More results →
Articles » Battlin’ Catlin
Asia Insurance Review,
Stephen Catlin is back on the scene, four years after
selling the company that carried his name to XL Group for $4.1bn – and two
years after he retired from the company. Now he’s back with a new venture
called Convex – because he’s seen a significant market gap. Some of the
industry’s biggest players will be watching very closely.
There must be many ‘legacy reinsurers’ around the world that
wish they could get out from under the burden of old systems, old relationships
and old ways of doing things and start afresh.
What may remain a dream for many of them is turning out be
reality for Mr Stephen Catlin, the icon of the industry who is co-founder,
chairman and CEO of the new specialty insurer and reinsurer, Convex, that
launched with the slogan of ‘Challenging the Status Quo’.
Convex ‘occupies a unique position in the insurance industry
combining unrivalled experience, reputation and a legacy-free balance sheet’,
according to its website.
Back in the ring
Mr Catlin explains the opportunity and why he’s back. “We’re
back because we has the opportunity to be back,” he said. “We were very
fortunate to raise a substantial amount of capital quite quickly, with a
10-year commitment. In the current climate, to start with a blank sheet of
paper, no legacy of process, no legacy of liability, to be able to think
through the use of technology from the get-go is a tremendous opportunity.” Mr
Catlin is referring to $1.8bn in capital that he and Paul Brand raised earlier
this year for Convex – including $750m from Onex Partners.
He has lost none of the enthusiasm that saw him establish
none of the most recognised firms in the industry back in 1984. “We are doing
something that I don’t think anybody else has done so far,” Mr Catlin said. “We
are outsourcing horizontally all of the process that doesn’t require
intellectual input. We have one company based in India with 45,000 employees,
of which 11,000 are involved in the insurance industry. They’ve got up-to-date technology
for process. Frankly, they can do it better than we could do it ourselves. They
can fund it better than we could and it saves us 3% of expenses and that’s
about a 5% ROE on its own.”
Being freed from the encumbrances of an established firm has
added a new sense of vitality to Mr Catlin’s latest venture. “The CEO of a
leading reinsurer told me, ‘I’m going to be watching you very carefully. I can
see this as a very attractive way to do business,’” said Mr Catlin.
It is through the elimination of process inefficiencies that
Convex hopes to be able to operate a more seamless service. “Both sides of the
industry, broker and underwriter, spend a lot of time on process and they do it
badly and inefficiently,” said Mr Catlin. “Some of the money that we’re saving
on process, we can spend on ‘intellectual technology’ like algorithms, AI,
normalisation of data, enhanced rating models. We can concentrate on the
analytical side of what we’re doing and that is a huge competitive advantage.”
It seems likely the Convex will attract copycats. “A lot of
people that we know well are looking at us and saying, ‘I wish I had that
opportunity.’ Because they’re going to be spending years on their back years,
years on the process, years trying to cleanse their data, years trying to
integrate their legacy systems.”
With a physical presence in London and Bermuda, does Convex
have its eyes set on Asia?
“We characterise ourselves as a global specialty insurer and
reinsurer specialising in complex and high-value risk,” Mr Catlin said. “It’s a
nice way of saying that we’re not interested in personal lines or commercial
business, but the emphasis is on being global.
“In the past, we built a global infrastructure, which was
very expensive. Our view then was that if you wanted to be global, you had to
be local. What we found was that specialty business comes into London or
Bermuda anyway. So we’d spent all this money building up teams and capability
and they didn’t get properly used. We found ourselves writing business that we
were not that interested in – and the business we were interested in was coming
into London anyway.
“There is no immediate view about having a physical presence
in Asia. We will have people traveling there and we will be written a lot of
Asian business, but it’s going to be written in London.”
China in perspective
Mr Catlin is quite objective about the potential that the
fast-developing Chinese market offers to the new venture. “I’m not sure that’s
where we would want to go yet. It’s not a priority in the short term for us
anyway. Our priority is to build the existing portfolio successfully.
“In time, the Chinese insurance and reinsurance industry
itself will become global. You can’t take a 10-, 15-, 20-year view of life
without taking notice of China or India. Both are big economies with a low
penetration of insurance and reinsurance, both of which have governments taking
more risk than they need to,” Mr Catlin said.
Staffing a start-up during a
How Convex has managed to get enough good people when top
quality talent is then on the ground may be a surprise to some. “If I say I’m
humbled by what’s happened in the last six months, I hope you understand that,”
Mr Catlin said. “By the end of this year we will have 100 people on board, half
of them underwriters. It’s all been word-of-mouth and 75% of the people
approached us. Why? Fundamentally, there are two reasons why people have come.
“In the bigger companies the coalface is getting further
away from the management. And fewer managements have actually been at the
coalface anyway, so people feel unloved, unprotected. The market knows that we
started in this industry from the bottom. We understand every facet of the
underwriting business. There is an appeal for people to work with a management
team that understands what they do and will support what they do.”
Cyber in mind
Every insurer and reinsurer seems to be struggling with the
issue of how to treat cyber – and Convex is no exception. “Cyber is the biggest
insurance challenge I have ever come across in my career,” said Mr Catlin. “I
cannot think of any other risk that we have in our portfolio; hurricane, flood,
typhoon, nuclear way, pandemic, that isn’t a regional loss. Cyber can hit the
entire globe in a nanosecond. And that means that the systemic nature and the
downside risk to capital of that is bigger than anything else we have seen
before. It is much, much bigger that the total capitalisation of the entire
P&C industry. To think that we can cope with this challenge on our own is
insane. We don’t have the capital.
“I’m an old-fashioned guy and what I do is I sell a promise
to pay and therefore I have to underwrite within the constraints of my capital.
Technology is moving so quickly that there are a very few people in this world
that truly understand where technology is at any given point. Underwriting the
known is particularly dangerous. It’s not a very attractive underwriting
proposition at the moment but it’s probably the biggest exposure that any of
our clients has. So in 10 years’ time, if we can’t offer cyber coverage, how
are we going to be relevant to them?
“It’s a big issue and I’m not going to shy away from it. We
will embrace it but we need to find mechanisms where we can actually deal with
it,” Mr Catlin said.