The past year provided a vivid reminder of the array of challenges a risk manager may have to confront. From devastating natural disasters to train derailments to shifting competitive dynamics in the commercial insurance market, 2013 left risk managers with much work to do to protect and help adapt their organizations.
Boeing Dreamliner fires and reputational risk
Reputational risk was front and center this year, and few companies had to endure problems on the scale of Chicago-based Boeing Co. In January, the company's 787 Dreamliner fleet was grounded following a series of fires in the plane's lithium-ion battery packs. After a public and protracted safety review led by the U.S. National Transportation Safety Board, the Federal Aviation Administration finally cleared the fleet to return to the skies in April.
While the company's losses were mitigated by customer sales agreements and low limits for grounding liability exposures, the groundings tarnished the company's brand and upset relations with customers such as Japan's All Nippon Airways Co. Ltd., which asked Boeing that All Nippon be compensated in cash rather than with discounts on future purchases for losses while aircraft were grounded.
Boston bombings and mass shootings
April's Boston Marathon bombings caused risk managers and underwriters alike to appreciate the necessity for terrorism insurance coverage for sporting events, festivals and other large gatherings.
The Washington Navy Yard shooting in September highlighted the delicate balance employers face in protecting their employees and customers while avoiding government scrutiny for potentially violating individuals' rights.
Buffett expands, insurance operations
Having already conquered personal lines and reinsurance, Warren Buffett set his sights on the commercial market. In June, Berkshire Hathaway Inc. launched Berkshire Hathaway Specialty Insurance, a new property/casualty insurer focused on U.S. excess and surplus lines. To run the insurer, Mr. Buffett recruited several top executives from American International Group Inc., including Peter Eastwood, formerly president and CEO of AIG's property/casualty unit.
Berkshire Hathaway also raised eyebrows in March when it announced an insurance sidecar facility set up by Aon P.L.C., where Berkshire participates in 7.5% of the business Aon places that has Lloyd's participation.
Tornadoes wreak havoc, leave billions in losses
While the insurance industry made it through hurricane season unscathed, convective storms caused billions in losses.
November twisters across the Midwest resulted in eight deaths and estimated insured losses of more than $1 billion. May tornadoes, including one that leveled Moore, Okla., left up to $5 billion in insured losses.
Broker buying spree includes some big names
Brokerage deals made 2013 a remarkable year for mergers and acquisitions. Top 10 brokers Brown & Brown Inc. and Arthur J. Gallagher & Co. inked mega deals.
In June, Brown & Brown bought rival Beecher Carlson Holdings Inc. for $336.5 million from private equity firm Austin Ventures. In August, Gallagher acquired Short Hills, N.J.-based insurance broker Bollinger Inc. for about $276.5 million. Less than a month later, Gallagher bought London-based Giles Group of Cos. in a $362.1 million buyout.
Concussions settlement and the NFL's bad year
The National Football League was on the defensive. In July, it reached an undisclosed settlement in three cases involving former NFL players who sought to file workers compensation claims in friendly California.
More contentiously, the league in September reached a $765 million settlement with 4,500 former players who had accused it of misleading them about concussion dangers.
Catastrophes, derailment cause trouble in Canada
Those who regarded Canada as relatively safe from catastrophes were reminded that disaster can strike anywhere. June floods ravaged Alberta and its largest city, Calgary. The raging waters caused insured losses estimated at more than $1.61 billion, making it the costliest disaster in Canadian history, said the Insurance Bureau of Canada.
Meanwhile, July floods in Toronto cost insurers an estimated $802.2 million, while the derailment and explosion of a crude oil-laden freight train killed 46 people and destroyed much of central Lac-Mégantic, Quebec.
Systemic risk designations in U.S. and abroad
Large insurers came under enhanced scrutiny from regulators in the U.S. and abroad.
In June, the Financial Stability Oversight Council deemed several insurers including New York-based AIG “systemically important.” While AIG said it “welcomed” the move, other potential designees such as Prudential Financial Inc. and MetLife Inc. publicly pushed back on the idea that the firms presented a systemic risk.
In July, the Basel, Switzerland-based Financial Stability Board designated nine global insurers systemically important, or too big to fail.
Insurance-linked securities and alternative capital
Alternative capital continued to flow into the reinsurance market in 2013.
Stymied by low interest rates, institutional investors such as pension funds and hedge funds triggered record demand for insurance-linked securities such as catastrophe bonds.