Industry Pioneer Catlin on Insurance and Environmental Concerns

By | September 27, 2013

Stephen J.O. Catlin has led the company/group that bears his name since 1984. He’s seen it grow into the biggest syndicate at Lloyd’s with gross premiums written of $5.5 billion. He was the first to move the company’s domicile to Bermuda, and the first to establish company operations outside of the UK to take advantage of its Lloyd’s expertise. Catlin now has 2250 employees with 60 offices in 22 countries.

More recently he has committed Catlin’s resources to addressing global environmental concerns by sponsoring an expedition to the Arctic, followed by a study of Australia’s Great Barrier Reef, the coral reefs of the Caribbean and at present Bermuda.

In the video interview he recaps some of that history. “We had a vision actually in 2000 that we needed to go global,” he said, “because London would increasingly be concentrating on wholesale business, and, if we wanted any retail business, or mid-market business, we had to do it ‘in situ.’ That vision has actually taken us 13-14 years to get there; and it’s been tremendous fun, huge fun.”

He was in Houston, Catlin’s first office in the U.S., when the 9/11 attacks struck, and coordinated the company’s response from Texas. “We were able to actually drive all of the things that had to be done after that dreadful loss from Houston.” He added, however, that “the Houston office in September with no air conditioning is not a pleasant place to be.”

The decision to sponsor scientific expeditions came to Catlin when he said he realized we needed “some brand awareness; we’re known in London, we’re known in Bermuda.” He didn’t want to sponsor a football [soccer] team, nor a rugby team, or the opera or a museum, whatever,” while admiring those who do.

Catlin determined “to do something that was relevant to our business and had some kind of social value to it,” so he dispatched his marketing manager to look into it. 18 months later he still hadn’t heard back from him. Three months after that he was handed a proposal for the Arctic survey. “That’s it, that’s what we should do,” he said. It met his criteria – relevant to the business, with “a bit of excitement that would interest a broader population.”

Most of the data the scientists were to seek – in temperatures frequently below 50° – had never been collected before. The survey took three years, and “they came back with some very useful data, demonstrating actually that the thickness of the ice was much thinner than had been previously anticipated, which meant that the probability of the Arctic being open to shipping in our lifetimes, rather than our children’s lifetimes.”

The Barrier Reef survey came about when an Australian colleague heard about it and discussed it with Google. Two years later Catlin took on the project. He explained that the advances in technology actually enabled the research team to create underwater maps, equivalent to the maps Google makes of the surface.

“They can take a measurement along a kilometer of reef at a certain depth,” he said. “They take 10,000 pictures, they measure it, and they can go back in time and do exactly the same photography at a later stage to see what the deterioration has been.” The findings included the discovery of two new types of reef at depths beyond a diver’s ability to reach, which were relatively undisturbed.

Higher up there “is clear deterioration of the reef,” Catlin said. “Is it man made? Is it due to the acidity of the water? Is it due to an increase in the temperature of the water?” Nonetheless “there’s only half the reef there was fifty years ago.”

He also stressed the importance of reefs as the first line of support for coastal communities, as the beginning of the food chain, as a source of new medicines. “It’s an intrinsic part of our environment, which is clearly deteriorating and at risk.” Once scientists have studied the data collected it remains to be seen “whether or not we can change behavioral patterns to improve our lot.”

The reef project has exceeded all expectations, with thousands of people following its progress on Catlin’s web site. Plans are in the works to explore other reefs in Asia, and Catlin’s research team is already at work on projects in the Caribbean and Bermuda. They will continue for the next 4 to 5 years until the data they need has been collected.

In response to the standard question on the arrival of alternative capital in the re/insurance industry, Catlin said: “I think capital is an important part of what we need to have to do what we do as insurers; the need for insurance is increasing globally; economic value is increasing; activity is increasing; transit’s increasing. So new capital coming into the market in and of itself isn’t a bad thing; it’s a good thing. In fact it’s a necessity.

“As a carrier, if I can’t cope with competition, why should I be there? He really sees little difference in capital that’s “been around for a 100 years,” capital that was formed in 2002, nor “is it in terms of capital today? I don’t see much difference actually in that sense. If it stabilizes the volatility of pricing in the reinsurance market, that’s a good thing.”

He also explained that if the capital is used “inadvisably” money will be lost and it will go. Catlin also stressed he distinction between “short term” capital providers who are mostly driven to invest in re/insurance to increase their investment yields, and those – mainly pension funds- who have a more long term interest in making such investments part of their strategy.

As far as emerging markets are concerned, he said they “have challenges that established markets don’t have.” As a result, “we as insurers and reinsurers have further challenges in the emerging markets that we don’t have in the established markets.” Over the next 5 years he doesn’t see Catlin’s growth increasing from emerging markets, but rather from The UK, the U.S. and Europe.

“But,” he added, “there are some massive economies out there,” notably China. “The top 5 percent is where all the money is in China; it’s bigger than the population of the UK; it’s a big country; it has massive assets, massive resources, and it’s going to be a powerful nation in the future.”

He’s not writing off emerging markets by any means, but thinks would be investors in them should “go in slowly, quietly; stick your toe in the water and understand how the local market works; build up relationships, and in time you will be rewarded for that.”

Catlin’s business in China is done through Lloyd’s China, but it also has “a rep office in Beijing,” and “we have a relationship with China Re, one of the major reinsurance companies, which actually provides capital to us through the Lloyd’s syndicate.”

Although Catlin admitted that he had avoided the Reinsurance Rendez-vous for as long as he could, he now sees value in being present. “I think the relevance of Monte Carlo has increased hugely – really since 9/11.” He also said he comes to “see 2000 of my closest friends. More seriously it’s an opportunity to meet competitors, my reinsurers, brokers, analysts, investors, rating agencies. In a three day period you have to work pretty hard, but if you do you can cover a lot of ground very quickly, and I think the value of communication can never be underestimated.”

As he tells the people at Catlin, it’s not about saying [things] legally correctly, or factually correctly, it’s about making sure the person you’re speaking to is understanding what you’re saying, and the best way of doing that is face to face contact, and listening carefully what’s said to you, saying it back in your own language to make certain you’re understood and developing that relationship.” He also noted that fortunately the insurance industry is still very much a face to face business.

Asked what he thinks the prospects are for the UK holding a referendum on membership in the European Union, he said he “worries about Europe and has done so for a long time.” The countries that make up the EU differ greatly, and “there is no federal government in Europe, yet they share the same fiscal currency with completely different fiscal priorities…I’ve never thought that that could work over time.”

Although he thinks the UK should have a good relationship with Europe, he questioned whether the UK could afford, or can “any country afford to be controlled by Brussels to the nth degree? If you pushed me on that I’d probably say, no. There needs to be a balance, and I think what’s going on at the moment is that people, are asking ‘is the balance in the right place’ or is there too much control.”

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