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Zurich buying more reinsurance, continuing large commercial cutbacks

Studios, Exhibitors Set To Spar Over Streaming

Power Forecast Briefing Discusses Improved Spark Spreads and Profitability Projections for ERCOT and PJM

Energy

Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Nexstar Buys WGN For A Song; Divestiture Of WGN, Stakes In Food Channels Likely


Zurich buying more reinsurance, continuing large commercial cutbacks

Zurich Insurance Group AG is looking to buy more reinsurance and will keep shifting its portfolio away from large, long-tail commercial business.

Speaking to analysts at Zurich's investor day, CFO George Quinn said the company had already increased reinsurance purchasing in liability, having put a large program in place in the U.S. earlier this year. He said the cover is strategic and Zurich expects to keep it over the long run. He also noted that the company had increased reinsurance protection for financial lines earlier in the year "in one of our major markets."

The current focus for Zurich is on catastrophe reinsurance, which Quinn said provides "good value" for the company.

"Even though the exposures are relatively modest, we could bring them down in a few of the areas that maybe haven't been tested so much," he said.

The increased reinsurance buying comes as Zurich works to reduce the volatility of its underwriting results by changing its business mix. Quinn said that analysts should expect to see the company shrink long-tail commercial insurance business in favor of short-tail, and also shrink large commercial overall in favor of retail and coverage for small and midsize businesses.

"That is where we believe the sweet spot currently is," he said.

Zurich is also considering extending a more tactical reinsurance purchase it had made two years ago for U.S. commercial property.

The changes to Zurich's reinsurance program will include some reductions as well. Quinn told analysts that Zurich had reduced the volatility in large claims to two percentage points for the 2016, 2017 and 2018 years from eight percentage points across 2014 and 2015. Zurich is working with its reinsurance provider to scale back on cover for man-made losses "to make it sweat a bit harder for our shareholders," Quinn said.

Hits and misses

Zurich said it is on track to at least hit its financial targets for the 2017 to 2019 period, which include a return on equity of greater than 12%, increasing annual expense savings of $1.5 billion by 2019 compared with 2015 levels, and capital levels covering between 100% and 120% of the amount stipulated by the insurer's economic capital model.

But the company said that the completion of its planned $2.14 billion acquisition of Australia & New Zealand Banking Group Ltd.'s OnePath Australian life insurance business would be delayed until the end of the first quarter of 2019. That deal had originally been projected to close by year-end. This means that Zurich will only benefit from the OnePath Australian life business in its consolidated results for nine months of 2019 instead of the full year.

Quinn told analysts that there are "still some risks" to the new closing date but stressed that the end of the first quarter of 2019 "does look likely at this stage."


Technology, Media & Telecom
Studios, Exhibitors Set To Spar Over Streaming

Dec. 14 2018 — According to an article published in Variety in November, Warner Bros. and Universal Pictures are expected to reopen conversations with exhibitors about earlier VOD releases for their films. The studios argue that an earlier on-demand release helps minimize piracy and allows them to better leverage the multimillion-dollar ad campaigns launched for their films' theatrical debuts.

Exhibitors, on the other hand, worry that a shorter theatrical window will reduce ticket sales as potential patrons opt to wait and watch films at home. Fewer ticket sales also lead to lower concession revenues -- the most profitable aspect of the exhibition business.

The article also notes that studios have an extra incentive to negotiate earlier release windows, as WarnerMedia is launching its own streaming service in 2019 while Comcast, home of Universal, is looking to expand its streaming offerings. Having their major films released on their respective services shortly after theatrical release could help drive subscriber growth.

Pushing for a film's possible VOD release just weeks after its big-screen debut could be seen as an aggressive move, but studios have been slowly shrinking their theatrical release windows over the past 20 years. In 1999, the average theatrical window was 169 days; this was just as the DVD market was beginning to explode and the VHS cassette was still a market factor. Soon, DVD became a massive source of revenue for studios and they began to release their films on home video at a quicker pace. In 2017, the average theatrical window dropped to 105 days before dipping to 99 days in 2018.

The major studios all trimmed their theatrical windows by a fair amount between 2000 and 2018, from an average of 172 days down to 94 days, a difference of more than two and a half months. Twentieth Century Fox and Universal Studios had the shortest average theatrical window at 89 days, while Walt Disney had the longest theatrical window at 107 days.

We tracked eight blockbuster films in 2018 that were released on home video less than 90 days after premiering in theaters. The shortest window belonged to "Venom" ($212.3 million domestic gross), which was released in theaters on Oct. 5 and will debut on DVD and Blu-ray just 74 days later on Dec. 18.

The motion-picture business has always been able to capitalize on new technology, from the TV to the VCR to the DVD player, to drive growth. Streaming video has become the primary source for home entertainment — just ask Netflix and its 137.1 million subscribers worldwide. If studios are launching their own services, they naturally want their own premiere content on those services. Studios may not get the rapid release window they are hoping for, but they will likely keep bringing it down slowly, as they have for the past two decades.

If you are a client then learn more about Economics of TV & Film below:

Movies make their way to your home in less than 100 days in 2018

State of Home Entertainment 2018

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Watch: Power Forecast Briefing Discusses Improved Spark Spreads and Profitability Projections for ERCOT and PJM

Dec. 13 2018 — In our latest Power Forecast Briefing, Steve Piper discusses recent power market activity and a forecast that points to profitability for merchant generation regions of ERCOT and PJM. Both saw improved spark spreads in 2018, but ERCOT's upside appears more limited than PJM going forward. More data and market tracking tools can be found on the Market Intelligence platform’s Power Forecast subscription.

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Watch: Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Steve Piper shares Power Forecast insights and a recap of recent events in the US power markets in Q4 of 2017. Watch our video for power generation trends and forecasts for utilities in 2018.

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Technology, Media & Telecom
Nexstar Buys WGN For A Song; Divestiture Of WGN, Stakes In Food Channels Likely

Dec. 10 2018 — Walt Disney Co.'s pending acquisition of much of 21st Century Fox Inc. certainly raised the bar for cable network valuations — at 15.4x cash flow — and the divestiture of the regional sports networks may see another double-digit-multiple transaction with Amazon.com Inc. in the mix of buyers. Another deal, Nexstar Media Group Inc.'s pending acquisition of Tribune Media Co., sees stakes in three cable nets going to the buyer for single-digit multiples (6.9x).

The deal follows the collapse of Sinclair Broadcast Group Inc.'s deal to buy the company, which is now being litigated. We think that Nexstar is getting quite a deal on the cable network assets and will likely flip them for a quick profit.

When Discovery Inc. agreed to buy Scripps Networks Interactive Inc. in July 2017, the domestic cable networks were valued at $10.14 billion, or 10.5x cash flow, with Food Network (US) valued at $4.5 billion (Scripps owned 68.7%) and Cooking Channel (US) (also at 68.7%) valued at $525 million.

In the current transaction, the valuations come to $3.47 billion and $323 million, respectively. Thus, if Nexstar can get Discovery Communications to pay at least what it paid in the Scripps transaction, Nexstar may make a quick profit. Granted, minority interests typically trade at a discount. Scripps Networks Interactive, however, has tried for years to cut a deal to buy out the minority stake and it may be willing to strike a deal at a higher price to put this issue behind it.

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