Relevance and scale in re/insurance should not be confused: Lancashire

by Artemis on February 13, 2015

Staying relevant is a running theme and constant topic of discussion in the currently challenging reinsurance market, but relevance isn’t just about market capital and scale, according to Lancashire Group’s senior executives.

During the insurance, reinsurance and third-party capital management firm’s analyst and investor call yesterday, a question surrounding Lancashire’s relevance in an increasingly tough reinsurance market was put forward.

Paul Gregory, the Group’s Chief Underwriting Officer (CUO) and Lancashire UK Ltd.’s CEO, put it succinctly, saying; “Relevance and scale should not be confused.”

Gregory explained that remaining relevant in the reinsurance market is not just about size, rather it is about building and maintaining relationships, being a recommended market with brokers and ultimately the line size you are asked to deploy.

“Relevance is a word that comes up a lot, I think what people need to understand is that our customers, when they think about who’s relevant, they don’t just think about market cap,” Lancashire Group CEO Alex Maloney added.

“You can be relevant in many different ways, and from our point of view if we weren’t relevant in everything we do we’d be wasting our time in this market,” he continued.

Lancashire confirmed that in previous years and still today, they haven’t lost any business because someone felt they weren’t relevant enough. “You don’t have the programmes we have unless you’re relevant,” he added, citing its ability to put out large line sizes in classes of business like terrorism.

During the call focus circulated around current market trends, including the recent hike in merger and acquisition (M&A) activity and how this impacts Lancashire, and views on the effect of prolonged rating pressures.

On M&A activity, Maloney stressed that Lancashire sees this as an opportunity, as each time a new deal happens Lancashire effectively becomes more relevant to brokers, a natural result of a consolidating market.

“I don’t think M&A is going to impact on our capacity to trade. From M&A we actually see opportunity,” noted Maloney. He went on to explain that opportunities to employ good underwriters that can bring solid business often occurs following M&A deals, as some may find themselves looking for a move.

Maloney continued to note that should opportunities to grow, through hiring the right people, present themselves, then Lancashire will act on that, but if the company can’t get the right people then simply it won’t.

On continued ratings pressures with a look to the future, Paul Gregory said; “If prices do continue to go down it will be those with underwriting books with low combined ratios who will ride it out best.”

Maloney also commented on the rates movements, saying; “People have a view there’s a floor in the market, I’m not sure I have that view. It’s interesting to see how much further reinsurance can go. Appetite depends on the carrier and usually nothing changes in the reinsurance market until someone suffers big losses.”

In a reinsurance market that’s reacting to sustained low rates, ample competition and increased capacity, the strengthening or loosening of terms and conditions (T&C) become a constant theme during renewals, and this was no different for Lancashire.

Gregory warned that with T&C it’s important to look at it from the reinsurance world and then the insurance side separately, and that with insurance T&C wasn’t really an issue during renewals, with the focus lying heavily on rate pressures.

“With the reinsurance side there is some push to get extended coverage’s with the Hours Clause, some terror expansion and reinstatement changes, but nothing much beyond that,” explained Gregory. He also noted that Lancashire itself has benefited from this in its own, larger, reinsurance buys this year.

Looking forward the company feels confident about its position in a challenging market, happy to maintain its strategy of adapting to an ever-changing market, while resisting from underwriting business just for the sake of it.

“You always have to adapt and evolve or get left behind. We see ourselves as a purely specialty underwriting company, we’d like to develop more specialty underwriting teams,” said Maloney.

“Everything we do is to adapt to a market that is changing quite quickly,” Maloney explained, adding that he still believes in the market cycle, but what is different this time is how quickly things have changed.

In a time of M&A when many are clearly looking to scale as the answer to all their problems, it is refreshing to see that relevance is also achievable through being good at what you do. Specialising and remaining uniquely focused on the areas of the market that work for you, while only expanding when you have the expertise to do so as a market leader, is a robust strategy that is working for Lancashire.

Alongside its broadly diversified platform, helped by Lloyd’s access with Cathedral and a unique and growing third-party reinsurance capital unit in Kinesis, Lancashire feels it is well set to ride out the challenging market.

Also read: Lancashire grows pre-tax profits despite reinsurance & retro pressure.

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