There are now 78 operating syndicates at Lloyd’s; 88, including Special Purpose and RITC syndicates. Although no new ones have so far joined Lloyd’s this year; three syndicates have transferred ownership: Hardy, acquired by CNA; Omega, acquired by Canopius, and Flagstone (Lloyd’s business only), acquired by ANV.
A combination of low interest rates, the economic crisis and the stability of Lloyd’s management have made investing in the venerable institution more attractive. A Lloyd’s syndicate is now usually part of a larger corporate strategy, rather than a standalone vehicle. Companies, large or small, public or private, see Lloyd’s as a worthwhile capital investment, and as an adjunct to separate operating divisions outside of Lloyd’s.
The trend has been growing since Catlin moved its domicile to Bermuda in 1995. It has been joined by other “Lloyd’s insurers,” including most of the larger syndicate operators. Beazley, Hiscox, Amlin, as well as most of the Bermuda and U.S. companies that have syndicates at Lloyd’s are also international carriers.
The newest entrant is Netherlands-based ANV. The company concluded the acquisition of Flagstone Re’s Lloyd’s Syndicate 1861 in August, and is dedicated to building the business, as well as continuing with operations outside of Lloyd’s. ANV has about £150 million to £200 million [$243 million to $324 million] of premium, operating from the Netherlands, London, Hong Kong, Rio de Janeiro, Barcelona and New York.
“ANV sees Syndicate 1861 as one of the three key pillars of its integrated approach to operate as an underwriting syndicate within Lloyd’s, in combination with operations as a risk bearing (re)insurer and as a global MGA,” according to a description on its website. “We see the spirit of innovation and strength that has defined the Lloyd’s and London market for more than 300 years as more important today than ever before.”
Commenting on the acquisition, ANV’s Founder and CEO R. Matthew Fairfield said, “We believe in Lloyd’s,” as well as in underwriter Richard Housley, who heads Syndicate 1861. Fairfield described him as an added attraction to closing the deal.
ANV’s profile and business philosophy fits with Lloyd’s. The acronym ANV is Latin for acta non verba, or deeds (actions) not words; in modern phraseology, “walk the walk.”
From a business perspective, Fairfield said, ANV is trying to keep best practices learned throughout the history of insurance, and apply those to the new venture. “On the human side we’re trying to make a difference.”
Fairfield said the global specialty insurance market has presented an extraordinary opportunity since 2008 when the world changed. The date is significant as it marks the decline in “buying brands,” rather than evaluating re/insurers, including startups on their merits.
“You have to get down into the depths of what the fundamentals of a company are,” he said. “If they truly are long-term, you’ll find that there, but you have to look.”
ANV’s dedication to “best practices” assures investors, stakeholders or employees who learn about the company and its products that they will find quality, Fairfield said. That includes a number of business lines, including “accident and health care in South America, financial lines business in Europe, surety on the east coast of the United States. “Wherever there is an opportunity to underwrite specialty products, that’s where we’ll be,” Fairfield said.
He described ANV’s “three pillars” as being the Lloyd’s business; MGA business, where it writes on behalf of other insurers; and the future acquisition of a “balance sheet” business. “Those are the different tools that we believe will enable us to serve our clients, rather than dictate to our clients how they have to access us,” Fairfield said.
Commenting on becoming part of the Lloyd’s market, Fairfield said he was “very pleased.” He recognized that Lloyd’s has had its “ups and downs,” but said that going through those “inflection points” in the past 15 years has made it a very strong marketplace.”It’s the largest [wholesale] specialty marketplace in the world,” he said, and therefore provides opportunities. A Lloyd’s presence “rekindles the entrepreneurial spirit in insurance.” It also provides the “ability to have the licenses and the size that Lloyd’s as a society represents,” he said.
High Risk Capacity
ANV will bring added capacity to some of the lines that are deemed “high risk,” notably in the financial sector for professional liability, and directors and officers liability.
“Everybody talks about selection, but if you really do practice it, and you do have discipline, you can make money and define your business,” Fairfield said. “You can underwrite anything; it’s a question of terms, conditions and price.”
He described financial institutions as being “in a very difficult climate,” which requires looking at those kinds of risks “extremely carefully … Who knows if those kinds of risks are going to be willing to pay, or accept the terms and conditions we offer.”
He also explained that “C-side” coverage on D&O policies — the type that provides coverage directly to financial institutions — as opposed to “A” and “B” type coverage that indemnifies personnel, who are charged with malfeasance, was “a product of the soft market, which crept into” policies at that time.
ANV is in the business for the long-term, Fairfield said, with no intentions of building up the value of an asset it has acquired and then selling it off. “We’re not looking to do a flip … we’re building this thing for the next 30 or 40 years of our lives, and hopefully it’s longer than that.”
Since 1994, when Lloyd’s permitted its syndicates to be funded by corporations, most of the capital has been supplied by re/insurers and related financial institutions. ANV may signal a change in that pattern. Its main investor is the Toronto-based Ontario Teachers’ Pension Plan, which Fairfield said accords with his long-term plans, as they also are interested in making plans and supplying capital for the long term. “That’s one of the things I really love about working with them; their capital requirements match the opportunities of our business plan.”
ANV is focused on building up the Lloyd’s platform. “We’d like to get to around 500 million pounds [app. $810 million] of stamp capacity,” Fairfield said. A larger operation is able to not only write more business, but also if faced with additional costs, such as Solvency II compliance, “it’s nicer to be able to absorb those kinds of costs.”
ANV is planning on further expansion in the United States and in Europe, which, Fairfield said he is approaching with some trepidation in light of the current economic slowdown in Europe and the problems of the euro zone countries. However, he said that would not prevent further expansion.
“We’re in it for the long term, and this is actually one of the best times to start building a business,” Fairfield said. “It’s not the best time to aggressively underwrite every risk you can find, but it’s the best time to build a business selectively, establish relationships and bring innovative solutions that you can maintain through market cycles, so that people realize, especially now that when they need it, that you can be there.”
He described ANV’s future strategy as “build and buy, or buy and build;” explaining there are assets available that are attractive.
“There are some very quality operations, that could be available at good prices, which I would call a fair price, and which is not often the case.” Some of that expansion will eventually occur in emerging markets. ANV has small operations in Hong Kong and in Rio de Janeiro, but they will develop them slowly, where they see opportunities, and usually in conjunction with local partners.
He pointed out that the Asia Pacific region now accounts for around one-sixth of global GDP, while Europe is around one-third.
“Over the next 20 years, that will flip; there’s no doubt those economies and those markets will be larger parts of what we want to do,” he said. Fairfield is also aware that to achieve anything in those markets, one cannot wait until the last minute, but needs to develop them from the beginning.
Fairfield has a wealth of experience in the business, both in the United States and Europe. He recognizes the value of sharing the business with employees, and has made it a cornerstone of ANV’s culture.
“By having these underpinnings, we’re able to be sustainable and scalable in a very forthright manner,” he said.
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