100,000 The number of new jobs created over the next 10 years as a result of the Part 107 new U.S. drone regulations. (Source: Insurance Journal, “U.S. Issues Final Commercial Drone Regulations," June 22, 2016).
7 billion Claims, in U.S. dollars, caused by global disasters during May 2016, following wildfires, floods, and storms. (Source: Global Catastrophe Recap, May 2016, Aon Benefield, Analytics, Impact Forecasting).
1.43 million Acres of land charred by Canada’s Horse Creek Fire in the Canadian city of Fort McMurray. (Source: Global Catastrophe Recap, May 2016, Aon Benefield, Analytics, Impact Forecasting).
3.1 billion Insured losses, in U.S. dollars, due to the Horse Creek Fire at Fort McMurray, including both physical damage and business interruption losses. (Source: Global Catastrophe Recap, May 2016, Aon Benefield, Analytics, Impact Forecasting).
IN now and trending
US drone regulations. It’s neither a bird, nor a plane. In a June 21, 2016 FAA News report, the Federal Aviation Administration summarized the first operational rules for the routine commercial use of drones, known as Part 107. Part 107 compiles safety regulations for unmanned aircraft drones weighing less than 55 pounds for non-hobbyist operations. Pursuant to the regulations, pilots must keep drones within visual line of sight; and operate them during daylight hours, or, during twilight if the drone has anti-collision lights. The FAA states that the provisions are “designed to minimize risks to other aircraft and people and property on the ground.” Click here read the full article.
Brexit. The UK’s “it’s-not-you-it’s-me” breakup delivery to the EU. How and to what extent will the irreconcilable differences between the UK and EU impact the global and U.S. insurance markets. Many U.S. insurers rely on EU reinsurers. Where the reinsurers suffer a financial setback, some analysts predict that the amount of risk insurers are willing to underwrite overall will decrease. Other primary concerns for the insurance sector are: whether UK insurers will still be governed by the EU’s insurance directive Solvency II; and whether the UK will broker a deal to remain in the internal market of the wider European Economic Area (EEA) to preserve UK firms’ “passporting” privileges throughout Europe.
Solvency II. The EU insurance regulatory regime that only recently became effective on January 1, 2016, to establish a framework for harmonized solvency and supervision for the insurance sector throughout the EU. As an EU legislative program, it codifies and syncs EU insurance regulations across member states, including governing standards for 1) valuation of assets/liabilities and capital requirements (to reduce the risk of insolvency); 2) governance and risk management; and 3) reporting and disclosure. Solvency II applies to all EU insurers and reinsurers, with some exceptions.
Until the UK formally leaves the EU, EU law continues to apply to the UK. As a result, for now, UK insurers continue to be bound by Solvency II, though uncertainty remains as to whether the UK will remain bound by Solvency II after the UK’s formal departure from the EU. According to the Association of British Insurers, which covers 90 percent of the UK insurance market, firms have invested £3bn in the Solvency II directive. As a result, many UK insurance leaders believe that Solvency II will remain applicable to the UK given the significant amount of resources and efforts invested in the regulation, which also is imbedded in UK law. There are other industry leaders who are of the opinion that British-based insurers may benefit remaining outside of the EU and no longer governed by Solvency II, citing the high costs associated with Solvency II’s implementation and that its capital rules damage competitiveness, limiting the industry’s ability to expand. (Sources: The Actuary and The Telegraph, see also The Association of British Insurers).
Passporting. When a foreign financial firm gains access to the internal market of the wider European Economic Area (EEA) by establishing a UK presence and using a UK license as a European passport. If the UK does not secure an agreement to stay within the internal market of the EEA, the UK stands to lose those passporting rights enjoyed by many insurers based, or with operations, in the UK.
Essentially, the internal market has an underlying network of Directives and Regulations (i.e., Solvency II, noted above) that permit access to other EEA member states if a firm has a license in one member state. Again, one of the most important directives for financial services is the Insurance and Reinsurance Directive, Solvency II, for insurance. An increasing number of companies in the insurance industry have relocated significant portions of their operations from the United States to the UK. In light of Brexit, these companies could lose the ability to “passport” services into Europe, as they have been able to do when the UK was an EU member. Without passporting capabilities, operational costs could significantly increase, which could lead to companies relocate outside of the UK and into the EU.
Both Aon and AIG have recently commented on their respective considerations of establishing operations centers beyond the UK, as a result of the vote. Aon Plc Chief Executive Officer Greg Case, who relocated the insurance broker to London from Chicago four years ago, recently explained that “[t]he UK has been at the center of insurance and risk management since maritime trade and shipping was insured at Lloyd’s in the City of London more than 325 years ago, … Leaving the EU jeopardizes the UK’s leading position in the epicenter of our global service economy.” Australian and global insurance group QBE has also warned that it may have to revise its approach to its insurance and reinsurance premiums sourced from the EU member countries and underwritten by UK regulated entitles under the EU passporting rules. To read the full article, click here.
The June 20, 2016 short-lived Tropical Storm Danielle placed the 2016 hurricane season two months ahead of schedule, raising the question of whether the early activity could signal a busy hurricane season. According to the experts, however, this early activity does not lend itself to a more active season. Specifically, out of 18 “head start hurricane seasons” (seasons that had tropical storms or hurricanes before June 1) since 1950, eight were below-average hurricane seasons; 10 were above-average hurricane seasons; and six of those seasons were near-average. Notably, none of those headstart hurricane seasons were “super seasons” like experienced in 2004 and 2005. Click here for the full article.
Severe weather in early May in the Plains, portions of the Midwest, and the Mississippi Valley total economic losses estimated at USD 575 million. (Source: Global Catastrophe Recap, May 2016, Aon Benefield, Analytics, Impact Forecasting)
- Canada’s Horse Creek Fire in Fort McMurray is set to become costliest disaster in Canada’s history. (Source: Global Catastrophe Recap, May 2016, Aon Benefield, Analytics, Impact Forecasting).
- West Virginia’s worst flooding in over a century has killed 24 people and is the highest death toll from flooding among any U.S. state this year. West Virginia received one-quarter of its annual rainfall in a single day, causing rivers to rise to dangerous levels and resulting in widespread devastation. The state of emergency has expanded to 44 counties. (Sources Reuters and Weather.com).