report is the intellectual property of SIACI SAINT HONORE. It is confidential and reserved exclusively for internal use.

In accordance with the French law on Data Protection and Freedom of Information of January 6, 1978, amended in 2004, you have the right to access and rectify information relating to you. You can exercise this right by writing to SIACI SAINT HONORE – Legal Department - Season, 39 rue Mstislav Rostropovitch - 75815 Paris Cedex 17.

SIACI SAINT HONORE – Season, 39 rue Mstislav Rostropovitch - 75815 Paris Cedex 17 – Tel: +33 (0)1 4420 9999 – Fax: +33 (0)1 44209500 – Insurance brokerage – Registered with ORIAS under number 07 000 771 – A French Société par actions simplifiée with a capital of 61 057 144 euros – Registered in the French “Registre du Commerce et des Sociétés de Paris” under number 572 059 939 - APE 6622 Z – intra-Community VAT identification number: FR 54 572 059 939.

Season, 39 rue Mstislav Rostropovitch 75815 Paris Cedex 17www.s2hgroup.com

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