For Blackstone, Insurance Is Next Big Push on Route to $1 Trillion Asset Goal

A company whose assets it manages is looking to bulk up by buying blocks of fixed annuities

FN Financial News

Blackstone Group is planning to build its insurance business into a powerhouse as it casts about for new sources of cash in a bid to build a trillion-dollar stockpile of assets.

Blackstone, which already manages around $50bn of fixed-annuity and other insurance assets, has told investors it aims to more than double that over time. The business has the potential to one day become the private-equity firm’s largest, Blackstone executive vice chair Tony James told investors in September.

The effort figures prominently into chief executive Stephen Schwarzman’s goal, set last year, of expanding the investing giant’s assets to $1tn by 2026, up from just over $500bn now. Besides insurance, Blackstone is building businesses to invest in infrastructure, life-sciences and fast-growing companies.

There is no guarantee the firm will be successful. Blackstone’s infrastructure business, for one, has gotten off to a slower start than some expected when it announced plans in 2017 to raise as much as $40bn. Blackstone says it always expected building the infrastructure platform would be a multi-year process and that it has already raised almost $7bn.

At the center of Blackstone’s insurance strategy is life-insurance company FGL Holdings. Formerly known as Fidelity & Guaranty Life, it became one of Blackstone’s biggest clients overnight when a special-purpose acquisition company, or SPAC, in which Blackstone invested bought the firm in late 2017. As part of the deal, Blackstone got the right to manage FGL’s roughly $25bn of assets.

FGL, which is publicly traded, has been undergoing a transformation since then. Helmed by co-executive chairs Chinh Chu, a former Blackstone partner, and insurance veteran William Foley, FGL has been working on boosting its credit rating, upgrading its technology and shaking up management. In December, Blackstone’s then-head of insurance Christopher Blunt became FGL’s chief executive.

Now, FGL is looking to bulk up by buying blocks of fixed annuities, which pay owners a set amount of interest over the life of the contract. Insurers make money by earning more on the money handed over by buyers than they are required to pay out.

Many insurers have struggled to meet earnings targets in the era of low interest rates and have put blocks of fixed annuities up for sale. Asset-management firms have stepped in as buyers, believing they have the investment savvy to make profits with structured securities and other investments that many traditional insurers aren’t as comfortable with.

FGL is in exclusive talks to buy the fixed-annuities book of Allstate in a deal that could be worth around $2bn, and is among bidders for smaller annuities provider Lincoln Benefit Life, which is owned by closely held Resolution Life Group Holdings, according to people familiar with the matter.

The more assets FGL accumulates, whether through acquisitions or by selling new annuities,  the more Blackstone has to invest. Blackstone is also trying to convince insurance companies it doesn’t own to give it more of their assets to manage.

Blackstone puts much of the new insurance money to work in its real-estate debt business and in private-credit funds managed by Blackstone’s credit division, GSO Capital Partners, which had $132.3bn in assets at the end of the first quarter.

Early results have been promising. FGL’s investment yield climbed to 4.64% in 2018 from 4.21% in 2017, while the risk rating on its investments as measured by the National Association of Insurance Commissioners remained the same, according to an April 5 FGL investor presentation.

Critics at rival insurance companies and academics have argued that such vehicles are riskier than they might seem because they often blend riskier pieces of assets like collateralised loan obligations or mortgage-backed securities with safer ones, and that regulators don’t fully understand them. Proponents counter that companies like FGL are more focused on risk management than most US life insurers and are transparent about their assets.

Blackstone is hoping it can replicate the success of Apollo Global Management, which joined with former American International Group. executive James Belardi in 2009 to build what would become Athene Holding.

Fueled by an investment from a publicly traded vehicle Apollo controlled, Athene was able to buy up fixed-annuity assets on the cheap in the aftermath of the financial crisis and sign them over to Apollo to manage. Between the end of 2009 and the first quarter of 2019, Apollo’s credit business grew more than 10-fold to $193.7bn in assets, with nearly 60% of that stemming from its relationship with Athene, which is publicly traded.

At first, few outsiders recognized Athene’s potential as it scooped up smaller chunks of annuities. Blackstone was busy building up its highly successful real-estate business. But after Athene bought the US operations of British insurer Aviva for $1.55bn in 2013, competitors took note.

“Obviously, Apollo did very well with the business,” Blackstone’s James said in an interview. “But we wanted to pursue our own path.”

Blackstone found its opportunity in 2017 when Fidelity & Guaranty terminated a $1.6bn agreement to be acquired by China’s Anbang Insurance Group.

Chu and Foley had formed a SPAC to buy a financial asset and counted a Blackstone fund among its investors. The SPAC paid $1.84bn for F&G, beating out rivals including Athene.

Insurance claims from deadly California fires top $12B

By Kathleen Ronayne

THE ASSOCIATED PRESS

SACRAMENTO, Calif. _ Insurance claims have topped $12 billion for the November wildfires in California, making them the most expensive in state history.

The figure released Wednesday by Insurance Commissioner Ricardo Lara covers the fire that destroyed the town of Paradise and two Southern California blazes.

Most of the damages relate to the Paradise fire, which killed 85 people and destroyed nearly 19,000 buildings.

“While last year’s tragic wildfires turned thousands of people’s lives upside down, insurance is helping to rebuild and recover,” Lara said in a news release during Wildfire Preparedness Week.

California experienced some of its deadliest and most destructive wildfires in its history in 2017 and 2018. A series of sweeping fires in late 2017 had been the most expensive, with claims topping $11.8 billion.

The increasing destruction is making it harder and more costly for people to obtain homeowners insurance.

The insurance department has started collecting data on policy non-renewals to better assess patterns and locations where coverage is being dropped, Lara said earlier this year.

“Wildfire has long been part of California’s landscape, and insurers understand that California faces major wildfire risk,” said Nicole Mahrt-Ganley of the American Property Casualty Insurance Association, which represents about 60 per cent of the nation’s property casualty insurance market.

“Insurers continue to be committed to doing business in California,” she said in a statement noting that California’s market is one of the nation’s largest.

When insurers decline to renew policies, state law requires them to notify customers about other options. The state has a pooled insurance plan of last result known as the “FAIR plan.”

California lawmakers are grappling this year with ways to address the cost and destruction of wildfires.

Pacific Gas & Electric Corp., the state’s largest utility, filed for bankruptcy in January, saying it could not afford potentially tens of billions of dollars in liability costs related to fires.

State law makes utilities financially liable for damages from wildfires caused by their equipment, even if they aren’t found to be negligent.

Organizations identify IP as a top 10 risk, while insurance covers only 16% of $1B in potential losses

Aon plc (NYSE: AON) and the Ponemon Institute released a global 2019 Intangible Assets Financial Statement Impact Comparison Report today that found that property, plant and equipment (PP&E) has 60 percent insurance coverage versus only 16 percent for certain intangible assets. This coverage differential contrasted with the average potential loss to certain intangible assets of $1.08 billion compared with $795 million in losses to PP&E.

“One of our key findings is that threats to a company’s intangible assets are not in proper balance with that company’s insurance protection,” said Lewis Lee, Global Head and CEO of Aon’s IP Solutions. “Understanding how to properly value, exploit and insure intangible assets is exponentially heightened in the digital era. Intangible assets are a Board of Director level issue.”

The study, which is conducted every other year commencing in 2015, surveys more than 2,300 organizations representing different industries and geographies across the globe, targeting individuals involved in their company’s intellectual property, cyber risk and enterprise risk management activities. One of the key tenets of this year’s study was the comparison of insurance coverage for traditional tangible assets (PP&E) to the coverage of intangible assets, including cyber liability, as well as intellectual property such as patents, trade secrets, copyrights, proprietary information and know-how.

Respondents valued intangible assets only slightly higher than PP&E at $1.15 billion and $1.03 billion, respectively. Yet, the 2019 study found that the average potential loss if intangible assets are stolen or destroyed was 36 percent more than if PP&E is damaged or destroyed. However, the 2019 study also revealed an increase of 33 percent in the protection of potential loss of information assets versus an increase of only 9 percent for PP&E between 2015 and 2019. This indicates that organizations have begun to recognize the value of intangible assets as well as the significant risks surrounding loss of those assets — and that they are working to increase the protection of intangible assets.

“While few companies have trade secret theft insurance policies or patent liability policies, organizations, by better understanding intangible versus tangible asset coverage, are better equipped to make informed decisions regarding strategy, valuation and risk transfer with respect to IP and other intangible assets,” added Lee. “Aon’s Intellectual Property Solutions group has developed quantifiable analytics and modeling that may increase the market cap of organizations while informing suggested limits and scope of intellectual property insurance coverage.”

Noteworthy findings:

  • Twenty-eight percent of respondents reported that their company experienced a material IP event in the past two years.
    • Most incidents involved infringements of, or challenges to, the company’s IP (69 percent) or the company’s alleged infringement of third-party IP (31 percent). Most of these incidents involved trade secrets (42 percent), copyrights (26 percent) and patents (24 percent).
  • More than one-third of respondents believe no disclosure of a material loss to information assets is required.
    • Forty-four percent of respondents say their company would disclose a material loss to PP&E or information assets that is not covered by insurance as a footnote disclosure in the financial statement.
  • As a complement to a cyber risk policy, few companies have a trade secret theft insurance policy and/or a patent infringement liability policy.
    • Only 24 percent of respondents say they have a trade secret theft insurance policy and a similar percentage of respondents (30 percent) have an intellectual property liability policy. However, there is significant interest in purchasing such policies.
  • Of the 37 percent of respondents who say their policy covers a challenge to their company’s IP assets, 34 percent say the policy covers third-party infringement of their company’s IP assets and 33 percent say it covers an allegation that their company is infringing third-party IP rights. More than one-third of respondents say the policy does not cover IP events.

Methodology: There were 2,348 survey respondents from North America, Europe, the Middle East, Africa, Asia Pacific, Japan and Latin America –most involved in their company’s intellectual property, cyber risk management and/or enterprise risk management activities.

About Aon
Aon plc (NYSE:AON) Aon is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.

Follow Aon on Twitter and LinkedIn 
Stay up to date by visiting the Aon Newsroom and hear from our expert advisors in The One Brief.

Media Contact:
Matt Taylor, 312.783.5837, matt.taylor@aon.com

SOURCE Aon plc

Tesla Says a Fix for Insurance is Weeks Away

The excerpted article was written by Ty McMahan

Telsa Motors Club

Tesla is on the verge of launching its own insurance product for Tesla owners that Chief Executive Elon Musk says will be “much more compelling than anything else out there.”

A study from 2017 suggested that Tesla owners pay higher than average premiums due to higher-than-average claim rates and repair costs. Tesla challenged the study’s accuracy. Still, Musk has challenged insurers to offer more incentives for Tesla owners. To that end, Tesla has launched its own branded insurance programs, underwritten by insurers in the U.S., Canada, Australia and Hong Kong.

Tesla’s new insurance product in the U.S. could launch in a matter of weeks.

A Premium Problem

The insurance industry hasn’t been particularly kind to Tesla. Musk has previously taken issue with the insurance industry’s handling of Tesla vehicles, like insurer AAA raising rates on Tesla vehicles in some markets, citing high claim frequencies and costs. Owners have steadily complained about premium prices for their high-priced electric vehicles. To attempt to offer owners some relief, Tesla partnered in 2017 with Liberty Mutual Insurance for plans specifically designed for its electric cars.

Still, rates received public criticism.

“What’s the point of ‘insure my Tesla’ through Liberty Mutual if their rates are almost double all their competitors?” a Twitter user asked Musk.

“Looking into this,” Musk replied. “Will fix if so.”

Tens months later, it seems Musk has his fix ready with a foray into selling Tesla’s own auto insurance product.

The Tesla Private Passenger Auto Program

filing with the California Department of Insurance says Tesla’s new offering will be fronted by State National Insurance Company, Inc.

The Tesla Private Passenger Auto program will offer “…private insurance policies for autos with Advanced Driver Assistance Systems (ADAS) in the State of California.’”

The filing was approved by the agency on April 9.

It Pays to Autopilot

A notable feature of Tesla’s insurance plan is the possibility of discounts for drivers using Autopilot. “Vehicles equipped with an autonomous feature option will be eligible for credits based on the level of autonomy of the vehicle,” according to the filing.

So, the less the human drives, the less they pay for insurance.

Tesla’s filing with the state of California includes a document on a “Proposed Autonomous Vehicle Protection Package Premium” that provides coverage when car is being driven by autopilot rather than driver. “The exposure for autopilot level 0 is the base in the policy, which means there are no autonomous features on the car,” the document says. “It is assumed that the expected loss cost will not increase, but decrease using autonomous driver assist safety features, and the existing loss cost will shift from existing driver liability coverages to autonomous vehicle owner liability, so no additional exposure or premium is assumed for autonomous vehicle owners liability coverage.”

Other plans have also given discounts for Autopilot.

Britain’s largest motor insurer Direct Line said in December 2017 it would offer Tesla drivers in Britain a 5 percent discount for using Autopilot.

“At present the driver is firmly in charge so it’s just like insuring other cars, but it does offer Direct Line a great opportunity to learn and prepare for the future,” said Dan Freedman, Head of Motor Development at Direct Line, said in a release.

A U.S.-based start-up insurance company called Root announced a similar offer in 2017. A company blog post said:

Why a discount for Tesla cars? It’s simple: they crash less. According to a recent report from the National Highway Traffic Safety Administration, the crash rate of Tesla vehicles plummeted almost 40% after Autosteer (Tesla’s “self-driving” software) became available.

A 40% decrease. That’s significant. Root believes that falling crash rates means the car insurance industry should adjust rates in response.

Tesla’s Q1 2019 Vehicle Safety Report said its vehicles were involved in one accident per 2.87 million miles driven on Autopilot, compared to one accident every 1.76 million miles driven in Q1 without the feature.

“By comparison, NHTSA’s most recent data shows that in the United States there is an automobile crash every 436,000 miles,” the Q1 report said.

Tesla started releasing safety data in 2018 to give consumers more insight into the performance of its self-driving system.

And, speaking of data, Tesla intends to use a load of it to monitor drivers using its insurance product.

Crazy Driver Profiles

In its filing for Tesla, State National explains how the program leverages Tesla technology to benefit the customer.

“The purpose of the product is to use Tesla’s proprietary technology to lower costs and improve the customer experience by embedded technology to support the underwriting, rating, claims, repair, and product manufacturing network, including direct data feeds with customer permission, when required, that eliminate frictional costs and inefficiencies inherent in traditional insurance processes,” the filing says.

The technology enables State National to pass “the savings yielded directly to the customer while simultaneously improving the customer service experience.”

“The use of vehicle and consumer data, with the consumer’s affirmative consent, will allow for lower costs to acquire and service the policyholder,” the filing says. “Additionally, data from the vehicle, when in the autonomous mode will decrease the frequency and severity of collision claims for Tesla owners. This will afford State National the opportunity to offer the consumer a lower cost insurance product based on these decreased collision costs.”

Speaking about the insurance product during Teslas recent earnings call, Musk acknowledged that Tesla has “direct knowledge of the risk profile of customers based on the car,” creating an “arbitrage opportunity” based on the customer risk profile.

Musk said Tesla insurance customers “have to agree to not drive the car in a crazy way,” or, “they can, but then the insurance rate is higher.”

Your Pregnancy App May Be Selling Your Data – to Your Boss

Rachel Wells | Glamour

Tracking health data has gotten intimate. Thanks to the booming femtech industry, there are now dozens of fertility and pregnancy apps like Ovia, which give moms-to-be an easy way to input daily health updates during their pregnancy journeys. The apps, featuring colors like purple and blue, create a fun and welcoming environment to track women’s most personal data—sexual activity, menstrual cycles, fertility, pregnancy symptoms, dates for delivery, and even pregnancy loss—in a free, user-friendly mobile app. The idea that these apps might be selling your data isn’t new. But what if your data wasn’t going to some third-party advertiser but rather someone much closer to you—like your boss?

Earlier this week The Washington Post reported that Ovia Health, the parent company behind apps for fertility, pregnancy, and parenting, is selling users’ data to their employers. The Post spoke with Diana Diller, a 39-year-old event planner in Los Angeles who was using Ovia during her pregnancy to log daily activity such as bodily functions and sex drive. Her employer, Activision Blizzard, a video game company, was following along.

Activation Blizzard is part of a program offered by Ovia Health where employers can pay to offer employees a special version of the app as an employee benefit. The catch? The company gains access to the aggregated, anonymized data shared by its employees. Milt Ezzard, vice president of global benefits for Activision Blizzard, told the Post that offering “pregnancy programs such as Ovia help the company keep skilled women.” But experts worry employers could use the information to increase or decrease health coverage depending on what they see in the data. There’s also the fear that companies could use incredibly intimate details like whether or not a woman was having premature birth or suffering a miscarriage in order to make business decisions. “The health information is sensitive but could also play a critical role in boosting women’s well-being and companies’ bottom lines,” Paris Wallace, chief executive of Ovia Health told the Post, pointing to rising rates of premature birth and maternal death as the reasons they want to sell this information to employers.

“It feels like a very big breach of privacy,” says Brianna Bell, 29, a writer based in Guelph, Ontario. “It makes me feel uncomfortable, and it feels like this company has preyed on women who are in the most exciting and vulnerable time of their life.” Bell used Ovia’s pregnancy and parenting apps for 18 months without knowing the company could sell her information. (Ovia’s consumer apps—the free-to-download Ovia Fertility, Ovia Pregnancy, and Ovia Parenting—“do not share any data with employers,” a representative of the company said in a statement provided to Glamour. But the apps’ terms of service do state that by agreeing to use the product, users grant Ovia the right to “utilize and exploit” their anonymous personal data for research, marketing purposes, or sale to third parties.)

The idea of your data—even if it has been stripped of your name—floating around out there for use is unsettling. But is there really anything to worry about? Users need to opt in to Ovia’s employer programs like the one offered by Activation Blizzard, according to the company, and of course, you can always choose not to input certain data. “An employer then only receives population-level data once a certain threshold of users has been reached,” Ovia told Glamour, adding that the app’s makers work only with large companies to reduce the risk of a specific pregnant woman being identified in the office. “We are not reporting personal, intimate information like cycle data or pregnancy symptoms to employers,” the company says.

But that’s not much of a comfort to many women. “It seems as though nowadays anyone can find any information they want on someone even if we think we’re in control of our data,” says Raz Pele, 30, who used Ovia’s fertility app for two years and the pregnancy app for six months, tracking information like her ovulation cycle and the dates of her period. Even with the limited information she put into the app, she isn’t comfortable with the idea of her employer, a large commercial real estate advisory firm, viewing it.

AXIS Re Names Andy Hottinger as President of EMEA LatAM

AXIS Re, the reinsurance business segment of AXIS Capital Holdings Limited (“AXIS Capital”) (NYSE:AXS), today announced the appointment of Andy Hottinger as President of its EMEA LatAm division. Mr. Hottinger succeeds longtime AXIS Re colleague and EMEA LatAm President Jan Ekberg, who will retire in July following a 45-year career in the (re)insurance industry, which has included 15 years at AXIS.

“Jan has played a significant role in helping our reinsurance business grow from a start-up into a global player. Jan is a talented leader and a consummate professional, and he will always be a part of our family at AXIS.

In his new role, Mr. Hottinger will be part of the Company’s Reinsurance Leadership Team and will report directly to AXIS Re CEO Steve Arora.

“Andy has a deep understanding of our company’s strategy and values, as well as opportunities for future growth. He is a respected leader who has continually delivered high-quality results. His mix of technical expertise and people leadership skills will serve AXIS Re well as he assumes leadership of our important EMEA and LatAm reinsurance business. I look forward to working more closely with Andy as he joins the Reinsurance Leadership Team to help advance our ambition of achieving a leadership position in the global reinsurance market,” said Mr. Arora.

Mr. Hottinger has held a number of underwriting managerial roles within AXIS Re, most recently serving as Head of Property EMEA and, prior to that, Head of Engineering and Property Risk. He will be formally appointed to his new role on July 1, 2019, following Mr. Ekberg’s retirement.

“On behalf of all of AXIS, we are grateful to Jan for his tremendous contributions to our Company,” said Albert Benchimol, President and CEO of AXIS Capital. “Jan has played a significant role in helping our reinsurance business grow from a start-up into a global player. Jan is a talented leader and a consummate professional, and he will always be a part of our family at AXIS.”

About AXIS Capital

AXIS Capital, through its operating subsidiaries, is a global provider of specialty lines insurance and treaty reinsurance with shareholders’ equity at December 31, 2018, of $5 billion and locations in Bermuda, the United States, Europe, Singapore, Middle East, Canada and Latin America. Its operating subsidiaries have been assigned a rating of “A+” (“Strong”) by Standard & Poor’s and “A+” (“Superior”) by A.M. Best. For more information about AXIS Capital, visit our website at www.axiscapital.com. Follow AXIS Capital on LinkedIn and Twitter.

About AXIS Re

AXIS Re – a business segment of AXIS Capital Holdings Limited (NYSE:AXS) – provides reinsurance to insurance companies on a worldwide basis, comprising catastrophe, property, professional lines, credit and surety, motor, general liability, engineering, marine, workers’ compensation, agriculture, and accident and health, as well as other highly specialized risk-transfer solutions. For more information about AXIS Re, please visit www.axiscapital.com/reinsurance.

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