CATEX Reports September 2017

Reports

Issue 71

September 2017

In this Issue

"Benign claim" period officially ends with as much as $90 bn insured loss

Monaco talk centers on rate increases; ILS advocates say it will be required

Hurricane Harvey may have a hidden cost to mortgage insurance sector
CATEX has "Sneak Preview" of new products
Valuations of (re)insurance sector service firms are high
Roger unveils himself as a "Trekkie" but wonders about Starship Enterprise insurance coverage

Quick Bytes: Reinsurer appetite for US mortgage insurance to increase; Watford Re readies an IPO; Buffett reacts to Harvey damage; QBE chooses novel path as Insuretech alternative; Ren Re suggests lower growth in future; Toby Esser said to have bought London broker; Mario Greco's Zurich work; former CIRC chief faces prosecution; plane crash victims allege Tom Cruise role; German Central Bank concludes Soviet threat over and repatriates gold; Airbus 350-900 software fix; 70% of Bermuda buses out of service; Chief Spiritual Officer could be next for your company.

Quick Link

www.CATEX.com

Contact

Princeton: +1 609-683-0888

Stephanie.Fucetola@catex.com

London: +44 (0)20 7993 5340

James.Cogger@catex.com

Dear Colleague,

Welcome to the September issue of CATEX Reports. As you might have guessed this issue includes stories concerning the trio of hurricanes, Harvey, Irma and Maria as well as from the Rendezvous de Septembre in Monte Carlo.

Unfortunately the hurricane season doesn't officially end until November 30 and after Superstorm Sandy in 2012 you can be certain that the US east coast takes that November 30th date seriously. Late season hurricanes can cause considerable damage.

The aggregate amount of insured loss from the hurricanes could well exceed $150 billion. In addition to the effect on reinsurers' CAT budgets there is some interest in seeing how the alternative capital industry will react after a prolonged period of benign claim experience.

We also look at the real damages caused by Hurricane Harvey with a possible ripple effect into the mortgage insurance sector.

Then we noted what we thought to be unusually high multiples used to compute valuations of largely non-risk bearing entities at a time when ratings agencies are warning that reinsurers are facing balance sheet issues if one more hurricane strikes this year.

CATEX hosted a sneak preview event in London earlier this month of two new products and provide a brief overview for those of you who were unable to attend.

We also have our regular Roger Crombie c olumn here too. We've had many meals with Roger and to our knowledge we wouldn't have even bet that he owned a television. Thus his admission that he is a card carrying member of the Star Trek fan club came as a surprise to us too.

As always if you have any questions or comments about CATEX Reports , or want more information about CATEX , or our products, please feel free to contact me.

Thank you very much.

Sincerely,

Stephanie A. Fucetola

Senior Vice President/CATEX

Not 3 Weddings and a Funeral but 3 storms and an earthquake

Over just the past few weeks Hurricanes Harvey, Irma and Maria have sharply brought the focus of the global reinsurance industry back to natural CAT exposure. The strong 7.1 magnitude earthquake which struck near Mexico City on September 19 almost served as a "throw-in" (but with a $4.8 billion estimate of insured loss) for the bucket of disasters and reminded the industry that not only are there other natural perils than wind but that loss events indeed can occur.

Of course any underwriter or actuary would hopefully not have raised an eyebrow in light of the events of the past few weeks. Risk and the occurrences of events are the reasons why people purchase coverage. What may be causing consternation is that after a period of benign claim activity, especially for North American CAT, the industry has now faced three storms in less than a month each of which on its own packed enough of a wallop to be remembered as a good sized hit on its own for any one year.

The problem of course is two fold. These storms did not just hit in any one year --they have all hit in the same year. The second problem is that the hurricane season does not end until November 30th leaving as much as eight more weeks for potentially similar strength storms to appear.

The insured loss estimates for Harvey and Irma are not to be dismissed and could be as much as $75 billion. To put that figure in context earlier this year Munich Re estimated that insured losses from all types of natural CAT perils in 2016 totaled $45.1 billion.

AIR Worldwide has increased its insured loss estimate for Maria to a $40-85 billion loss range. This could mean the possibility of the P&C industry suffering its worst ever year for catastrophe losses. Depending on the estimates as much as $150 billion in insured losses could have been generated by the three storms in the US and the Caribbean.

Thus over the span of only one month the combination of Harvey, Irma and Maria seems to have generated an insured loss total twice the amount tallied in all of 2016 from all natural CAT perils not just windstorm. Remember too that the triple-header of hurricanes are not quite the only headline natural peril loss events of 2017. Cyclone Debbie caused slightly over $1 billion in insured losses in Australia.

What could this mean? Here is the lead sentence from an article offering an answer according to analysts at Credit Suisse. "Following the impacts of hurricanes Harvey and Irma, in a year that has seen significant U.S. convective storm activity and events like Cyclone Debbie in Australia, reinsurers are now in a position where one more major hit from a hurricane or other catastrophe could put their balance sheets at risk."

Really? The insured loss from 1992 Hurricane Andrew was about $27 billion. Now, twenty-five years later, accounting for the increase in both property values and insurance penetration in South Florida , "Swiss Re calculated what the loss levels would be today if the same hurricane hit the region, revealing insured losses would double to reach $50-60 billion."

In just four or five weeks the industry may have racked up some $150 billion in insured loss. We can, and no doubt will, have discussions about things like the "hours clause" and "single event triggers" but the fact remains that the past weeks have been very costly to the risk bearing industry --and as Credit Suisse notes--could be bordering on a stage where balance sheets could soon be at risk.

Earlier this month the annual Rendezvous de Reinsurance was held in Monte Carlo. Hurricane Harvey had already reduced Houston, the fourth largest city in the United States to a virtual inland sea. Hurricane Irma was belting the islands of the Caribbean causing massive damage. More than a few meeting participants were monitoring Irma's track on cell phones waiting for its all important turn to the north. Behind Irma was Hurricane Jose and on the last day of the conference, September 13, the National Hurricane Center began to monitor a then tropical wave that was to develop into Maria.

Not being risk bearers but having more than a few of them as clients CATEX was keenly interested in the reactions of the insurers and reinsurers with whom we met as the potential loss totals unfolded. We did not attend the rendezvous in 2001, which was held the same week as the September 11th terrorist attacks in the US, but have had friends describe the mood of shock and disbelief that descended on meeting participants as the scale of the destruction and loss of life became known. Insured losses from the 9/11 attacks were about $40 billion.

We are hardly claims experts but we had already seen reports that the insured losses in the Houston area from Harvey could total more than $25 billion. We were able to read news reports of the damage being done in the Caribbean by Irma which ultimately may cause another $15 billion in insured losses and we, like everyone else, were monitoring Irma's path to see when it would make its turn to the north. More than a few storm track models had the densely populated Miami-Dade area (with its high level of insurance penetration) as a good bet to be in the path of a Category 4 Irma.

Fortunately Irma indeed did turn north but made landfall on the west coast near Marco Island as a CAT 3. Irma began to lose strength as it moved northward, inland, so that by the time it reached the Tampa Bay area it had weakened to a CAT 2. "Weakened" is a relative term as Irma still managed to cause some $30 billion in U.S. insured loss with most of it centered in Florida.

The news of Irma's path over Florida had indeed reached Monte Carlo participants during the meetings. Marco Island, Naples, Ft. Myers, Sarasota and Tampa, while hardly in the class of Miami-Dade in terms of insured values, are all known to have a high penetration of insured value in their own right. Few people seeing the path of Irma would have thought the eventual claim total to be minimal.

What struck us as observers more than anything was the reaction to these events. Muted is not the correct description as it was more of an acknowledgement that the inevitable had finally happened. We understand that reinsurers in particular have a set process of how claims are triggered and how claims come to them. Retentions and deductibles need to be exhausted before claims are presented to them. Although claim reserves were probably already being computed if not being set aside a feeling of "of course this was going to happen --it was only a matter of when" seemed to pervade the discussions.

Remember that a number of markets had already determined that Florida wind CAT had seen premiums decrease so much that they had already begun to cut back their exposure several years ago. We had expected though that the declining rates in Florida, when combined with reports of expansion of terms and conditions, all superimposed against the backdrop of low investment interest rates would have meant that a higher level of either anxiety or premium increase expectation would have been present.

In fact we did share Lloyd's Inga Beale's view when she said that "Almost in a perverse way, when you look at the more medium term, [the hurricanes] can benefit the sector post all of this." She made this comment in the context of an article in The Times that posited that insurers were quietly relieved about the torrent of superstorms as it should allow them to raise premiums next year.

Beale was criticized for her comments but to be fair to her what she said was being said in every one of the thousands of meetings that were taking place in Monte Carlo as the catastrophes were unfolding. Criticism about Beale is probably something that comes with the territory when you are the Lloyd's chief executive but no one who knows Beale would think her to be insensitive to the human suffering caused by the storms.

Beale's point though, and the one being most discussed in Monaco, was whether the combination of insured losses, now totaling by some estimates $150 billion would be enough to "turn the market." We've been writing for so long about observers claiming that the "rate of premium price declines is slowing" or that "the market may have finally bottomed out" that we remain cautious but we've never seen $150 billion in insured losses in only five weeks before either.

ILS and Alternative Capital will be on the line for claims

As you might surmise the very first volley in the price increase discussion came from the financially oriented capital markets and it came during the Monte Carlo conference. You may recall that over the past years, as alternative capital has rushed into the reinsurance industry with a particular focus on natural CAT coverage, more than a few traditional reinsurers have questioned the "staying power" of the new capital in the event of a loss. Would the new capital be willing to pay the claims it had contracted to guarantee and would it run away from the market once it was exposed to not only a loss in investment return but loss of principal if a major claim occurred?

One of the more persisitent voices questioning the commitment of new capital over the years has been Munich Re's Torsten Jeworrek. As recently as this spring he observed that he feared that some ILS coverages were increasingly using leverage rather than fully collateralizing a risk of loss which in his opinion led to an increased risk for the cedent but also a regulatory burden on traditional rated reinsurers that are forced to adhere to stricter regulation.

Munich Re hosted an insurance-linked securities (ILS) roundtable in Monte Carlo during the rendezvous and although Munich does provide ILS funds and earns fees from this work they would not be a company that first comes to mind if one was to think of an avid ILS supporter.

On the other hand Leadenhall Capital Partners, with $4.2 billion in assets available for ILS underwriting, is a company that comes to mind as an avid ILS supporter. Its CEO, Luca Albertini, is one of the most visible proponents of ILS products. Albertini was a participant at the Munich Re roundtable and noted that his investors had been proactive in contacting Leadenhall about post-hurricane loss opportunities but they would expect price movements in order to increase their participation, if not reload existing capital. Translation: they want to see rate increases.

The last remark about "reloading existing capital" came with an observation about the importance of "trapped collateral" which can be held over--again per the terms of an ILS contract --if claims are approaching a trigger point (which would prompt their release) while losses develop.

Albertini said that alternative investors facing trapped collateral issues would be in a difficult position if asked to reload existing capital to a current ILS. He said those fund managers would be in a position where "You don't have a loss, you don't have the capital and you need to reload."

Pundits may be gleefully noting that this is still property coverage. If we were talking about casualty then "trapped capital" becomes a way of life!

Albertini agreed that premium increases would not be in the multiples seen in past post-loss situations after Berstein analyst Thomas Seidel said he doubted there would be large rate movements after the hurricanes as he believed there were still large amounts of capital ready to deploy even with a small price increase.

We do not know if Torsten Jeworrek was present at the roundtable and thus do not know what his reaction might have been to Albertini's comments about possible reluctance of ILS investors to "reload" capital if they were faced with a "trapped collateral" scenario. Obviously, a rated, traditional reinsurer encounters this situation frequently and doesn't, outwardly at least, indicate it may no longer participate until or unless its claim reserve is released.

We may soon get an early indication of whether there will be any issues associated with claim payments from ILS or alternative capital as market sources indicate that an number of Industry Loss Warranty (ILW) contracts are expected to payout following the impacts of Harvey and Irma. According to an article in Artemis there could be as much as $2 billion worth of ILWs that will be triggered. ILWs are a favored investment vehicle for alternative capital because of the clean definition of the triggering event and the generally short-tail property related nature of the insurable interest.

Hurricane Harvey damage more complex than thought

Given the weather events of the past month Hurricane Harvey seems to be a distant memory. Of course for many people in Texas the effects of the storm have become a life-changing event. American TV was replete with shocking scenes of Houston essentially underwater as Hurricane Harvey dumped as much as 50 inches of rain on the fourth largest city in the United States. Once again the discussion of the so-called "coverage gap" --the margin between economic losses and insured losses is already in the news. Estimates of economic damage wracked up in the US as a result of Harvey are as high as $100 billion. The highest estimates we've seen for insured losses from the storm are $25 billion excluding the NFIP losses.

This is an issue the global insurance and reinsurance industry is well aware of. Coverage gaps don't just exist in developing countries or in emerging growth economies. We could end up having 75% of Harvey-caused damage falling outside any insurance coverage in an area that is well modeled and an integral part of the largest economy in the world.

A casual observer would look at the approximately $75 billion in claims the insurance industry may have escaped and think that the insurers had dodged a proverbial bullet but that's not quite the case. If the loss totals incurred by Harvey could have been modeled and planned for and thus built into premium rates the insurance industry would have been lining up to write those risks.

There does remain a risk of mortgage default insurance however, Fannie May and Freddie Mac the two large US government mortgage insurers have made a concentrated effort to offload mortgage insurance risk from the US taxpayer to the commercial insurance market. Several large insurers have entered the market which is thought to be a quite stable source of premium and have announced plans to expand their roles.

A potential problem which does arise in a situation like the flooding in Houston will likely have an effect on this market. Since so much of the flooded area lay outside the zones in which a mortgage lender would require flood insurance there will certainly be many cases of mortgagors who are still paying their mortgages, have no flood insurance but have their homes largely destroyed.

This is a potential worst case for mortgage insurers as people may simply choose to just walk away from the now destroyed home and the mortgage. Typically the mortgage insurer will obtain the rights to the property, after a foreclosure process, if the mortgagor defaults. The problem is that the property could be largely underwater in both terms of value and even literally.

Regarding flood insurance itself basic math can tell you that with a satisfactory rate on line a risk bearer should be willing to write a risk premised on a chronological loss event probability and expect to earn an underwriting profit during the years an event does not occur. That profit is cumulative meaning it adds up so when the time for a loss does come although the underwriting year loss ratio may be terrible the overall loss ratio over the life of the risk can still prove profitable. This is how insurance works.

In the US however homeowner flood insurance is backed by the federal government. Only recently have private insurers and reinsurers been permitted to inch into this market. Some of the limits in the reinsurance contracts that have been written apparently have indeed been breached as a result of Harvey and claims will be paid but overall this direction of allowing more privatization of this risk is a good thing. It's certainly a positive development for US taxpayers who will now be asked to fund the recovery efforts. And if events like Harvey drive more homeowners to purchase flood insurance the pool of prospective premium payers will only grow.

One would think that the current administration in Washington, faced with the need to replenish the National Flood Insurance Program by the end of September, and the eventual size of the Harvey related aid package, would be susceptible to the slightest interest from the insurance industry in the direction of being willing to assume a greater role in this sector. The result could be a dramatic closure of a pretty big coverage gap and access to a pretty big premium pool all related to perils and exposures that are well modeled and well known.

Of course it needs to be noted that many of the commercial enterprises affected by Harvey likely did have flood insurance and most certainly possessed some type of Business Interruption coverage. It's likely that those lines will be hit with severe claim activity.

CATEX "Sneak Preview" of new products

On September 15th in London CATEX held a "sneak preview" of two new products. Data Vera for Binder Management and Data Vera for Exposure Management were demonstrated to two well attended separate sessions in EC3.

CATEX operates a number of binder systems and clients have faced challenges importing bordereau data from sources such as Excel, CSV, ACORD and XML among others in a manner that spots and corrects data errors, omissions and anomalies.

Data Vera for Binder Management uses algorithms to identify data issues and self-corrects the data and provides a complete audit log of each and every change. Data Vera eliminates the need to map data to cumbersome data templates and once the data is imported it may be exported to any destination format desired.

While working with the delegated authority sector CATEX was approached by risk modelers and analysts and asked whether Data Vera could assist them in auto-correcting hundreds of thousands of records included in Statements of Value (SOVs) required for export to CAT models.

Data Vera for Exposure Management addresses the needs of analysts and modelers and automatically cleanses and validates SOV data in seconds and provides an analytics platform from which the user can perform a wide range of standard and customized analytics of the SOV data before automatically exporting the data to integrated model exports.

Once modeled data is returned to Data Vera the user can compare model results from different vendors and even adjust the underwritten book to learn the effect on loss curves if certain risks were deleted or augmented.

CATEX intends to release both products to its platform later this autumn and will have a full-scale product launch event in London. In the meantime we would be happy to respond to any questions or comments about either Data Vera for Binder Management or Data Vera for Exposure Management.

Valuations that attracted attention

Since the July issue several industry related M&A events occurred which we simply tracked and didn't think we would comment on in the newsletter. However we think that given the events of the last six or so weeks they may be of interest. Specifically we noted the differential in multiples when used in establishing the value of an insurer compared to that of a broker, fronting company or software provider.

Comparing these examples as the reader will note will not be quite comparing "apples to apples" but based on the data available perhaps you will note the oddity we believe we see.

Earlier this summer Axis offered to buy the Lloyd's syndicate Novae for a price of ultimately 477 million GBP. Based on what we could discern the purchase price represented a multiple of approximately 1.4 x trailing undiluted net tangible asset value. The acquisition was eventually approved by Novae shareholders despite some public grumbling that Axis could have been made to pay more. Of course there were questions on the other side too about whether Axis had in fact paid too much.

Far be it from us to really have an opinion on the validity of the sale price. We understood the arguments on both sides.

The next item that we saw was in late August which noted that Verisk was going to acquire software company Sequel for 250 million GBP. Sequel is a London-based software maker for the insurance and reinsurance industry.

The terms of the Verisk-Sequel deal seemed to be that Verisk would pay 250 million GBP for Sequel which had revenue of £26mn and Ebitda of £12mn for the year to 30 June 2017. We can't quite extract the "undiluted net tangible asset value" --the metric used in the Novae deal --but we can see that the Verisk purchase price is more than 9.5 x revenue.

Then we saw that the broker Hub International was seeking a valuation of between $6 and $7 billion US (or 4.4 times revenue) for the sale of a majority portion of the company.

Finally we noted that Markel Insurance had made a bid for the fronting insurer State National. Markel agreed to pay $919 million or 4.2 times revenue for State National. State National of course has obtained prominence because of its relationship acting as a fronting insurer for Nephila so one has to assume that Markel had checked with the Bermudian ILS giant before advancing with the offer.

And as we were finalizing this newsletter we noticed that the broker Alliant had been valued at a multiple of 12 x Ebitda as the investment firm KKR sold its remaining stake back to the company.

What do Sequel, Hub, Alliant and State National have in common? Not terribly much at first glance. One is a software company. Two are brokers and the fourth is an insurer. But let's look at what they don't have in common. They don't insure risk, although State National is an A.M Best rated insurer they are mainly known for being a "fronting specialist" that immediately transfers the risk (and premium) upstream and derives fee income from the transaction.

They each act in some fashion as service providers to the insurance and reinsurance industry. Perhaps because an argument could be made that low premiums, low investment returns and possible exposure to large claims don't apply to the likes of Sequel, Hub and State National they can thus be attractive to buyers.

Novae's interim 2017 financial report shows it had a 101.6% combined ratio for the first half of 2017 and lost 14 million GBP and, indeed, Axis did pay 477 million GBP to acquire it. We're not quite sure about this--remember we did offer a caveat about not being able to find apples to apples--but we somehow think that those Novae investors who were disgruntled with the Axis purchase price would have gladly traded places with the valuation formulas used for Sequel, Hub and State National.

"Beam us Up, Scottie"

Roger Crombie

It's not a large part of my life, but I am a Trekker, familiar with Star Trek in all its many and varied formats. You'll have heard of it, even if you have never seen an episode.

Part of the charm of the Star Trek franchise lies in its cheesiness. The very first TV series, made in the late 1960s, was put together on an exceptionally low budget. You could easily see how the magic was created. The movies have cost hundreds of millions of dollars, sort of missing the point, although a whizz-bang 2010s series of movie recreations are worth the eight bucks.

Watch enough Star Trek, and you can drift into wondering how the insurance industry might work in the 23rd century.

Nowhere in any of the TV series or movies, or in an infinite amount of fan-produced web material does insurance come up in any meaningful way. There is one aside on one show about the cost of insuring a 700,000-tonne intergalactic spaceship. That suggests that insurance will endure through the centuries.

Consider for a moment, though, the risk of sending a starship into space. No matter how well-built and -managed the craft might be, aliens from every corner of the universe regularly want to smash it and its crew into little pieces. It's a magnet for destructive forces, like a trailer park is to twisters.

The Starship Enterprise is so accident-prone that almost every week of its five-year mission, and every week of all the other Starship Enterprises' missions, the ships suffer hull breaches, emergency blowouts, collapsing warp fields and a broken clutch.

The spaceship is always repaired by the following week. Two weeks at most.

Where I live, a simple car repair can take best part of a month, but in space, most of a starship can be replaced in seven days flat. Think what a tribute this is to insurance 300 years from now. Inside a week, assessors are available to inspect the damage, obtain suitable quotes, approve the work and still leave enough time for three-quarters of the ship to be rebuilt 400,000 light years from the nearest Sears.

Insurers in the 23rd century would have to embed dozens of robot claims assessors on every ship in the fleet. Although we never meet the full-time representatives of the insurance industry, we know they are aboard. You can't run around the universe in a starship without third party, fire and theft.

Crew regularly suffer horrendous injuries or die. They'd need life and health cover against things that couldn't yet be imagined. Someone would quote on it, no doubt.

The fire risk on a vessel flying through hostile space would be, um, astronomical. Even though we're seeing autonomous vehicles in our streets today, 400 years from now shuttles and even the mother ship herself will, according to Star Trek, be piloted on manual by teenagers.

Liability would be a nightmare. The crew kills aliens across time and space. At least one crew member is kidnapped once a month, pushing K&R rates sky-high. Black hole insurance would be less expensive, however, since cashing the claim check is tricky when you're infinitely elongated across multiple dimensions.

One imagines the coverage would all be automated. Monthly, Captain Kirk would see a bill for insurance that would make his ears bleed. Maybe that's why he fights other beings on all the planets: he's just mad about his insurance bill.

Those familiar with the series will be familiar with intergalactic baddies the Borg, and one in particular: Seven of Nine, a hybrid space hottie. The Borg assimilate into their race every single non-Borger they meet and give them highly functional names.

I have prepared my Borg name in advance, in case they arrive and, after assimilating everyone important in the insurance industry, assimilate me. If it happens in England, I shall be known as 19 and 6. (You'll need to be over 55 to appreciate that comment.) If I'm assimilated in the States, I'd like to be called Five and Dime.

End transmission.

**************************

Roger Crombie is an American Society of Business Publication Editors national award winner. An English chartered accountant who lives in Eastbourne, on England's South Coast, he writes and broadcasts news and opinion in the US, UK, Bermuda and the Caribbean, in print and online. His main beat is insurance and financial services, with 30-year sidelines in music and humour. All views expressed in Roger's columns are exclusively his own. Contact Roger at roger.crombie@catex.com.

September 27, 2017

Quick Bytes

Despite concerns about mortgage defaults after Hurricane Harvey, A.M. Best expects the mandate by the US Federal Housing Finance Authority, to increase participation of reinsurers in the US mortgage insurance sector, will only continue...Confirming what many had long thought Watford Re is said to be readying to file for an IPO as it seeks to be the first total-return reinsurer of the class of 2014-2016 to go public. According to Insurance Insider the Arch Capital-HPS Investment Partners joint venture will look to be listed on the NYSE ...The rain from Harvey prompted Warren Buffett to observe that "It's sort of unbelievable, 14 trillion gallons of water being dropped from the sky . It's staggering." He also said that he wouldn't be surprised if Berkshire's auto insurer Geico ended up with 50,000 total vehicle losses as a result...Instead of building or buying expensive new technology for its North American small commercial insurance portfolio QBE contracted with Brown & Brown's Arrowhead Insurance to serve as its program administrator. QBE said we have a "significant challenge with legacy systems and processes, which are not state of the art and cost a lot of money to fix ." By using Arrowhead QBE will get the "immediacy of the value of that system (Arrowhead's) and technology platform." ... Renaissance Re's CFO Bob Qutub said "For better or for worse, reinsurance has been discovered by the capital markets and I believe it is here to stay even in a higher interest rate environment." Ren's CEO Kevin O'Donnell indicated that going forward the insurer will continue to exercise underwriting discipline and said market behavior in recent renewals suggest that the company's greatest growth is behind it "for the foreseeable future." ...Former Cooper Gay CEO Toby Esser has agreed to acquire the independent London broker AFL . The broker will be acquired by Esser's investment vehicle Next Generation... Zurich CEO Mario Greco's turnaround at the big Swiss insurer seems on track as the company reported a 21% increase in Q2 net income up to $896 million. Greco said that Zurich has achieved some $550 million in cost savings out of an ultimate target of $1.5 billion...The former head of China's CIRC, Xiang Junbo , has been expelled from the Communist Party and is to be handed over to prosecutors because he had "committed serious violations of political discipline and rules" in order to serve personal political interests... Tom Cruise was in courtrooms in the movies "The Firm" and "A Few Good Men" but a 2015 plane crash in Colombia that killed two pilots during filming of a new Cruise movie called "American Made" alleges that the actor is partly to blame for the crash...During the Cold War Germany kept its gold reserves abroad for fear it could fall into Soviet hands in case of an invasion. With the recent return of 374 tons of gold from Paris and 300 tons of gold from New York the German Central Bank in Frankfurt now holds just over half of the 3,378 tons comprising the German gold reserves. Some 37% still remains in New York and 13% in London... European aviation regulators issued an emergency directive for operators of the Airbus 350-900 long-haul plane to upload a software fix to prevent overheating of the hydraulic systems that could lead to an explosion ...Visitors to Bermuda note the efficient government bus system that scarily plow their way across the island's narrow, coral-walled roads. One day last month though some 72 of the island's 105 buses were out of service . The Ministry of Transport blamed the problem on a lack of investment in new vehicles...In one last story, also from Bermuda, there may be a role in your company's future for a Chief Spiritual Officer (CSO?). This person can't help you predict claims but can assist you in understanding the psychology of a person you are negotiating a deal with. The idea's advocate says "When feelings are involved in any kind of deal it is often a blind spot for business people." We recommend then that this fellow send his resume to 1600 Pennsylvania Avenue and Pyongyang before things really get out of hand...