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2019 is the year of building the toolkit: Catlin, Brand, Convex

Published November 7, 2019

Luke Gallin

11 October 2019

Specialty insurer and reinsurer Convex continues to build its toolkit and lay strong foundations in a changing reinsurance market landscape, explains Stephen Catlin and Paul Brand.

In an interview with Reinsurance News, Convex co-founders Catlin and Brand, discussed the thinking behind the launch of the international specialty re/insurer, the story so far, and the company’s ambition to become an established, permanent market player.

The pair announced the launch of Convex in April 2019, with initial committed capital of $1.8 billion, and A- ratings from A.M. Best for its subsidiaries.

Noise of a return to the market for the firm’s Chairman and Chief Executive Officer (CEO), Catlin had been in the air for some time, and the insurance and reinsurance industry expert and veteran told Reinsurance News that the thinking behind Convex was the result of a number of factors that came into play.

“Our non-compete ended at the end of 2018 and the market looked like it was ripe to change. I wouldn’t say the market is where it needs to be but it’s heading in a better direction than it was a year ago. Secondly, a lot of people, particularly clients in distribution, were saying we would love you back in the marketplace, we could do with some leadership. Finally, bankers told us we could raise the necessary funding for a sizeable start up.

“Starting with a blank sheet of paper and, clean ten year capital is a fantastic opportunity to create the re/insurance company of the future,” said Catlin.

Following consecutive heavy catastrophe loss years for reinsurers, underpinned by a series of hurricanes, typhoons, and significant wildfires, rates started to move in a positive direction, signalling a possible end to the prolonged softened market landscape.

Catlin explained that Convex has had the ability to trade since 1st of May and alongside its all-important A.M. Best rating, the firm has licenses in both London and Bermuda.

“It’s early days yet, a lot of people that are going to join us haven’t joined yet as they are on notice / garden leave until around the beginning of November,” he explained. “We have written an amount of reinsurance cautiously since 1/6 and continue do so. We don’t really kick start the primary account until the beginning of next year.

“We always saw 2019 as the year of building the toolkit, we never saw it as the year to be writing huge swathes of business. And, with a market that is turning that is no bad thing in itself.

“We are exceptionally fortunate in that we’ve got ten-year private money, and we’ve got a cornerstone investor who completely understands and supports our methodology and approach. It means we’ve got time to build Convex thoughtfully and carefully. Some people think we have to write business or else we won’t survive, and that is not the case at all. It is much more important to lay solid foundations. The team of underwriters that we’ve hired is  one of the strongest in the market already. We’ve been very lucky with the people that have wanted to join us.”

Brand, who serves as Deputy CEO of Convex, emphasised that the firm is “very happy with some of the blue chip account that we got access to on the reinsurance business at 1/7.” And, also agreed that on the insurance side of the business, Convex needs the underwriters in order to start writing the business.

“But we are happy with the flow that we are currently seeing,” said Brand.

Discussing the current rate environment moving forward, both Brand and Catlin agreed that while there is evidence of change in the market, the tailwinds are here to stay for some time.

“People are reducing the size of their portfolios and Lloyd’s participants have been forced into it by the Corporation, which creates opportunities.

“I also believe that the casualty market is under a lot more duress than some believe. Some of the deterioration in casualty that we’ve seen this year, arises from business written 10 years ago. We all know that pricing today is probably half what it was ten years ago and if you lose your money from business written ten years ago, think what you’re going to be doing in 5-10 years. There’s definitely quite a lot of pain around for some time to come,” said Catlin.

Brand, added, “I think the underlying concern is whether there is a growing issue with reserves for the industry and there’s a mounting, body of evidence that says there is.”

Convex launched during an interesting time for the global re/insurance market, and the rise of technology and its increased focus on the sector, combined with modernisation and efficiency efforts seen at both a company level but also at places like Lloyd’s of London, suggest it’s going to remain an interesting yet challenging space to operate in.

Talking to Reinsurance News more specifically about Lloyd’s and the efforts being undertaken across the specialist marketplace, Catlin underlined his support for CEO John Neal.

“He understands global business and he understands distribution, so he comes to the table with an in-depth understanding of the marketplace, which hasn’t happened before; he is also very determined to prove a point,” he said.

Regarding Convex having a syndicate at Lloyd’s, “the jury is out,” said Catlin. “I grew up in Lloyd’s and I’m emotionally attached to it, but you can’t make decisions based on emotions. If as we hope, John succeeds in making significant change in the marketplace, in terms of its structure and cost base in particular, it makes the decision a lot easier for us.

“First and foremost, we’ve got to decide definitively whether being at Lloyd’s is going to add value for our shareholders.”

While Brand said, “Lloyd’s is taking some very necessary corrective action, and they are causing a certain amount of duress in the marketplace. The market is going through a change which you  start to see when major insurance organisations like Lloyd’s and the big composites  refer to the ‘what we aren’t going to do’ business  as opposed to ‘what we are going to do’; this does also create opportunities though.”

Looking forward to the key January 2020 renewals season and beyond, and Catlin explained that Convex isn’t going to predict what it is going to write in 2020 because it’s yet to see what the pricing opportunity is going to be.

“Essentially what matters is that we lay firm foundations, what matters is that we are here in 10 years’ time. The strong conviction we have is that if we build carefully, we will be able to achieve our end goals. But exactly how that happens is impossible to predict,” he added.

“The most destructive thing for our long-term success would be to think we have to go focus on volume in 2020 and end up working with a whole lot of sub-par business, we don’t need to do it and we won’t do it.

“Convex is about building a business that has intrinsic strength; it’s a long journey and we want to be around for a long period of time,” said Brand.