The Intelligent Quarterly from the publishers of The Insurance Insider

Summer 2018

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Punching above their weight

Catrin Shi

It's taken something of a Herculean effort to get Barbican CEO David Reeves, chief underwriting officer Mark Harrington and chief operating officer John Godfray in the same room at the same time for their interview with this magazine.

The trio are almost constantly on the move, visiting clients and prospective partners in all corners of the globe.

Because these days, Barbican is far more than just a London market business.

The Lloyd's carrier is celebrating its 10th anniversary this year, having launched in 2007 with a stamp capacity of just £75mn.

Today, the group manages around £500mn in gross written premium and boasts a growing fee business, as well as a well-respected Lloyd's syndicate. During its lifetime, it has strived to bring diversity of capital to the London market, from both traditional and alternative sources.

Now, it has set its sights on the US with a new excess and surplus lines (E&S) property MGA - but Barbican's ambitions do not stop there.

CEO Reeves envisages his firm will continue on its path to eventually become a £1bn premium business - but by organic means only.

Insider Quarterly (IQ) sat down with Reeves and his colleagues to find out how.

IQ: It's been 10 years since Barbican launched. How different does the company look now to how it was then?

David Reeves: We launched as a Lloyd's business and are eternally grateful to Lloyd's for giving us that opportunity. We have been able to use our Lloyd's platform as the basis to expand into a much wider insurance group. Back then I thought 2008 was a tough market, but if only we had known how bad it could get!

I think we have real survival characteristics as a business. Our people are tough, experienced, and we have shown we can go through the whole cycle and come out the other end in good shape. We have made a big investment in people, processes and systems to make us tough and sustainable, and to take us through the next 10 years and beyond.

Mark Harrington: We've deliberately introduced a fee-based part of our business to help us manage the underwriting cycle, so that is a positive development we didn't anticipate at the time.

David Reeves: We believe that within three years' time, our fee income businesses could cover the whole of our group expense, so this has become a very big part of what we do.

John Godfray: Some opportunities have been born out of circumstance and we have evolved in response to market conditions. However, the underlying principles that we built the company on have remained the same throughout. Whilst we have seen significant expansion in our headcount, geographical reach and capacity under management, the organisational DNA, drive and ambition feel very similar to 10 years ago.

IQ: What has been the company's greatest achievement in those 10 years?

David Reeves: Two things stand out. First, the people we have recruited. We have a team which has stayed together through thick and thin. Second, the customers we have and the bigger corporate partnerships we have been lucky enough to land. We don't try to sell hard, we just tell potential partners about our market, how it works, and what we do. We have found that way of educating people about London is the most effective way of building long-term partnerships.

Mark Harrington: An obvious one for me is setting up our Lloyd's managing agency, BMAL - and we did that within three years of launch. That is still one of the best things we have done.

John Godfray: I think that a real differentiator for us is our strong track record and reputation for establishing, and in some cases pioneering, ways of leveraging our expertise for underwriting, capital and syndicate management in return for fee income.

This balance of risk-based and fee-earning income not only allows us to manage our bottom line throughout all stages of the underwriting cycle, but is also a positive for the market in creating a conduit for attractive business that may not otherwise have made its way into London.

IQ: What has been the biggest challenge for Barbican?

David Reeves: It's really about relevance and how we stay in the brokers' eye, because we are not one of the largest companies in the Lloyd's market.

Another challenge is that we are a self-sufficient company - we're not owned by a major insurance group and don't have a parent to come and help us when times are hard. We are out there on our own.

We have a very solid investor in Texas but we run our own business, so the biggest challenge is doing this all ourselves - we have done it with our bare hands. It's a great challenge to have and if anyone ever gets that opportunity, I would recommend seizing it.

Mark Harrington: I think we are genuinely regarded as being able to punch above our weight. As an independent business, with effectively a Lloyd's-only platform for taking risk, we have managed to keep up our profile and franchise pretty well over the years.

John Godfray: One of the challenges that I think we have managed very well for a company of our size is making bold choices. We have been very agile in expanding our focus, exploring emerging opportunities and investing in new processes and capabilities to keep pace with the demands of our clients and brokers. That has required us to take a number of risks over the years, but in the majority of cases these have paid off.

IQ: You have established a track record of successfully sponsoring sidecar syndicates - is this something we can expect more of from Barbican?

David Reeves: Lloyd's is a tough place to get into. For people who don't know Lloyd's very well, we help explain the opportunities and tailor something to their exact needs. That worked very well with companies like Credit Suisse, which may not previously have had a complete understanding of how the Lloyd's market operates.

The establishment of Special Purpose Arrangement (SPA) 6132 with Toa Re has been a five-year journey of exchanging ideas. We are speaking to many people in many diverse territories to tell them what we do here in London and see if it is of interest. There are about six or eight organisations that are in that dialogue with us, but I don't know which company will be next.

Mark Harrington: We are interested in true partnerships where we can add value but also add something different to our portfolio. Where possible, it is great to bring something to the Lloyd's market that is not there at the moment. We are looking for almost a joint venture-type relationship with them. We rarely engage with what we call opportunistic underwriting capacity.

IQ: Tell us a bit more about your new venture in the US.

Mark Harrington: The platform that we are developing in the US is effectively a start-up MGA business, which in the first instance will specialise in property E&S. With all the recent catastrophe activity, we think our timing may well be perfect for Colin Mayo and his team to get back in the market.

The plan is to write $20mn of premium in year one with a focus on wind-exposed territories in the US, so very much a local US E&S play. I hope from the development of the property E&S part of the business that we can build on this in the same way we have with Barbican Protect and Castel.

IQ: Do you think we will look back at the Q3 2017 cat losses and see them as a turning point in recent market history?

Mark Harrington: Yes. I think that we all recognise there is a significant amount of capital in the market, but we do believe that, coupled with the generally lower margins, recent events will provide the final shove to make people recognise there needs to be an improvement in rates. And it's not just the underwriters, the brokers are accepting that outlook too.

We expect that the more affected lines will see strong rate increases - 20-30 percent on property cat, for example. For the casualty market, which is less affected, we anticipate a positive rate movement of up to 5 percent.

We are trying to get everyone to think about moving the portfolio price in a positive direction, whatever area of business you are in. We have to remain mindful of the individual risk characteristics though, and not to throw the baby out with the bath water.

Experienced underwriters will be able to differentiate between the portfolio rate changes we are looking for and the realistic rate changes for each individual risk.

IQ: How is Barbican positioned to take advantage of any rate increases which may occur as a result of these losses?

Mark Harrington: We have been conservative about our position on cat risk over the course of the last five years and have reduced our exposure as margins have gone down. Now we can aim to increase our position, for example with our new property E&S business, where we expect substantial rate increases.

Although I would hesitate to call this growth opportunistic, we always plan for all eventualities. It is opportunistic from a timing perspective but not a strategic one.

IQ: There are fears the Lloyd's and London market is losing its competitive edge. What do you think the market can do to maintain its global status?

David Reeves: One frequent criticism is that it's too expensive to do business in London. But the fact is there is a cost for strong regulation, and I think we should turn that into a selling advantage, because the triple layer of regulation is very attractive for people coming to London for reliable insurance. They trust the way things are done. The products are hygienic and long lasting, and that comes at a price.

Of course, at the same time, you should always be looking to do things more efficiently in your business. It's a perpetual balance.

John Godfray: The market is not complacent. There is a lot of investment and work underway across Lloyd's and the London market to enhance market efficiency, streamline processes and improve cost management. We need to be receptive and responsive to change.

As an industry, we're getting better at adapting to market conditions but we've got to work even faster and perform better. Harnessing data and technology will have a major part to play in maintaining our competitive edge.

Mark Harrington: I think the attractiveness of London is actually the people that are here. There is real strength and depth across the London market, which is genuinely unrivalled by any other global centre. I think it will take a lot to destabilise that.

IQ: Where would you like to see Barbican in another 10 years' time?

David Reeves: I want to see Barbican at least double in size. At some point during the next 10 years we expect to go through that milestone and have over £1bn of premium under our management.

We are not looking to get there via acquisitions. Our key characteristic is creating new underwriting platforms. We are not out in the market with a big chequebook. By creating and growing successful underwriting platforms such as syndicates, MGA, SPAs, we will get there.

John Godfray: We've never shied away from new challenges or opportunities and I don't see that changing. We see ourselves as early adopters and I would hope that over the next decade we'll continue to be at the forefront of advancing new technologies, innovations and data modelling.

IQ: How do you think the London market will have changed by then?

David Reeves: I think if we stick to our core strengths, the future is bright for the market. Balance sheets are strong, liquidity is high and capability is there. If we can harness the intellectual capital, we will be a much bigger market with a wider global reach. I am an optimist, and I see things coming together well.

Mark Harrington: If I could wish for something, it would be that the industry will manage to make better use of the data that is accumulating. There is significant cost in the chain at the moment.

John Godfray: I think we'll see more market collaboration on common areas of process efficiency. The world is changing at a rapid rate and, rather than fear disruption, we need to work with technology leaders to ensure that we keep pace.

This article was published as part of issue Winter 2017

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