Matt Fairfield, the founder and CEO of Dutch specialty insurance group ANV, has a lot on his plate managing the company’s activities in insurance, reinsurance and the Lloyd’s market. Carrier Management caught up with him at the Reinsurance Rendezvous, where he gave us a rundown of what ANV has been doing over the past year.
He said his goal has been to “build value propositions for our clients. One of which was a strong Lloyd’s operation, and I’m happy with where we are in terms of that process. We now own three syndicates, and we have four syndicates actually under our management, and we have over a billion dollars in premium that we now manage in our operations.”
Those syndicates are engaged in quite a number of different activities. One deals in specialty lines, writing coverage for “political risks, financial lines insurance, marine, aviation and property.” Another syndicate specializes in consumer products, writing extended warranties for “cars, mobile phones, white goods and other things like that.”
ANV’s operations work in tandem with the Lloyd’s business. It focuses on “three pillars, an MGU, a managing general underwriter, a Lloyd’s operation, and ultimately we hope to have some type of controller of balance sheet, which is still a work in process,” Fairfield said.
Concerning some of the emerging risks – cyber liability, contingent business interruption, etc. – Fairfield said ANV is certainly aware of them, and “you do have some form of all of those risks in some of your policies.” He noted the increasingly close correlation between events globally. A terrorist attack, for instance, “will reverberate eventually throughout the rest of the world, whether it be in terms of behaviors, the economies things like that.” Business interruption and cyber-attacks have the same effect.
Fairfield described the term “cyber” as somewhat of a misnomer. For him a more appropriate term would be “internet enabled risk, or facilitated risk.” Whatever it’s called, cyber offers “huge opportunities and challenges,” but most of the industry “and the rest of the world, is not clear on how to deal with it.”
Part of the explanation for that confusion is expressed in the often repeated phrase that “generals tend to fight the last war.” In an earlier interview Goldberg & Segalla’s Jeff Kingsley described trying to anticipate what’s sufficient for cyber coverage as trying to hit “a moving target.”
Fairfield said the growth of D&O coverage is somewhat similar, as it developed over 20-30 years. “I think you’ll see the same trend ultimately with ‘cyber’ insurance; there will be all kinds of different products that come out, but people still aren’t clear how to assess the risk. Price it, underwrite it, manage it, mitigate it afterwards, and then have an eco-system that helps people build their business.”
Handling a risk like cyber illustrates the fact that insurance is more than just a promise to pay; “it’s the oxygen of the economy,” Fairfield said. “You need to take risks to build an economy, and insurance helps mitigate the risks.”
Fairfield agrees with the general consensus that has dispensed with the term ‘alternative capital’, because “it’s here to stay, without question, even if interest rates adjust over time, which isn’t clear as yet,” he said. It will continue “to be around,” as it creates efficiencies. I think you’ll see the insurance industry continue to have a great opportunity to source that capital, whether it comes in the form of reinsurance companies, reinsurance arrangers, if you want to call it that, or direct access to capital markets.
“This capital is here to transfer risk, and I think the reinsurance industry is going to go through some dramatic changes right now.” Those changes will mean altering the way the traditional insurance market has operated. “All of the mechanisms we have built in the reinsurance industry are to serve an insurer,” Fairfield said, “who’s ultimately serving an end user, or client, who buys an insurance policy. There’s been a lot of ‘frictional cost’ and mouths to feed in that process, and that should only happen if value is brought at each and every step.
“With this new or alternative capital it’s going to bring efficiency to the market place, and it’s going to take away some of these extra mouths, because we can’t afford them anymore, and the clients are not going to pay for it, unless it brings sincere value.”
The increased interaction between reinsurers, insurers and their clients is set to continue to expand, Fairfield indicated. “It’s been on the horizon for quite some time now,” he said. But reinsurers have been acting discreetly in order to avoid “giving the appearance of competing with their clients; when in fact they actually are.” A number of the largest reinsurers now also operate subsidiaries who underwrite primary coverage.”
They do so in recognition of the fact that their clients, the primary carriers, ultimately determine the amount of reinsurance they will purchase and how much they are willing to pay for it. Writing insurance directly avoids that difficulty.
Fairfield described speculation about making renewal periods longer than a year as “classic soft market discussions;” indicating that the experience in the 90’s when a number of three year policies were written, which “coupled in to three year reinsurance policies,” rather in the manner of hunting buffaloes by herding them off the cliff.
“If you’re stuck in that kind of arrangement, where the original policy is three years long, tied to a reinsurance contract that’s three years long, if it’s in casualty, it could be 10, 15 or 20 years.” Seen in light of the fact that insurers and reinsurers really don’t know whether their pricing is correct when they write a policy, when longer term policies are written, “you really don’t have any chance to change your policy structure to more appropriate pricing within quite a long period of time, and that’s really dangerous.”
Fairfield agreed that the casualty side of the business is “attracting more attention,” and part of the reason is the availability of “new or additional” capital, which has mainly gone after lines, mainly property catastrophe, which are “well modeled.” As a result the margins in that coverage sector “have gone down even further.”
As a result insurance companies and even reinsurance companies have been seeking opportunities “to build new value in other product lines or specialty product lines,” which he described as the next logical step under the current circumstances.
Fairfield acknowledged that it should be easier to price casualty lines, “as we have more data.” However, he also echoed Jeff Kingsley in pointing out that the data available today, may not be applicable in the future. “The information [on which that data is based] “changes as we’re speaking.” So basically “pricing casualty is part science and part dark art. You only find out years from now if you priced it accurately.”
As far as the future is concerned, Fairfield said he thinks the reinsurance industry “will continue to become more and more efficient, and thus should become more and more effective. It will clearly meld and cross lines from reinsurance into insurance. Capital will come in to help transfer risk from the insurance industry, whether you call it reinsurance, ILS funds, or other capital tools, it will be there to transfer risk.”
But, he added, the traditional reinsurer, as typified by the networking that is a large part of the Reinsurance Rendezvous every year, where relationships are built and decisions are made, which will go on until next year; “those days are gone. It’s a very dynamic marketplace. It changes every single day, and it will continue that way, and people have to adjust and evolve, or they’re not going to survive.”
If Fairfield has anything to do about it, ANV will be among the survivors. “We’re building a quality brand” he said, “so that the client, the end user who wants to buy an insurance policy,” recognizes that “‘ANV represents such a great value proposition, I think they’re a great quality brand, and I want to do business with them on way or another;’ that’s one of the key things for us.”
The company is working on building that reputation “morning, noon and night” because Fairfield recognizes that “building a business is not one easy fell swoop – we don’t have the Google of insurance – it’s just working very hard, making the right decisions, making mistakes along the way, fixing those mistakes and moving forward.”
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