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INSURANCE NEWS FLASH November 29, 2013

Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ................................................................................................................................. 9 Technology .......................................................................................................................... 13 Strategy .............................................................................................................................. 25

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Sales & Marketing PT Asuransi Allianz in Indonesia microinsurance push November 28, 2013| Insurance Insights PT Asuransi Allianz Life Indonesia has launched life, house and health products targeted at low income families. The products are expected to generate 70bn rupees in total insurance premiums in 2013 according to the Jakarta Post. Allianz Life Indonesia vice president director Handojo G. Kusuma said: "We plan to sell the three new products through various micro-economic agencies [LKM] throughout Indonesia." Selling the products in minimarkets is also under consideration.

Vacant Property’s Environmental Risks November 27, 2013| Property Casualty 360 As America’s real estate crisis recovers along with our economy, more than 14 million properties remain vacant or abandoned across the country. Real estate is considered a vacant property when it is not currently occupied or in use. This includes empty lots as well as structures. Cities like Detroit, Cleveland and Las Vegas are dealing with thousands of undeveloped lots, empty houses and even entire neighborhoods, as well as commercial, retail and industrial properties. This has resulted in an increase in crime and lower property values for surrounding areas. Local communities left to care for these properties by default do not have the time or resources to keep the properties in good condition, thus causing an increase in exposure to risks like vandalism, fire, theft and water damage. In turn, these risks hinder the possibility of resale and revitalization in the future as economic conditions continue to improve, leading to possible setbacks throughout our communities. Several environmental risks are associated with all types of vacant properties. Older buildings may have existing asbestos insulation and tiles, as well as lead paint and lead piping. All buildings constructed before 1980 have the potential to contain both asbestos-containing materials and leadbased paint. Leaking heating oil tanks, pipes and appliances are prevalent, as well as any chemicals or lubricants stored on premises in garages or sheds.

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Unknown underground storage tanks may exist onsite as well. Underground storage tanks that are not maintained regularly cause soil and groundwater contamination at the subject property itself as well as surrounding real estate. Retail shopping centers or commercial office buildings that have housed dry cleaners, printers, or restaurants have serious concerns pertaining to the improper storage and disposal of chemicals, inks, dyes and grease/oils. Poor maintenance, concrete cracks, dilapidated roofing, clogged sewer pipes and broken sprinkler systems can result in water intrusion and mold growth. Mold grows rapidly in warm and moist environments—bathrooms, basements, under carpeting, inside walls and HVAC ducts—and easily can spread throughout a commercial, retail or residential structure, impacting others. Weather-related events such as flash flooding exacerbate indoor water and mold issues, and cause excessive surface water and silt runoff affecting neighboring properties or waterways such as ponds, streams or rivers. Should a waterway become impacted, not only is the quality of water at risk, it threatens plant and animal life as well. Vacant buildings and land are attractive locations to illegally dispose of hazardous waste, drums and containers—a practice commonly called “midnight dumping.” The drums and containers are almost never appropriate to properly contain the waste and the contents are easily released onto the property. Criminal activity at abandoned sites is a major concern. Criminals establish illegal methamphetamine labs in abandoned properties, with the remnants left behind after they move on. These residual materials cause widespread contamination to a facility and can cost thousands of dollars to restore the property back to its previous condition. Often city officials are unsure who is legally responsible for dealing with these environmental hazards. If the property owners can be tracked down, they may be held liable. Banks taking over properties via foreclosure and local municipalities are left with figuring out how to deal with these issues. Some local organizations even attempt adverse possession in hopes of improving their declining neighborhoods. Adjacent property owners or additional on-site tenants also are affected by contamination stemming from a vacant property. Mold growth easily spreads between units. Leaks, toxic fumes and mold can devastate innocent landowners. Generally, environmental issues are excluded from most general liability or property insurance policies, including defense costs. So property owners, cities and financial institutions that did not cause a problem may still have to defend themselves from suits that could arise from the threat of contamination. Owners also must spend the time and money to figure out the source of the contamination, then implement a solution that can sometimes take many years to complete. Environmental insurance policies can be an effective tool for concerned parties to manage the risks while protecting their assets as the real estate market recovers.

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Many city officials are moving forward with redevelopment plans, which include the demolition and removal of abandoned structures. The contractors hired to perform the work will come into contact with many of these environmental exposures during the course of debris removal, site preparation, demolition, grading, landscaping, and other activities. A contractors’ pollution liability (CPL) insurance policy protects contractors if a pollution condition occurs as a result of their work or work performed on their behalf (i.e., subcontractors). Defense costs are also covered under this type of policy. For example, if a demolition contractor causes a release of asbestos fibers, causing unsafe air quality conditions, an injured third party could sue. An excavation contractor could unknowingly unearth an abandoned storage tank and puncture it, causing a leak and subsequent damage to a neighboring property. Contractors do have options available to them to adequately protect themselves from any resulting claims or lawsuits, as a CPL policy provides protection for both ongoing and completed operations after the contractor has finished work on the project. Coverage can be purchased on a claims-made or occurrence basis and be tailored for specific projects/contracts. A CPL policy addresses potential contaminants such as asbestos, lead, silica and mold. Additional features of a CPL program may include coverage for over-the-road spills during transit and disposal of waste at a non-owned location, such as a landfill. Limits of liability generally start at $500,000 and can go upward to $50 million. Environmental insurance also exists for the property owner or manager, including banks or other financial institutions that have taken over vacant properties via foreclosure. Occupied buildings have various environmental exposures, but empty structures with no supervision or maintenance can turn a small issue into a multi-million-dollar remediation project. Site pollution, or pollution legal liability, is a policy crafted to cover both third- and first-party claims, including defense costs, resulting from pollution conditions at, on, under, or emanating from scheduled locations (in this instance, vacant properties). Variations of this policy include secured creditor environmental insurance and lender liability, which protect financial institutions and borrowers throughout the buying and selling process. Many policies are crafted especially for commercial property portfolios, and there is no exclusion for vacant properties. These policies can be tailored to cover environmental hazards including mold, storage tanks, transportation pollution, illicit abandonment, in-place asbestos and lead, soil/groundwater contamination, air and noise pollution, and waste disposal to non-owned locations. Business interruption image restoration may also be purchased and some policies today even assist with green standards compliance. Most policies include coverage for natural resources damages within the policy form itself. Coverage is written on a claims-made basis and policy terms generally vary from 1 to 10 years in length. Policy terms can be built to fit the needs of the specific property owner, lender requirements and the risks associated with that particular location. Much like the CPL policy, liability limits can range from $500,000 to beyond $50 million, depending on the complexity of the property schedule and any transactional requirements.

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Vacant properties will remain a large part of real estate landscape for the next several years. Focusing on the potential issue now will lend to a more successful outcome as our economy continues to recover. When at al

Ace boosts export cover for mid-market European firms November 27, 2013 | Insurance Insights Ace Group has expanded its liability insurance proposition in response to increasing numbers of European middle-market companies exporting into emerging economies. Dubbed, Ace Global Export Protection, the product is designed to provide tailored and flexible export liability coverage for companies that supply products from their manufacturing locations in Continental Europe, including Central and Eastern Europe. Cover is available for businesses with revenues of under and up to â‚Ź1bn, and for selected larger companies on a case-by-case basis. Ace's export liability offering has been designed to meet the needs of a wide variety of industries, including heavy and light manufacturing, food and drink, and consumer goods. As well as 24/7 emergency assistance in the event of an alleged export product incident, ACE Global Export Protection provides a pre-event risk management advice service, enabling companies to have pre-incident discussions with expert risk consultants that can change operational behaviours and help to produce effective crisis plans . Key benefits of Ace Global Export Protection include: Worldwide jurisdiction protection, vendors indemnity cover, and catastrophe management cover. Limits of up to â‚Ź100m are available and there is no percentage limit on turnover for US products. Coverage is available on either an occurrence or claims-made basis. Ace plans to launch country-specific offerings, tailored for each of its key markets in Continental Europe. Jeff Moghrabi, president, continental Europe at Ace, said: "Many middle-market businesses across Continental Europe are expanding their export footprint in the search for revenue growth. However with the many opportunities come risks. "Ace Global Export Protection has been designed to help exporters capitalise on the opportunities while navigating the liabilities with confidence, wherever they do business."

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Connie Germano, regional technical manager, casualty, at Ace in Continental Europe, said: "Ace Global Export Protection is an innovative proposition that combines risk transfer with the strategic risk management counsel and crisis support that many middle-market companies seek when expanding overseas. Bringing the global casualty experience of our underwriting teams together with the expertise of our risk engineers and external consultants red24assist, it underlines our commitment to supporting the casualty needs of Europe's expanding middle-market companies."

AIG rolls out broker trading platform in mainland Europe November 25, 2013 | Insurance Insights AIG is rolling out an e-trading product for brokers across five European countries following the launch of the platform in the insurer’s UK and Ireland businesses earlier this year. Through the platform brokers will be able to process quotes, bind new business and make mid-term changes and renewals in real-time. The service will be launched initially in Sweden, Denmark, Belgium and Luxembourg and business will be traded in Danish, Swedish, French and Dutch. It will be launched in Spain in February 2014. The first three products to be traded on the platform are professional indemnity, directors and officers and group personal accident and travel insurance. Amy Wilson, AIG Europe corporate accounts head, said; “Following the highly successful roll-out of the platform in the UK and Ireland, we are increasing our investment in online trading. Helping brokers to improve their bottom line is the core of our value proposition, and providing them with a more efficient trading mechanism which improves service and reduces their costs is just one way we demonstrate this.” “In terms of the local markets, the client documentation will be produced in the local language and will meet country-specific legal requirements. We will be working hard with our broker partners in each country to make a systemic change to the existing business model,” Wilson said.

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Marsh: Most Construction Insurance Lines Firming November 18, 2013 | Property Casualty 360 U.S. construction firms on average paid more for their insurance in the first half of 2013 as underwriters continue to seek price increases across the breadth of their contractor portfolios, according to a report published by Marsh. Pricing for contractors general liability, project-specific general liability, umbrella and excess liability, workers’ compensation, and residential construction insurance was up between 3 percent and 7 percent on average during the first half of the year, according to Marsh’s Construction Market Update—First Half 2013. Construction firms with poor loss histories were more likely in general to have seen double-digit rate increases. Pricing for non-residential construction, and contractors and architects and engineers professional liability insurance also was up on average during the first half of the year, but to a lesser degree. “US construction firms are grappling with a firming insurance market, especially when it comes to liability insurance where underwriters continue to tighten coverage terms and seek rate increases to make up for reduced investment income,” said Michael Anderson, leader of Marsh’s US Construction Practice. “With a zero interest rate environment, there is no cushion against a poor underwriting decision.” According to Marsh’s report, not all construction lines are experiencing rate increases. Premium rates for builders risk insurance generally remained flat during the first half of the year despite more demand for coverage. Similarly, contractors pollution liability rates remained generally flat to down 5 percent. “While underwriters are attempting to gain rate increases, the market is awash in capital and new entrants are helping to maintain competition. The good news for well-managed construction firms is they can still generally find competitive pricing and terms,” Anderson said.

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Finance S&P Puts Generali, 2 Others, on Credit Watch Negative November 26, 2013 | Property Casualty 360 MILAN, (Reuters) - Standard & Poor's placed Europe's third-biggest insurer Generali on credit watch negative on Tuesday, pending an examination of its sovereign exposure, the ratings agency said. The agency also put Poland's Powszechny Zaklad Ubezpieczen and South Africa's Santam on credit watch negative as they await the same test. Standard & Poor's said it was conducting its own stress test on the insurers' sovereign exposure. "Our preliminary analysis of their domestic assets' exposure indicates that they might not pass the stress test," Standard & Poor's said in a statement. The three insurers are currently rated by the agency above the foreign currency rating of their respective countries. Generali and Santam carry "A-" ratings, while Powszechny has an "A" rating.

Global Insurers Regain M&A Appetite, Towers Watson Reports November 26, 2013 | Property Casualty 360 Global insurers continue to warm up to mergers and acquisitions (M&A) as a significant component of their overall growth strategies. That's what Towers Watson concluded after polling hundreds of senior insurance executives about their M&A plans and proclivities in the next few years. Working in conjunction with Mergermarket, the global firm surveyed more than 250 executives representing life, property & casualty (P&C) and composite insurers from around the world. Of those surveyed, nearly three-quarters—or 73 percent—said their companies were planning M&A transactions over the next three years. This compares to 44 percent who said their companies completed a transaction in the last three years. Similarly, more than three-quarters—or 77 percent—said they foresee an increase in insurance M&A in the next one to three years. Last Year's Global M&A Deals

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This outlook is borne out by recent trends, which have already seen an uptick in insurance M&A activity, Towers Watson says. The value of global insurance M&A deals in 2012 was the second highest seen in the last eight years. In the first half of 2013, the value of deals completed was 44 percent higher than during the same period last year. Following the release of survey results, Jack Gibson, Towers Watson’s global lead for insurance M&A, alluded to a number of transformational deals in the U.S. life insurance sector that have happened in the recent past. Still other insurers have either "exited or entered the U.S. as a way to alter their geographic diversification," he says. Meanwhile, valuation gaps remain a central challenge to the market, Towers Watson notes. Acquirers are seeking a global average of about 15-percent return on capital, ranging from approximately 14 percent for deals in western Europe and the Americas, to roughly 17 percent in Africa and the Middle East. Further pressure on valuations may come from the fact that only a fifth of respondents said they plan to divest operations in the next three years, compared to 34 percent that have completed one or more divestments in the past three years. “If you combine fewer plans for companies to divest with an increased appetite for acquisitions, we could see the possible reemergence of a seller’s market driving competition for assets, which would reduce target returns and raise valuations,” Gibson adds. Many companies display a regional “home bias” for where they are likely to target their M&A activity, but there is universal agreement that the Asia Pacific region provides the most attractive opportunities over the next three years, while North America rated second least attractive. Despite the fact that western Europe was rated at the bottom of the regional attractiveness league, Towers Watson notes that 55 percent of respondents said Solvency II would promote acquisitions because of reasons, such as restructuring and capturing diversification benefits. “There should be cautious optimism surrounding the insurance sector and related M&A across North America," Gibson concludes. "Deal making is being driven by consolidation as a response to depressed premiums and more stringent capital requirements. This push[es] firms to expand product areas in order to diversify risk and maximize return on capital." The principal drivers for M&A activity vary among insurer type. For instance, p&c insurers, composite and reinsurance firms aim to expand into new territories and business segments to enable growth, whereas life insurance respondents rated general economies of scale as the most important influence on deals.

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Hellman & Friedman to Buy Applied Systems from Bain Capital for $1.8B November 26, 2013 | Property Casualty 360 (Reuters) - Private equity firm Hellman & Friedman has struck a deal to buy insurance software provider Applied Systems from Bain Capital for $1.8 billion, H&F said on Tuesday. JMI Equity, a private equity firm focused on building software and technology-enabled services businesses, will be investing alongside H&F, it said, without giving details. The transaction is expected to be completed in early 2014. Under the terms of the agreement, members of Applied Systems' senior management will maintain a significant ownership position in the company, H&F said. Reuters reported on Monday that Bain was in talks to sell the company and that a deal could be sealed this week. Applied Systems, founded in 1983, sells its software to insurance agencies and brokerages. Bain acquired the University Park, Illinois-based company from Vista Equity Partners LLC in 2006 for an undisclosed price. "We believe Applied Systems is a uniquely positioned company in the global insurance-software market," said David Tunnell, managing director of H&F. "It combines the largest user base in the industry with Applied Epic, the fastest growing new agencymanagement system, to be the market leader in insurance technology for deployments both on premise and in the cloud." Insurance software companies have been growing in recent years on the heels of technological advances that allow customers instant access to their insurance information. Earlier this month, Vista's financial software company Zywave Inc agreed to sell its insurance solutions division to another buyout firm, Aurora Capital Group LLC, for an undisclosed amount.

Generali sells Fata Danni to Cattolica for â‚Ź179m November 21, 2013 | Insurance Insights

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Italian insurer Generali has agreed to sell its agricultural risks business Fata Assicurazioni Danni to Cattolica for €179m (£149m). Generali will continue to operate in the Italian agricultural risk business through the Generali Italia network. In 2012, Fata recorded a total premium income of €434m and a net profit of approximately €12m. Mario Greco, Generali Group chief executive, said: “The sale of Fata, completed at attractive financial conditions, allows us to continue to strengthen the group’s capital position and to reach €2.4bn of proceeds from disposals since August 2012, 60% of the €4bn target to 2015”. The transaction will strengthen Generali’s liquidity and capital positions further. The Solvency I ratio improves by 0.6 percentage point. The deal is subject to regulatory approval and the price is subject to change. KPMG Corporate Finance acted as financial advisor and Norton Rose Fulbright as legal advisor to Generali.

Zurich to invest up to $1bn in green bonds November 21, 2013 | Insurance Insights Zurich is to invest up to $1bn in green bonds as part of its investment strategy. The green bonds are issued by the World Bank, International Finance Corporation and other development institutions. Green bonds are impact investments, which fund projects around the world that help mitigate climate change and assist communities to adapt to its consequences. According to Zurich it is the largest investment in green bonds globally and is a part of the company's responsible investment strategy. Cecilia Reyes, chief investment officer at Zurich, explained: "Responsible investment at Zurich is about 'doing well and doing good'. We manage our investment portfolio of over $200bn in a way that achieves superior risk-adjusted returns relative to liabilities for the benefit of our customers and shareholders, while also creating value for our employees and communities in which we live and work. Zurich recognizes that creating value for all its key stakeholders is crucial to long-term success." She added: "Green bonds are a good fit with Zurich’s overall investment strategy as well as its impact investing aspirations, targeted to support sustainable development and resilient communities. It is an opportunity to invest both with impact and at a return fully compensating for the risk."

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Technology Why Insurers Should Consider Cloud Backup to Protect Critical Data November 27, 2013 | Insurance and Technology Insurers and other financial services institutions must manage ever-growing quantities of sensitive data and comply with increasingly strict regulations, all while maintaining security against relentless cyber-attacks. Many of these organizations, especially those with multiple business units and a history of mergers and acquisitions, are further challenged by complex, disparate and poorly integrated backup systems, which are inflexible and unable to scale to meet business needs. The result is high backup costs, a high risk of data loss for the industry as a whole. To save money and protect business-critical data more efficiently and effectively, more and more insurers are now leveraging cloud backup. These backup services can eliminate upfront costs for new backup hardware purchases, reduce risks associated with media loss or theft, cut the cost of physical media pickup and storage, and offer business continuity benefits through redundant, offsite storage. Benefits of Cloud Backup for Insurers Cloud backup, also called online backup, involves sending a copy of the customer's data over a proprietary or public network (usually the Internet) to an offsite data center. Most cloud backup systems include software that resides in the customer's data center and performs backups on a predefined schedule. The software collects, compresses, encrypts and transmits the data to the service provider's data center. [The cloud is helping insurers execute their big data strategies: What Big Data Means For Infrastructure Costs] A great benefit of cloud backup for insurers is that it can be deployed very quickly with no capital expense incurred. Like other cloud services, cloud backup lets businesses shift backup costs from a capital expense to a variable operating expense. In this way, cloud backup can help cut the total cost of ownership for backup/recovery, especially by reducing the need to purchase additional storage devices. Cloud backup can also improve the predictability of backup costs, which are then tied to demand and scale up incrementally. Cloud backup helps enforce standards and consistency across the backup infrastructure companywide. This also serves to reduce total backup costs by reducing demands for IT maintenance and support around backup systems. Users can often recover files on their own using online backup systems, for instance.

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Cloud backup services leverage the latest technology (e.g., compression and deduplication) and offer high Quality of Service (QoS) and massive scalability. This includes not only solid performance for a shorter backup window, but also accelerated restore times and improved reliability of restores -including the recovery of data for e-discovery and litigation purposes. Finally, cloud backup services are highly reliable and secure. Business-class cloud backup providers generally offer redundant data storage in highly available data centers with redundant fail-safe systems to protect data across the entire backup and storage process. Combined with the flexibility to back up all kinds of structured and unstructured data, cloud backup helps ensure regulatory compliance while reducing the risk of data loss. In short: cloud backup lets insurers align the cost of backup with the business value of the data being protected. It offers a cost-effective, "pay-for-what-you-use" cost structure along with high reliability, ease of use, strong security and the flexibility to meet changing business needs. What to Look for in a Cloud Backup Solution Faced with daunting data protection and compliance challenges, insurers need flexible, sophisticated and proven cloud backup solutions with cost structures that fit their business models. Here are some of the key capabilities that financial organizations should look for in a cloud backup solution: 1. Security In regulated industries like financial services, security concerns remain the number-one stumbling block to adoption of cloud-based services, including cloud backup. To ensure adequate security, sensitive data must be encrypted both in transit and wherever it resides offsite. Encrypting customer and financial data lessens the likelihood that it will be "viewed" or "acquired" for breach notification purposes. Cloud backup providers should offer 256-bit encryption end-to-end for all financial services data. 2. Compliance support As in any regulated industry, cloud-based backup, archiving and recovery procedures used in insurance must align with compliance directives so that compliance is not compromised. The relationship between regulations and IT systems can be complex. For example, compliance with the Gramm-Leach-Bliley Act requires that financial firms provide a wide range of safeguards to secure customer data from unauthorized disclosure, alteration or loss. This includes utilizing only service providers that can meet these same criteria. Backup/recovery issues that pertain to GrammLeach-Bliley include: •

Encrypting backup data before transmission and maintaining it in an encrypted state until restored to clients' servers.


Restricting access to data to only authorized (client) staff, such as with a client-created encryption passcode that the provider does not have.

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Notification and alert capabilities so client staff is assured that all backups complete successfully.

Offsite storage of backup data in redundant and geographically separate data centers.

24x7x365 restore capability.

Logging to support an audit trail for any backup data set.

While some cloud backup vendors may state that they are compliant with various financial services regulations, it is more meaningful for service providers to meet the SSAE 16 SOC 2 Type II standard. This independently audited attestation of controls and procedures related to security, availability, processing integrity and confidentiality/privacy is the "gold standard" for service providers. SOC 2 Type II certification offers assurance that the proper safeguards are in place for client backup/recovery process to comply with financial services regulations. 3. Dependability And Ease Of Use Insurers want to focus on financial services, not IT services. A single, integrated interface for backup/recovery of diverse types of data across heterogeneous physical and virtual servers, laptops and PCs is vital to backup efficiency and dependability. Likewise, insurers require end-to-end, highly automated cloud backup solutions that are simple to deploy and can protect sensitive data whether it resides on a server, a PC or a fund manager's laptop. The solution must likewise be easy to use, so that non-technical staff can backup and recover their own files, as well as easily verify that backups were successful. Data center availability is another key factor that impacts security. Most cloud backup providers will have a redundant data center infrastructure -- but ideally all their data centers should offer Tier 4 availability, which includes strict access controls, including biometric access control methods. 4. Retention Retention of multiple document versions, as well as retention for specific time periods, is vital to regulatory compliance in financial services. Retention policies should be implemented carefully to reduce storage costs and streamline access to information when needed. Cloud storage providers should offer flexible, configurable retention schedules for different types of data, as well as the ability to "archive" older data to lower-cost media while still being able to recover it in a reasonable period of time should it be needed for e-discovery or a regulatory audit. The ability to store an arbitrary number of revisions/iterations of documents is also important. 5. Reporting Two levels of reporting are important for secure and compliant cloud backup, not to mention peace of mind: •

Backup logs and reports for every backup, so IT can easily monitor and verify that backups are trouble-free and data is protected and restorable.

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Real-time reporting, including e-mail notifications and web-based status and informational reports, so the client is proactively alerted to potential problems.

6. Performance, Scalability And Flexibility To Meet Future Requirements Every insurer needs a flexible cloud backup solution that can cost-effectively expand and adapt as business needs grow and change. This includes local backup options as well as archiving, to optimize accessibility to the most critical data while saving costs on storing older, less-valuable and/or less frequently accessed data. Performance is also critical in financial environments to ensure acceptable service levels for business-critical applications -- and the staff and investors who depend on them. Recovery support should be fine-tuned (down to single files whenever possible) to accelerate operations and minimize delays. Offering flexibility also means eliminating restrictions to moving data to a different provider should the need arise. Besides contract fine print, support for the Cloud Data Management Interface (CDMI) and other emerging standards is a good sign that a provider is not attempting to "lock in" its customers. Conclusion For both regulatory and business reasons, insurers must protect sensitive customer data wherever it resides, whether in the data center or on desktops, laptops or tablets; or as part of a backup strategy. Insurers need backup and recovery solutions that include the ability to enforce strict data protection requirements, comply with longer retention times, address compliance directives and improve IT responsiveness to the business while cutting costs. Cloud backup addresses the needs of insurance firms by eliminating capital costs, reducing the risk of data loss, and supporting business continuity initiatives.

Good Driver/Bad Driver: Who Will Gravitate to Telematics? November 26, 2013 | Property Casualty 360 Auto-insurance experts are falling into two camps regarding the future of telematics: good drivers will choose telematics policies that will ultimately be cheaper than classic policies, or bad/new drivers will choose telematics policies to build or improve their experience before switching to a classic policy. Celent outlined these two hypotheses, termed “self-selection hypothesis” (good drivers opting for telematics) and “null hypothesis” (bad drivers choosing telematics) in a recent report, “Innovation in Focus: The Great Telematics Experiment.”

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According to the report, the null hypothesis assumes that drivers and car owner will prefer classis auto-insurance policies. “Here, we assume that customers don’t want insurers spying on their movements, that capturing the data is expensive and that the data doesn’t provide significant advantages in pricing and underwriting,” Celent states. The firm adds that telematics policies would, in this case, be a “stepping stone” for some to ultimately get a classic policy at a reasonable cost. Drivers with poor history, or who need to build up experience to prove they can be good risks, would use telematics policies as “a first rung on the ladder” toward a classic policy. Classically insured drivers, too, may opt for a telematics policy if they have an at-fault accident and want to prove they can be a better driver. Meanwhile, the self-selection hypothesis contends that bad drivers will fail to get rewards from telematics policies and will ultimately opt for cheaper classic policies. “The classic policies then become less profitable over time due to the population of bad drivers,” Celent says. “The premiums for classic policies necessarily increase over time as the book of business increases in risk and the good drivers self-select to the telematics policies.” Which side is correct? Celent says it is still up in the air. “Actually this is the beauty of this great experiment: the answer isn’t clear yet,” the report states. Celent offers comments on two factors that could tip the scale toward one hypothesis over the other: the cost of telematics-based insurance, and people’s willingness to share their data. Regarding the costs, Celent notes, “The devices cost money. Transmitting the data captured in this process costs money. Storing the data costs money. Analyzing the data costs money. In short, there are an array of costs associated with capturing and leveraging this data.” But Celent adds that these costs are dropping over time as technology evolves. Advances in both consumer and auto technologies “offer routes to low-cost, effective telematics-based solutions,” Celent says, noting that over the next decade, newer, cheaper models for delivering telematicsbased insurance should come to market. As for sharing data, Celent says, “Recent concerns over NSA activities in America, over the use of drones and the deployment of closed circuit TV and road cameras have highlighted privacy issues and concerns in the general populace.” However, Celent notes that the rise of social networks and the “trend of ‘checking in’ to locations on Facebook and Foursquare suggest that some people don’t mind sharing information for the right rewards—whether financial or non-financial.” The key for insurers, according to Celent, is to offer rewards and benefits to customers that they would be willing to accept in exchange for less privacy. Regulators, meanwhile, would be tasked with protecting consumers in this new environment while not stifling innovation in this space.

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Zurich North America Launches Enhanced YouTube Channel November 26, 2013 | Property Casualty 360 Zurich North America has launched an enhanced YouTube Channel featuring new content relevant to its coverage offerings and client base. There are no cute cats or laughing babies to be found here; rather, the channel gives users access to Zurich’s library of video content, including a variety of educational and risk management topics, customer success stories, even golf highlights from the Zurich Classic and an up-close look at the carrier’s community outreach projects. The new channel also includes the ability to sign up for a monthly risk management e-mail tailored to the user’s industry, as well as Zurich North America’s Twitter feed, @ZurichNANews, providing company news and information in real time.

Underwriting and Business Intelligence: Art Meets Science November 26, 2013 | Property Casualty 360 It’s generally accepted that the first automobile policy in the U.S. was sold in 1897 in Dayton, Ohio. For more than 100 years, automobile insurance would be underwritten fundamentally the same way as that first policy: manually and customer-by-customer. However, the effort that began more than 10 years ago to apply business intelligence to auto-insurance underwriting has transformed what had once been an art into a standardized and automated process at many carriers, where manual processing is the exception rather than the rule. “Personal auto is clearly the most advanced and most mature in its use of business intelligence and analytics. It really is a science,” says Deb Smallwood, founder, Strategy Meets Action (SMA). She believes that homeowners is the next line poised for a process evolution, with the only limiting factor being gaps in available data. The adoption of advanced analytics in commercial lines has been slower. “There’s a continuum *in automation+ from how much margin there is in the business and how complex it is,” says Matthew Josefowicz, managing director at Novarica. “Low-value business owners or workers’ compensation lines are going to start to look like personal lines, with a greater emphasis on straight-through processing. Complex liability will take longer to automate, and there’s a question of the marginal value of automating it at all. But certainly there is

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value in using business intelligence to make those underwriters more efficient and giving them better tools to do their job,” he explains. Commercial Success That’s not to say that carriers have not experienced success in leveraging intelligence in the commercial lines underwriting process. Chesapeake Employers’ Insurance Company, Maryland’s largest writer of workers’ compensation insurance, has been using a predictive analytics solution from Deloitte since 2008 to score risks and suggest the proper tier and pricing for an individual account. Now, the company is targeting other enhancements to the underwriting process. “The high-level objectives are to make underwriting and the process of analyzing risk more efficient, to make underwriting more accurate, to increase the speed of processing and to create a better experience for our agents *when+ working with underwriters,” says Steve Orr, Chesapeake’s senior vice president of Marketing and Technology. Chesapeake is in the midst of a multi-year project to replace a 20-year-old, in-house-designed policy administration system. The first stage of that replacement, completed earlier this year, involved incorporating an Oracle Service Bus into the company’s IT architecture in order to create SOA capabilities that would allow new components to be added. The first component will be the FirstBest UMS underwriting workstation. With final development completed in early November, the company is currently in the testing phase and plans a March 2014 rollout. A key capability of the FirstBest system will be integration with external data sources. “The workflow in UMS will be utilized to automatically assemble a lot of the third-party information that underwriters have to go out and get today,” Orr says. Examples include Dun & Bradstreet data, vehicle information and corporation-licensing information from the state. When an application comes to the underwriter, the system will present a task manager showing the information that has been gathered and the items that need review. The FirstBest system will also integrate with Chesapeake’s risk-scoring platform to provide straightthrough processing for the majority of accounts that generate less than $10,000 in annual premium. “We’re confident that the workflow FirstBest provides will give us the confidence to do straightthrough processing that we haven’t had with our current platform,” Orr says. “The advantage to the agent will be faster—even immediate—turnaround, as well as the ability to run ‘what-if’ scenarios while they are on the line with the customer. Also, underwriters who today need to spend their time on the smaller applications will be able to apply their effort to more complex accounts, which will help us expand our marketing efforts.” Global-commercial insurance and reinsurance firm XL Group is in the process of creating its “Global Underwriting Platform.” Traditionally, underwriting processes at XL have been paper-based or handled by different systems based on lines of business. Little information was able to be shared across different underwriting teams, and risk data was often confined to underwriting files, limiting its ability to be analyzed.

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The new platform is designed to allow underwriters to collaborate with each other, access external data and integrate with internal administration systems. Kurt Schulenburg, the insurer’s vice president of IT Strategy, says that the ultimate objective is to transform the underwriting process. “First, we wanted to make underwriting a much more efficient process through technological automation and improved underwriting workflows. Underwriters will be able to spend less time on completing tasks and more time on risk analysis and evaluation,” Schulenburg says. “Second, we want to improve analytics throughout the process. Working in our current environment with disparate systems and many manual handoffs, it’s difficult to perform analytics or even to present all the information in one spot to an underwriter.” XL’s global platform includes several new components—FirstBest’s UMS to provide a common workbench for underwriters, Accenture Duck Creek to create a single administration system for the company’s North American ISO lines of business, and SAS Visual Analytics. “That *platform+ will give us one interface for all P&C underwriting—a common look and feel, a common way of capturing information and a common way to get from an application submission to policy issuance to endorsements and renewals,” Schulenburg says. One of the most significant impacts of consolidating policy and underwriting data across classes of business will be improved visualization. “We will now have location management capabilities,” Schulenburg says. “By capturing and consolidating location data every time we underwrite a location, there will be a visualization that not only shows how close that risk is to earthquake and other hazard zones, but also to where XL already has exposure in that geography.” The initial release of the system to support general liability was completed in 2012. By the end of 2014, XL plans to have about half of its P&C premium on the platform; by the end of 2015, that amount should exceed 90 percent. Schulenburg says, “Our goal is a 40 percent premium-per-underwriter gain for those groups that have deployed the platform. Our current release for general liability shows that’s very achievable. Property and workers’ compensation are coming next, and we plan to hit that *percentage gain+ there as well.” More Than Automation Turning underwriting from an art to a science isn’t just about automation; it’s about making more precise underwriting decisions. “Once we generate greater efficiencies for everybody, the next question is how we can gain the benefits of all the new data we are capturing,” explains Schulenburg. There has been an explosion in underwriting data. There are sources for geocoding, geographic information, aggregated consumer information, commercial data, tax information and more, as well as easier ways to collect that information electronically. But this data proliferation creates its own challenges.

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“A human brain can only look at a few data points and correlate them,” Smallwood says. “The computer can do hundreds or thousands within predictive models. However, we’re just in the early stages of applying analytics to commercial markets.” XL Group’s Strategic Analytics team is building predictive models based on SAS Visual Analytics. The intent is for those analyses to connect the dots within and across risks, helping underwriters make better informed decisions. But it’s no easy task. “The ability to implement a predictive model is based on volume and consistency of risk, which is difficult to do in highly complex com

Re-Thinking Organizational Change Management and Its Role in Insurance IT Projects November 26, 2013 | Property Casualty 360 Editor's note: Charlie Mihaliak is an executive director in Ernst & Young's Financial Services Office and is located in Hartford, Conn. Raj Sharma is a principal in EY's Financial Services Office and is located in Redwood Shores, Calif. Bill Smith is a principal in EY's Financial Services Office and is located in Los Angeles, Calif. As insurers invest considerable resources in large-scale, technology-enabled transformation programs, organizational change management (OCM) helps them avoid common risks and pitfalls such as sub-par adoption of new technologies and lack of organizational alignment around new processes. Given that new product development, new systems deployments, and claims, policy and billing transformations can command budgets in the tens of millions of dollars, project teams need to use every tool at their disposal to drive faster, more predictable results. OCM, historically seen as the responsibility of business leaders, is important to IT because proven techniques can drive faster execution, lower costs and better outcomes throughout a project lifecycle. Further, OCM can help IT organizations transform and mature their capabilities over the long term, increasing IT’s value to the company. In the past, conventional wisdom held that OCM equated to end-user training and some communication about major project milestones. While those elements are still necessary, they are not sufficient to the requirements of today’s high-stakes, complex change programs. Nor do they meet the needs of CIOs and other IT leaders who understand that their roles now emphasize strategic engagement with the business and the enablement of performance improvement. Rethinking the role of OCM and how it works allows organizations to proactively plan and strategize for change management at the outset of a project, rather than scramble to address it “mid-flight,” as

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so often occurs, usually in the midst of build and testing activities. In other words, IT leaders can and should be actively involved in shaping and executing OCM strategies, not just passively accepting whatever the business decides. OCM can help accelerate projects by: •

Minimizing rework on requirement and design activities by aligning teams around clear project objectives, scope and the future-state vision, as well as engaging operational leaders effectively to secure their buy-in.

Shortening timeframes for decision-making and issue resolution by driving leadership engagement and defining clear project roles, responsibilities and decision-making processes.

Ensuring IT and business resources are available to execute when needed by aligning leaders around the program, including appropriately prioritizing and integrating with other initiatives, and communicating effectively.

Promoting rapid user adoption by engaging stakeholders effectively throughout the project lifecycle.

OCM in action: a multi-faceted approach Effective OCM extends beyond training and project communications to position the project team, IT and business operations to effectuate the desired project outcome. The components of an effective OCM approach include: Leadership alignment. Leadership alignment is crucial to ensuring projects stay on track. Leadership alignment helps IT to be more productive by reducing rework, minimizing cross-project conflict and mitigating the risk of midstream project cancellations. The basic idea is powerfully simple: projects that start with leadership buy-in, a clearly defined target-state vision, a strong project approach and appropriate funding will run more effectively because it’s easier to control scope, identify risks sooner and escalate and resolve issues faster, especially when several projects are calling on the same resources. Risk management discussions are more transparent when there is clear understanding of project needs and shared objectives across the business and IT leadership team. Leaders will be better positioned to prioritize between nearer-term enhancements and larger-scale projects when they have clearer visibility into ROI models and resource requirements. Stakeholder engagement. Extending beyond the boundaries of IT, stakeholder engagement eases the path to success by aligning requirement definition and design decisions with project goals. When stakeholders understand the big picture of a project’s mission and scope, they are better positioned to make informed decisions about the important details. Further, the chance of rework is greatly diminished when stakeholders have clarity and consensus on program objectives, the target-state vision and interdependencies with other initiatives.

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Practically, it’s about involving the right subject-matter experts from the business, operational teams and other IT units at the right time, and ensuring their management supports their involvement. Engaging business stakeholders sooner makes requirement and design sign-offs easier and increases the likelihood that appropriate resources will be available to support the project throughout its life cycle and that user adoption will occur rapidly at implementation. Projects that utilize agile-like techniques are proving the value of effective stakeholder engagement. Organizational alignment. Today, IT projects are increasingly judged on the achievement of expected business results. That’s a pretty high bar compared to past measures, like on-time and on-budget performance or application-response time or defect density. Organizational alignment helps to ensure the business-specific benefits of IT projects are realized. A key step in driving organizational alignment is to conduct organizational impact analyses for each group or function affected by the project. This effort should be highly structured and specify changes to roles, workflows, skills, performance management and other areas that will be necessary to achieve targeted results. Information and findings from impact analyses should be used to formulate an action plan to drive alignment. Minimizing data challenges. Definitions, data stores, analytics tools and environments, data quality and management reporting may all be materially affected after new applications and processes are implemented. The incorporation of additional third-party data can also be a big change. Data represents the lifeblood of insurance companies and it brings a host of compliance issues and other challenges as well as significant potential impacts on critical functions across the enterprise – from product development, marketing and customer service to finance, actuarial and IT. Engaging these stakeholders early can advance a company’s data strategy by reducing resistance to and drag on project speed. Roles, responsibilities and communications. The most effective projects have certain notable characteristics. Chief among them are clearly defined roles, responsibilities and performance expectations for all team members, as well as effective ongoing communication. If these sound like self-evident hallmarks of success, it’s important to remember that they are also comparatively rare. Project teams face significant pressure to begin as soon as resources become available and frequently give these important activities insufficient attention. These steps are especially important for larger projects that require roles to be filled by individuals from many groups, including multiple functions across the enterprise and external service providers. Deployment readiness. Veteran IT project managers know all too well how IT organizations bear the burden of any project bumps or issues, even if lack of business preparation or participation is a contributing factor. OCM can have a direct bearing on implementation success by ensuring that business operations are fully engaged and ready for deployment. Indeed, this is where OCM overlaps with general project management or release management best practices.

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The key steps must be completed well in advance of launch day, of course. It’s critical that business operations understand how new technology will impact current roles, workflows, work assignments, supervision practices and various operational forms and procedures. There are also significant management-information impacts as well. The details are many and minute. Business-side impact analyses must be comprehensive. These challenges have been successfully addressed by defining business deployment roles and workstreams. In one successful project, deployment manager roles were defined as part of the central change management team and employed part-time local office deployment champions within each office affected. The deployment manager would assist the local office deployment champions in preparing for day 1 implementation and then provide support during the critical early days of deployment. Work activities were planned in detail using readiness checklists and managed aggressively. The company also implemented scorecards to track the achievement of readiness activities across the offices and shared the scorecards with program and senior leadership. Preparing IT for new technology. One of the higher-risk areas in technology-intensive change programs is the impact on IT associates. It’s also one of the most often overlooked areas and thus, a strong candidate for considerable OCM efforts. More specifically, new technology deployments often suggest to development and support teams that their core skill sets may be on the verge of obsolescence. Given that many IT resources equate their specialized knowledge of legacy systems with job security, anxiety levels can run very high when core policy administration platforms or customer data repositories are modernized. The more senior the resources and/or the longer their tenure, the more likely there will be turbulence in the change. Similarly, change programs that include new sourcing arrangements with offshore or external providers may require extra effort. In some cases, business or operational units may take on new technology-related responsibilities, leading to changes in IT roles and reporting relationships. At a minimum, IT groups need to plan training or reskilling programs for associates who may be reassigned to new roles or teams. If time and money are available, effective organizational change management should be embraced by IT as a “must-have” project activity rather than a discretionary add-on. The payoff of OCM for IT leaders is twofold: It helps IT teams address their traditional challenges related to project costs and duration — that is, it drives faster and more effective project performance through reduced risks and stronger decisionmaking. It demonstrates IT’s increasing business orientation, collaborative capabilities and focus on improving the bottom-line performance of their companies.

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Strategy JLT acquires South African broker Eluleka November 28, 2013 | Insurance Insights Jardine Lloyd Thompson Group has acquired South African employee benefits and healthcare broker and consultant Eluleka Consulting. The Johannesburg-based business employs around 40 people and was founded in 2007 by managing director Tyrone Farinha. Rhys Edwards, JLT Benefit Solutions South Africa chief executive, said: “This acquisition will immediately position JLT as the one of the largest players in the South African healthcare market, and provide us with the capabilities and market profile to execute our strategy of building our international reach and relevance in a region where there is growing demand for JLT’s specialist expertise. We see great opportunities to work with mid/large South African corporates as well as opportunity to use Ben Pal as a key differentiator in this market.” Eluleka’s Adrian Parsons said: “This is a great opportunity for everyone at Eluleka to build on the success we have had over recent years. Not only will it allow us to serve our existing clients even better but it will also enable us to capitalise on the growing employee benefits opportunities in a region whose long term growth prospects are supported by fundamental macro-economic trends. We are really excited about the opportunity to be part of JLT.” Duncan Howorth, JLT employee benefits international chairman, said: “We have a growing operation in South Africa, built on our long standing relationships in the region and reinforced by our offices in Johannesburg and Cape Town. We have been keen to expand our employee benefits capability in South Africa in line with our international growth strategy for employee benefits, with a particular focus on healthcare consulting. This investment therefore provides JLT with the opportunity to accelerate our momentum in these areas. There is an excellent cultural and commercial alignment between our businesses and we are delighted to welcome the Eluleka team to JLT.”

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NCOIL Calls for Flood Rate Hike Delay; Senate Action Could Come by Year-End November 26, 2013 | Property Casualty 360 The National Conference of Insurance Legislators added its voice to the growing chorus urging a delay of planned National Flood Insurance Program rate increases, while lobbyists with knowledge of the NFIP say Senate action on such a delay could come by the end of the year. NCOIL passed a resolution at its annual meeting this past weekend stating that the Biggert-Waters Act “substantially and immediately devalued the investments made in all properties endowed with flood damage mitigation measures, as well as properties receiving subsidize rates.” The resolution predicts that consumer confidence and the nation’s economy, including the banking and mortgage industries, will suffer—and says that “a violent rise” in premium costs may lead to financial distress for residents and property owners around the nation. The resolution also urges Congress and FEMA to actively and expeditiously explore the use of private reinsurance to protect against catastrophic loss. Meanwhile, the Senate is setting the stage for prompt legislative action on the issue. According to industry lobbyists intimately involved in the National Flood Insurance Program, Senate staffers will be spending the current Thanksgiving recess “whittling down” proposed amendments to the National Defense Reauthorization Act (NDAA), S. 1867. The lobbyist said that, “there is no guarantee” that the Homeowner Flood Insurance Affordability Act, S. 1610, will be on the list cleared for floor action, but it has “broad bipartisan support.” If the flood bill—sponsored by Sen. Mary Landrieu, D-La., and Sen. Robert Menendez, D-N.J.—clears various hurdles and passes the Senate through the NDAA in some form, it will go directly to conference and therefore bypass the need for action by the House Financial Services Committee, where there is significant opposition to disrupting the path to actuarial rates imposed by the BiggertWaters Act, the lobbyist said. Under the Landrieu/Menendez bill, most of the rate increases imposed by Biggert-Waters would be delayed for up to four years. Only provisions imposing actuarial rates on businesses and second homes would be retained under S. 1610. One industry lobbyist who is closely tracking the issue says “the Landrieu/Menendez bill has strong bi-partisan support and the support of the majority leader,” Sen. Harry Reid, D-Nev. “Plus not putting it on could gum up the works,” i.e., delay indefinitely action on the underlying NDAA bill. “So, it has an excellent chance,” the lobbyist said.

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In a letter last week to Congress, a group of Write-Your-Own companies said that before Congress decides to revise the rate increase programs required under the Biggert-Waters Act of 2012 it “must realize and acknowledge” that any changes will take no less than six months for WYO insurers to implement. “We hope that any proposed legislative changes would be discussed with the NFIP and other stakeholders as they are being developed to avoid further unintended consequences,” the letter said.

Axa hails Thai life growth November 26, 2013| Insurance Insights Total premiums in the life insurance market have risen 21% in Thailand this year. There will be continued growth in the Thai life market according to David Korunic, CEO of Krungthai Axa Life Insurance. Axa has seen its life insurance premiums grow 28% this year according to the Bangkok Post. He said: "Thailand faced an economic crisis in the past decade. It rode through the Lehman [Brothers] crisis in 2008 and the local floods in 2011, but the insurance industry grew strongly."

Cigna and British Money team up for new product November 21, 2013 | Insurance Insights White-label insurance provider Cigna Insurance Services and British Money have partnered up to provide new protection product Universal Cover. The five-year partnership will see British Money’s Universal Cover policies exclusively provided by Cigna Insurance Services, previously known as First Assist Insurance Services. The policies will be underwritten by Cigna Europe Insurance, a subsidiary of Cigna Corporation. Universal Cover will offer a range of accident, sickness and unemployment benefits to protect new and existing mortgages. Customers will not have to undergo a medical examination or provide evidence of their financial outgoings to apply for the cover.

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The insurance protects up to 60% of policyholders’ monthly income before tax and can be used to cover essential bills such as mortgage payments, shared ownership payments, council tax and utility bills, food and clothing costs, and the cost of travel and motoring. It will also cover the cost of luxuries such as satellite TV subscriptions. Matthew Shepherd (pictured), Cigna Insurance Services UK commercial director, said: “This is a really important and exciting new partnership for us. [British Money’s+ decision to work with us again underlines our track-record and the speed with which we have been able to get to market.” Simon Burgess, a British Money director, said: “We’ve worked with Cigna previously, when it was still known as First Assist, and have been so impressed by their professional service and the high quality of the team.”

Aviva to sell stake in Italian insurer Eurovita November 18, 2013 | Insurance Insights Aviva is selling its 39% stake in Italian insurer Eurovita Assicurazioni to JC Flowers for €33m (£27m). The sale is subject to approval by the Italian insurance regulator IVASS and the proceeds will be used for general corporate purposes, a statement from Aviva said. The announcement follows rumours last week that Aviva’s UK business is looking to offload a £1bn portfolio of liabilities including the majority of its exposure to historic asbestos-related claims. Today’s statement from Aviva said the Eurovita agreement represents further progress in its strategy to focus its Italian business on more profitable, capital efficient products. Banco Popolare, the other majority stakeholder in Eurovita, has also sold its share to JC Flowers.

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Sutherland insights insurance news flash nov 29, 2013  
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