Stephen Catlin - Risk & Reward: An Inside View of the Property/Casualty Insurance Business

RISK &
REWARD

R ISK &
R EWARD

An Inside View of the
Property/Casualty Insurance Business

Stephen Catlin

with James Burcke

First published in 2017

by Iskaboo Publishing Ltd

22C Lady Margaret Road

London NW5 2XS

www.iskaboo.co.uk

Design and typesetting by Emperor

Printed in the United Kingdom by CPI Colour Ltd

All rights reserved

XL Group Ltd

The rights of Stephen Catlin and James Burcke to be identified as the authors of this work have been asserted in accordance with Section 77 of the Copyright, Designs and Patents Act 1988.

The statements and views expressed in this book are solely those of the authors and do not represent the statements and views of the XL Group Ltd group of companies or any other persons affiliated with XL Group Ltd or its subsidiaries.

A CIP record for this book is available from the British Library

ISBN 978-0-9575595-6-1

To all those who contributed to the success of Catlin Group Limited

CONTENTS

List of Illustrations

FOREWORD

Nikolaus von Bomhard,
Former chairman of the board of management, Munich Re

Stephen Catlin and I first met back in the early 2000s. At that time, he was already a well-known figure, not just at Lloyds but also in the global insurance world. My first impression of Stephen was strong; he came across as very determined, technical and always mindful of the insurance industry as a whole. The fact that we are both truly passionate about politics and opera enthusiasts certainly helped to bring us closer together.

Over the years, we have come to know each other increasingly well and have become friends. Consequently, when Stephen asked me if I would be willing to write the foreword of his book, I accepted immediately. When he sent me the draft of Risk & Reward, I knew I had made the right decision, since I felt compelled to keep reading down to the final page.

Risk & Reward is in part a history of the Catlin Group and, as Catlin is inextricably connected to Stephen Catlin, it is also a history of his unprecedented lifetime achievements. Having started as a small Lloyds syndicate without a fax machine or a photocopier, Catlin became a multi-billion-dollar company employing 2,500 people in 25 countries. That is what I call a successful start-up! And over time, Stephen has become a highly esteemed insurance heavyweight to whom the industry rightly listens.

At Munich Re, Catlin (now XL Catlin) is respected as a competitor and highly valued as a client, with whom we have built a long-standing client relationship. The atmosphere of trust and respect between our companies has, of course, to do with individuals, and Stephen Catlin tops that list.

In this book, Stephen also presents his views on the developments within Lloyds and on the challenges currently facing the insurance industry. Many of the opinions he puts forward in this book coincide with my own. This refers, for example, to what he has written about the paramount importance of risk management and the art of underwriting. Unsurprisingly, I also completely agree with his remarks on the usefulness of reinsurance, but as a reinsurer myself, much less so with regard to the value of arbitrage in reinsurance, which he mastered so well as an underwriter at Lloyds. And I sincerely hope that his call to more vigorously address new risks such as cyber in order to remain relevant for our customers will be heard throughout the insurance industry.

In my view, the strongest parts of this book are those where Stephen recollects and visualizes personal encounters. He transports the readers back in time and allows them to participate in the discussions and decisions which led to the growing success of Catlin and, at the same time, provides a much better understanding of Lloyds eventful history over the last 45 years. Anyone who has had the privilege of discussing issues with Stephen knows that he gets to the point in comprehensible, direct language without hiding behind convoluted phrasing and technical terms, of which there are plenty in the insurance world. So, you really do not have to be an insurance expert to understand and enjoy Risk & Reward.

With my final remark, I cannot resist disagreeing with one of Stephens theses. He writes that the insurance industry is doing a poor job explaining what it does and why. This is not true. You would like proof? Then turn the page and start reading!

With my warmest regards,

Nikolaus von Bomhard

PREFACE

As the old saying goes, you cant judge a book by its cover. I hope that holds true in the case of this book. Many readers may think that Risk & Reward is my autobiography. Its definitely not.

Risk & Reward is my attempt to draw on more than 40 years of experience in the property/casualty insurance industry to discuss some of the most important practices and concepts underlying the insurance business. Along the way, I will use examples from my life to illustrate these issues, but this book is about insurance and the insurance industry, not me.

I hope the book will be valuable to those who are interested in learning how to build an insurance business from the ground up. After working at Lloyds of London for more than a decade, I decided in 1984, at the tender age of 29, to establish a managing agency and an underwriting syndicate. Catlin Underwriting Agencies Limited began business with two employees: an assistant underwriter and me. It had paid-up capital of 25,000, some of it secured against my home, and a silver inkwell that had been given to me by Brian Evens, my former boss. During our first year of operations, Syndicate 1003 wrote just 2.5 million in gross premiums.

Over the years, the managing agency grew and developed to become the publicly traded Catlin Group Limited, to which I will refer in this book as simply Catlin. As many of you know, Catlin was acquired by XL Group during 2015 in a transaction that valued Catlin at more than $4 billion. At the time of the transaction, Catlin wrote annual gross premiums of $6 billion through 55 offices in 25 countries around the world. We employed 2,500 people.

I served as Catlins chief executive officer at the group level during the entire history of the company.

* * *

I had never contemplated writing a book until shortly after XL acquired Catlin. I met with Mike McGavick, XLs chief executive officer and my new boss, to discuss my responsibilities as executive deputy chairman of the merged companies. Much to my surprise, Mike encouraged me to write this book.

Look, he said, you have been in this business as long as practically anyone, and you have a great story to tell.

After a couple of days, I began to see his logic, although perhaps with a bit of a different spin.

If you search in a bookstore or on a website such as Amazon for books on property/casualty insurance particularly commercial insurance as opposed to personal lines coverage you wont find much. Youll find lots of books about other sectors of the financial services industry, such as banks or stockbrokers, but not very many books about insurance. Many of the insurance books you will find are at least 20 years old, and most of them are theoretical volumes written by university professors. You will find few books based on the real-life experiences of people who actually worked for an insurance company or an insurance broker.

I must admit that I knew nothing about insurance when I got my first job at Lloyds in 1973. I learned primarily from experience and by asking as many dumb questions as I could. I also began taking the courses required to earn the Advanced Diploma in Insurance (ACII) designation from the Chartered Insurance Institute in London. I passed all of the required examinations within two years bar one: Marine, Aviation and Risk Assessment. That was a bit surprising as I was just starting to underwrite marine insurance. I think I failed that exam five times. My boss finally told me that I should just give up.