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Thank You!Guy Carpenter is honored to be ranked the top Reinsurance Broker in the Reactions Lloyd's Broker Survey. With your support, we look forward to continuing to drive innovation in our industry as we adapt to new opportunities for profitable growth.

Year after year at industry events across the world, questions over the role of brokers are asked. One

of the most common regards their relevance in the 21st Century marketplace.

With the rise of insurtech, there have been some in the industry who have questioned whether brokers are still a relevant and indeed necessary part of the market. Well, it may be the case that your High Street broker will ultimately be consigned to the past with the increased commoditisation of some of the insurance products being offered, but for bespoke coverages – for example those placed within Lloyd’s of London – the broker remains a key part of the overall transaction.

As with last year, little has changed when it comes to competition in the global broking market.

Commissions on placements remain under considerable pressure. And while the natural disasters of

2017 may see re/insurance rates and the commensurate broking commissions increase, intermediaries continue to find the going tough.

This has led to some of the very largest players in the global broking sector to increasingly offer a wide variety of services on top of the placement of insurance and reinsurance risks in a bid to either win new business or secure existing clients.

At the same time, and this is particularly true within the Lloyd’s market, there has been growth in recent years of broker facilities. Risk managers may have voiced their concerns such platforms – they argue there are potential conflicts of interest owing to the lack of transparency and the possible use of financial incentives which could, ultimately, lead to uncompetitive behavior. However, they remain a part of the market, although

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THE ENABLERSAfter polling some of the leading underwriters in One Lime Street, the results are in for Reactions’ 2018 Lloyd’s Broker Survey and there has certainly been a shake up since last year.

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the Prudential Regulation Authority is currently investigating them.

The use of facilities has generated some scorn, with Chubb’s chairman and CEO Evan Greenberg notably giving them short shrift last year. Tokio Marine HCC’s CEO, Christopher Williams, warned that brokers underwriting risks is a “major mistake” for the market.

Sompo International’s John Charman and Navigators’ Stan Galanski were two other market figures who have been less than impressed with the rise in prominence of facilities.

But these facilities remain in place, and, as JLT Re’s chief executive Mike Reynolds said in February, such operations do have a role to play in the market “where they offer our clients a better deal”.

Despite the rise in these platforms, One Lime Street remains a natural home for the broking market. Evidence of this can be seen in the Corporation itself stating that it will remain a broker-focused business.

“Lloyd’s will be a broker market and will build on its relationships with the larger brokers, as well as encouraging other specialist brokers. Lloyd’s will provide efficient access to local markets through service companies, coverholders and local brokers. It will be as

easy to access Lloyd’s as any local carrier,” it said in its 2016 Annual Report.

And while there has been considerable talk of industry disintermediation in recent years, Lloyd’s vast army of brokers does indeed remain an integral part of the Lime Street market’s operations.

Figures from the market show that there were 258 brokers operating in Lloyd’s as of December 31, 2016, up from 242 at the prior year point. And that total of 258 included 24 new registrants on the previous year’s number.

These 258 brokers served roughly 60 managing agents and close to 100 syndicates in 2016.

Lloyd’s itself holds its brokers in very high regard, and the Corporation has a list it uses to describe the intermediaries within One Lime Street.

According to Lloyd’s, brokers “maintain high professional standards in their business, ensuring that the interests of clients are held paramount”. Lloyd’s brokers “engage with the Corporation and managing agents to support change so that the Lloyd’s market meets the needs of clients in the most effective manner”.

A Lloyd’s broker should also “conduct business in line with agreed market process standards”, and “work with managing agents and the Corporation to help deliver innovative risk management solutions for clients”.

Finally, Lloyd’s said brokers should “promote talent and inclusion in their organisations”.

Some of these factors and considerations went into the creation of our 2018 Lloyd’s Broker Survey.

EC3 is home to the greatest concentration of re/insurance broking talent in the world, and it is this group of people that Reactions set out to discover which companies are currently the leaders in their respective fields.

This year’s poll follows in the footsteps of our 2017 Lloyd’s Broker Survey, in that the Reactions’ editorial team reached out to over 100 senior underwriting figures from within the Lloyd’s market and collected their thoughts and opinions on which brokers are the leaders in various categories.

Insurance broker resultsOn the insurance broking side, the most notable change from last year’s survey is that Marsh has swapped with Jardine Lloyd Thompson for the top spot.

Despite its operations in Europe, the Middle East and Africa (EMEA) seeing their revenue decrease by 6% year on year, Marsh managed to take top spot as the leading Lloyd’s Insurance Broker in our survey for 2018.

The Marsh & McLennan Companies’ (MMC) subsidiary actually appeared in the top five of all our broking listings, reflecting the strong year the business had – a period in which it saw revenues rise by 7% year on year to just over $6.4bn, growth equal to 3% on an organic basis.

Elsewhere, Marsh along with Willis Towers Watson shared the spoils for the category of Specialty Lloyd’s Broker.

Insurance brokerRank Company

1. Marsh

2. JLT

3. Willis Towers Watson

4. Price Forbes

= Arthur J Gallagher

Reinsurance brokerRank Company

1. Guy Carpenter

2. Aon Benfield

3. JLT Re

= Willis Re

5. Capsicum Re

Property brokerRank Company

1. Aon

2. Marsh


= Hyperion

5. THB

Casualty brokerRank Company

1. JLT

2. Marsh

3. Howden

= RFIB

5. Integro

Marsh was also regarded as having the best reputation of any broker within One Lime Street. It also shared top spot with JLT for having the best contacts in the Lloyd’s market.

The leading Lloyd’s insurance broker from last year’s report fell to second place in 2018, although JLT was regarded as being the best casualty broker in Lloyd’s.

JLT was also polled as having the lead position in the category for best contacts as well as providing underwriters with the most secure contract certainty.

As well as coming in second in the overall Lloyd’s insurance broker category, the Dominic Burke-fronted business as the second best reputation in the marketplace.

Aon made four appearances in this year’s Lloyd’s Broker Survey, down from six in last year’s study. The business is regarded as the leading property insurance intermediary in our 2018 Lloyd’s Broker study. The company’s global network also meant the business held onto the top position for being the broker at Lloyd’s that is best at bringing in international business.

Elsewhere, it came second in the Professional Lines category and third in the list for having the best contacts in the market.

The last of the Big Three brokers, Willis Towers Watson, came top in the poll for the leading Professional Lines broker in Lloyd’s, and also took the same position in the category for Specialty. Willis Towers Watson, which along with Aon has an office actually overlooking Lloyd’s, was ranked third in the overall listings and third in the Property category.

What was interesting to note compared with last year’s survey was the intermix between some of the smaller Lloyd’s brokers such as Price Forbes, Miller Insurance Services, Integro, Arthur J Gallagher offshoot Alesco and the various Hyperion subsidiaries such as RKH Specialty and Howden.

Other brokers that were named by those polled yet did not make it through the final rankings included Arthur J Gallagher and RFIB.

Reinsurance broker resultsLike last year, Guy Carpenter was regarded as the leading reinsurance broker within Lloyd’s. In fact, the top two have remained exactly the same with Aon Benfield sitting directly behind its Big Three rival in second place.

Guy Carpenter made the lists a two further times, with the business regarded as having the fourth best reputation in the Lloyd’s market and being in fourth spot when it comes to having the best contacts within One Lime Street.

JLT Re and Willis Re shared third spot in the list of Reinsurance Brokers, with the Rupert Swallow-led Capsicum Re taking fifth place in the rankings.

As with our 2017 Lloyd’s Broker Survey, various other companies got several mentions, but not quite enough to make it onto the leaderboards. These included

the Rod Fox-led TigerRisk, BMS Re and Beach & Associates.

OverviewDespite the best attempts of those outside the group, there is little doubt that the so-called Big Three Brokers of Aon Corp, Marsh & McLennan Companies and Willis Towers Watson dominate the rankings. Of our 10 categories, the Big Three tops all but three. And those three are headed up by JLT which is in itself an impressive performance. MMC offshoots lead both the Insurance Broker and Reinsurance Broker categories, capping off an impressive performance from the global behemoth. Marsh’s position as the leading insurance broker in Lloyd’s is reflected in its strong performance in the Property, Casualty, Specialty and Professional lines rankings, as well as the fact it is thought to have the best reputation in One Lime Street.

As with last year though, one of the most interesting aspects of the survey is that while there are some 250-plus broking firms able to operate within Lloyd’s, far less than 10% of those actually made it through to our final rankings, highlighting the sheer amount of sway a small group of intermediaries have within the marketplace.

Best reputationRank Company

1. Marsh

2. JLT

= Willis Towers Watson

4. Guy Carpenter

5. Willis Re

Best contactsRank Company

1. JLT

= Marsh

3. Aon

4. Guy Carpenter

5. Aon Benfield

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Specialty brokerRank Company

1. Marsh

= Willis Towers Watson

3. RKH

4. Integro

5. Arthur J Gallagher/Alesco

Professional lines brokerRank Company


2. Aon

= Marsh

4. Tysers

5. Howden

Brokers have long offered services beyond simple risk placement, but in recent years those services

have made them an invaluable part of the value chain, at a time when some have considered aiming to reach consumers directly.

Brokers have always offered services beyond placements for insurers, but as the value chain becomes increasingly complex, so does a broker’s job of providing expert advice that satisfies both the client and the insurer.

“The insurance industry is not our competition,” said John Merkovsky, head of risk & analytics, corporate risk & broking at Willis Towers Watson (WTW), when asked about his thoughts on carriers floating the idea to market directly to consumers.

“Even if some decide to go direct, they are one of several potential solutions for our clients. If you think about a bullseye, then back in the day insurance was in the middle and there were things that brokers needed to do to help our clients hit that bullseye.”

“I think that if you look at it today, at least from our perspective, it’s not insurance that is in the bullseye, but risk. One of those rings, and a very important one, is insurance, but we don’t exist for insurers, but rather to help clients better understand risk. So that means building up the analytics around risk, and deciding whether transferring it is the best option, or if it should be retained and other options explored. The value brokers bring to the client is significant before we even get to the insurance transaction,” he added.

According to WTW, what some might consider ancillary services are in fact a core part of what brokers have been bringing to the table for some time.

“What you call ancillary services are actually the core functions of a broker today. The suite of capabilities at the larger brokers has been expanding every year for at least the last 20 years, although of course there have been things before then as well,” Merkovsky said.

“These services are core to the value proposition of a broker these days, and as brokers we have been very

responsive in upping that value,” he added.According to Julie Herman, a credit analyst at

Standard & Poor’s, new exposures have led to brokers developing a range of new products in order to remain competitive.

“A lot of brokers have been investing in their cyber capabilities in a way that they believe could add value. If you go back just a few years ago, it was an uninsured exposure for the middle markets. It is going from not insured at all to just underinsured, so they all need to be equipped to bring something to the table,” Herman told Reactions.

“Take-up rates for cyber coverage have definitely been on the rise in 2017, even though it is still a small market for brokers, which mirrors the experience of insurers,” she said, adding: “Marsh, for example, has put a good deal of effort into their cyber capabilities in a way that could bring expertise to the table.”

In fact, Marsh recently announced that it had joined the Enterprise Ethereum Alliance, which is a consortium of more than 200 companies, aimed at accelerating the use of blockchain technologies across a range of industries.

“Our focus from a blockchain perspective is part of a broader digital

strategy here at Marsh that we started last summer,” said Sastry Durvasula, chief digital officer and chief data & analytics officer at Marsh.

“We are working with clients and carriers, creating new business and products that can more easily adapt to the clients own business model. What is going to happen is that there will be a collaboration with every sector, which will have wider cross-industry implications. Open source technologies such as ethereum and hyperledger, form a whole technology ecosystem that we see is fast evolving,” Durvasula said.

The firm has a five-phase approach towards cyber risks, which are, assessment, prevention, preparation, response/mitigation, and remediation. It has also developed proprietary models for cyber risks for its clients.

For WTW, the main focus is analytics across multiple lines of business. To that end the firm is releasing its Property Quantified tool later this year. As part of its core analytics suite, Property Quantified will allow clients to quantify their global property loss potential from both catastrophes, and non-catastrophic hazards,

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BROKERS IN THE SPOTLIGHTBrokers are often left out of conversations regarding the current value chain, but recent trends have shown that they are just as important as ever.

“What you call ancillary services are actually the core functions of a

broker today. The suite of capabilities at the larger brokers has been

expanding every year for at least the last 20 years”

John Merkovsky

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similarly to its tools for cyber and D&O risks.“We don’t think that any insurance decision should

be made unless it’s supported by analytics and strong data. If you wanted to start insurance you’d start with analytics,” Merkovsky said, adding: “We talk to clients all the time going through a suite of solutions in which insurance is only one. Let’s face it, is the most important one, but it is only one of many.”

Beyond analytics, WTW recently launched what it calls the Global Ecosystem Resilience Facility which provides finance and risk management solutions to help build resilience for various ecosystems and communities.

This platform will initially aim to provide protection for marine ecosystems, in order to help protect coastal communities from the impacts of climate change as well as hurricanes.

“This facility acknowledges that there are two key aspects driving changes in the risk environment: human activity and natural processes. The facility addresses both aspects; communities build resilience through sustainable practices under their control, and disaster risk finance protects against events outside of their control,” said Rowan Douglas, chief executive of WTW’s capital, science and policy practice, regarding the launch.

In addition to tools addressing cyber exposures and general analytics, flood losses are another area where brokers are seeing an opportunity to provide more value to their clients, especially considering the devastating flood losses experienced in the US last year.

“Many brokers have been investing heavily in the flood space as well, including in various service areas such as policy administration, claims processing, customer service, and agency support,” Herman said.

“It will be interesting to see how things develop with ongoing reform, and whether or not brokers will be ready to bring those private market solutions to bare when the time comes. As the marketplace evolves amidst mounting flood-related losses, I think brokers will work with insurers in order to be on the forefront of

any privatisation efforts and to sell flood insurance on a larger scale,” she added.

While Marsh and Aon acquired Torrent Technologies and National Flood Services respectively in 2014, Aon also launched Aon Flood Secure in the wake of Hurricane Harvey.

That product is designed to offer replacement coverage for US organisations that have exhausted their aggregated flood limits for their property policies.

On the reinsurance side, JLT Re partnered with Canadian flood modelling firm KatRisk in order to enhance its capabilities and allow the company to offer better primary pricing services to its clients.

The Council of Insurance Agents and Brokers as well as The Independent Insurance Agents & Brokers of America have also recently lobbied for flood insurance reform that would take increasingly take brokers and their role in the value chain into account.

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In March 2015, BMS Group unveiled its new offering to the Latin American market: a new office in the

region’s reinsurance hub of Miami.As BMS explained at the time, the new office

would help to accelerate the broker’s bid to expand its operations in various international, high growth markets. Back in March 2015, BMS said it saw Latin America as an attractive opportunity for growth, with the new Miami office representing a solid base for it to serve clients across the region and in Central America and the Caribbean.

The opening of the office saw José Astorqui join from Howden Insurance Brokers in the role of CEO for BMS Latin America.

The third anniversary of the Miami operation will coincide with the outfit moving into a new office on Brickell Avenue in the heart of the Floridian city’s business district.

As Astorqui told Reactions during the so-called Miami Insurance Week in February, it is a very exciting time for BMS Group in the city at the moment.

“BMS was not a very well-known brand in Latin America, and now three years later we have raised a lot of awareness about who we are and what we can deliver,” he said.

Astorqui pointed to the fact that BMS’s Latin American business has reported a profit for each of the three years it has been operating, a state of affairs that shows the support it has had from its clients and the reinsurance market within the region and in London.

“We identified there was space in the Latin America market for a new, agile, aggressive and independent reinsurance broker,” said Astorqui, adding: “That wasn’t something we actually considered when we put together the business plan and we decided to move into Latin America, but we soon identified it and it’s been a big part of our success.”

Last year saw BMS Latin America intermediate almost $100m of premium through three key areas: facultative reinsurance, treaty business and binding authorities.

And this business has come from all over the Latin America and Caribbean region, although it is not surprising to hear that Mexico represents a significant proportion.

“Historically, [Mexico] has been one of the higher buyers of reinsurance in this part of the world,” said

Astorqui, although he added that the firm has also had significant success in the Caribbean, and, in

particular, Trinidad and Tobago and the Lesser Antilles – Aruba, Bonaire and Curaçao islands where it boasts a strong presence. Argentina, Brazil through its representative office there, and Venezuela also represent strong areas for BMS’s Latin American operation.It is interesting to note that while many have

moved away from doing business in Venezuela, BMS Latin America continues to provide service

to clients in the beleaguered country.Astorqui admitted that doing

business in Venezuela is becoming more challenging all the time, but while that might be the case, the country’s reinsurance needs remain. And in London,


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MOVING OUT BEYOND MIAMIMiami may be Latin America’s leading reinsurance hub, but by bolstering its presence in the region with local offices BMS has managed to access more business and reaped the rewards.

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“BMS’s strategy is to diversify by product line, which we’re busy doing”

David Battman

BMS can find some markets that remain willing to take on the marine, aviation and property risks that need reinsurance.

David Battman, managing director and head of international at BMS, gave his thoughts on Venezuela: “Planes still fly and move people, ships still sail importing and exporting goods, and there are many other activities that require insurance which otherwise they wouldn’t be able to obtain. It’s very challenging in Venezuela, and part of that challenge is making sure we’re compliant with any applicable sanctions which are in place in the EU and the US. A lot of work goes on both from our side and the underwriting side to make sure we’re complying with the applicable sanctions. But, despite the challenges, we’re helping keep things moving.”

Doing business in Venezuela is one example of how BMS has been working to meet the needs of its clients in Latin America. But another way is by taking a slightly different tack to some of its competitors, and that involves it opening its office in Montevideo to service clients away from Miami.

“People tend to think Latin America is a small, accessible market, but the Southern Cone, or Brazil or Peru are very far away from Miami,” said Astorqui, adding: “It’s a nine hour flight from Miami to Buenos Aires or Chile, so with our office in Montevideo, we are able to cater to the needs of all our clients in that part of the world, especially in the Mercosur countries like Uruguay, Argentina, Paraguay, Peru and Chile.”

Astorqui said the setup has been working very well for BMS Latin America, and there are now initial ideas to further expand in the region with complimentary offices in some of the more established Latin American re/insurance markets.

“BMS’s strategy is to diversify by product line, which we’re busy doing – for example, we’ve just made a move back into the oil and gas market with a couple of senior hires – and there’s also been an ongoing expansion by geography into the places where we do business,” said Battman.

“As part of this geographical and product-specific diversification and growth, we thought about what we are. Whilst we are happy to go directly to a client and sell our business – which is quite natural for our shipping business and for some of our affinity business - we are more than anything a wholesale and reinsurance broker. And so we like working from financial services hubs. Miami is a great one, London is another and so is New York. There are others where we’re not present, but we’re looking at them now,” Battman added.

However, Battman said the way BMS defines a

financial services hub may differ somewhat from other financial services industries, and even other companies operating in the re/insurance industry.

“We’re looking at the next level of financial centres which are hard to do insurance business in from elsewhere, but they are of interest to us and we are looking to participate there. In our mind, that means Santiago, Chile and Bogota, Colombia in José’s region. There are others in other parts of the world, for example we’re looking at Shanghai, Hong Kong and Singapore,

and we look with interest at Dubai.“Those hubs, from which it’s good to do business and where it’s hard to do business

in from elsewhere in Latin America and the Caribbean, we envisage a bit of growth. We can already reach anywhere in the world, but to do it better might mean

opening one or two more offices.”Another way BMS is hunting growth

opportunities in Latin America is by finding the right tools to tap into

the region’s small-to-medium enterprise (SME) industry. As Astorqui explained, there is a lot of facultative reinsurance business written within Latin America, but some of the region’s underwriters tend to shy away from it because they cannot write it profitably. That is where

BMS can step in and use its binding authority operation to help place that business in the international reinsurance marketplace.

“That’s a main focus for us. We are still fighting for the middle and large market fac accounts that are placed internationally and not retained locally, especially in catastrophe exposed countries in Central America, Caribbean, Mexico, Chile and Ecuador, but we’re also looking at these smaller market accounts.”

So what can the market expect to see from BMS’s Latin American arm in 2018?

Astorqui said the operation wants to continue to attract talent and bring people into its pool of professionals that have the entrepreneurial spirit that fits into the BMS style.

“There are a lot of interesting people out there who are knocking on our doors because they like what we are doing and want to be a part of it,” said Astorqui.

But BMS will not just be adding new staff to its team in 2018, as Astorqui explained.

“We want to create new binding authorities, specifically in the property and cargo areas. We also want to find some surety reinsurance solutions for our clients in the region. We are also moving to bigger offices in Miami because we have outgrown our plans in record time. So we have a lot on our plate!”

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“BMS was not a very well-known brand in Latin America, and now

three years later we have raised a lot of awareness about who we are and

what we can deliver” José Astorqui

After a period where the division got its house in order, Gallagher is now gearing up for what may

well be a defining period for the business.The London-based businesses – which look after

Gallagher’s operations outside of the US – boasts operations in the UK, Australia, Canada, the Caribbean, Chile, Colombia, Peru, New Zealand, Norway, Singapore and Sweden, and it also enjoys a strategic partnership in Mexico.

However, it is only in the last few years that Gallagher’s operations outside the US have grown to this size. Grahame Chilton took on the role of chief executive of Arthur J Gallagher International, as it was then called, in early 2015. Since then the business has seen a period of growth in the UK and internationally.

“Pre-2014, Gallagher had a very small international business,” he told Reactions. “It was mainly a US play, and now we find ourselves one of the largest brokers in the UK, Canada, New Zealand and Australia, so the business has expanded enormously in the major insurance markets of the world.”

As such, Chilton said with some pride that Gallagher is now one of the largest insurance brokers in the world.

The business in the UK has been

focusing on building out its operations organically, but as Chilton explained, this year will start to see the business following the lead of its US counterpart and take a more acquisitive path.

Between January 1, 2002 through to the end of 2017, Gallagher undertook 459 acquisitions, most of which were within its broking business. And of those 459, the vast majority were of businesses based in the US. In 2017 alone, Gallagher completed 39 – 11 of which were in the international arena, with three taking place in the UK within the employee benefits and consulting space.

“I want to make sure that before we build the UK house, the foundations are secure. We’ve been concentrating on the organic growth of the UK businesses which, I think, is industry leading so we must be doing something right,” said Chilton.

As Chilton explained, when he first arrived at Gallagher in the UK, there were more than 100 underlying businesses and some 20 regulated entities within the business. That has since changed, with Chilton describing “a much smaller estate of businesses

with just five or six regulated entities in the UK”.

“We now have a sound foundation and it’s very clear to potential


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STARTING ON A STRONGER FOOTINGGallagher has spent the past few years getting its UK operations on a solid footing, but it is now preparing to embark on a period of expansion.

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acquisitions what we’re doing in the UK,” said Chilton.“We have our own M&A team [outside the US], and

to a certain extent we’re out looking to replicate what the company does in the US. The size of acquisitions we do in the US tend to be small to mid-size acquisitions which we can bolt in to the framework and get to fit our target operating model.

“We’ve got a few acquisitions in the pipeline [and] we’re getting that machine running as we do in the US.”

The UK will be a major focus for these acquisitions, explained Chilton. The company already has a sizeable network of offices across the region, and any new acquisitions will be integrated into these.

“There are 50-plus offices across the UK, so wherever we look to acquire, we’ll be able to bring them into an existing operation,” he said.

“We have a target operating model and we have products ready for them to sell into the marketplace. Wherever we are, we have an office where we can put it all together. We can sell immediately to any new clients we take on – it’s about providing more products to our existing clients and selling products to our acquired businesses and their clients.

“The people who have come into the group have commented that they have so much more to give to their clients. It’s a different play. There’s a different incentive to join Gallagher and so we’ll be acquiring more effectively. A lot of the businesses we acquire we’re not in a bid situation because people have chosen they want Gallagher to be their home. They want their business to grow in Gallagher,” said Chilton.

Gallagher’s business in the UK has an interesting business model, Chilton said. On one hand, the company works on accounts to place retiree or flat insurance, whereas on the other it helps to place some of the most complicated programmes in the UK such as CrossRail.

It is this range that helps to make Gallagher such an attractive business to become a part of, Chilton noted, adding that the company is “the only major broker that is actually run by brokers”.

“That’s a differentiator – we look at things slightly differently,” said Chilton.

Part of having that different approach includes what Chilton called “dumbing up”.

“Many of the larger firms have decided to descale their specialty operations on the basis that they didn’t think they needed to do the value-added side of the business.They feel they don’t need all the high paid specialty brokers anymore. We’ve gone the other way. We think the world is much more complicated in terms of risk, and we feel to really deliver to our customers the way we want to deliver as a broking business we need more expertise.”

Chilton pointed to Gallagher’s organic growth as evidence the plan is working.

“Our organic growth is strong, so one has to assume that we made a good decision. It’s a deliberately counter-cyclical play we’ve gone for and it’s worked. That only comes from a broker being led by brokers that can concentrate on the business rather than everything else.”

Capsicum ReAs well as being the CEO for Gallagher’s UK operations, Chilton is also the founding partner of reinsurance broker Capsicum Re. That business was launched in 2013, with Chilton holding a 50% stake in the joint venture with Gallagher a controlling partner.

Capsicum Re operates in a very competitive market where the largest global players hold the vast majority of the market share.

However, there are opportunities available, and Chilton believes Latin America is one region where

Capsicum Re can win business.

“There are fantastic organic growth opportunities in Latin America,” said Chilton.

“There is a growing middle class, and to a certain extent there will be more insurance

opportunities because of that, and particularly on the employee benefits side. That’s about 50% of most companies’ income out of those territories. Insurance growth in underdeveloped regions is about twice as high as GDP growth, whereas in most mature markets it grows the same as GDP. Therefore, investing in areas of the world where there’s high GDP growth makes sense for brokers, and which is why you have everyone interested in areas like Latin America.”

Chilton and his colleagues at Capsicum Re looked at Latin America and felt that the region was underserved, and as a result, the company has made a push to expand there.

“The further you get away from London, there tends to be less expertise, so bringing a reinsurance-centric thought process to the region has helped us. A lot of time is spent by the major brokers on the very big companies, but what you have in areas like Latin America are local companies that are growing. And that’s what we’ve seen there – a sort of non-consolidation with a lot of the major insurers selling their operations [while the locals get stronger]. Six or seven years ago, everyone was wanting to get in and buy local businesses, but now the local businesses are developing and getting bigger. There’s no doubt the more fleet of foot, entrepreneurial businesses like dealing with like-minded partners.”

And that, Chilton explained, is where Capsicum Re can play a role in supporting local and regional Latin American insurers.

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“I want to make sure that before we build the UK house, the

foundations are secure”

If competition in the wider global re/insurance broking industry is intense, then the battle for business and

to remain relevant in the concentrated market hub of London is the fiercely fought over epicentre of this fight.

London is home to some of the biggest broking houses in the world – in Aon Corp and Willis Towers Watson two of the so-called Big Three intermediaries, while The City also holds the headquarters of companies such as JLT Group, Tysers and Hyperion to name but three more.

Amidst this intense competition, it is important to carve out certain niches to remain successful. For Miller Insurance Services LLP – another London-headquartered broker – that means focusing on the specialty lines market where it has made its name and ensuring it serves its clients to the very best of its abilities.

“If you look at the market we operate in, there’s a battle for distribution,” Greg Collins, Miller’s chief executive, told Reactions.

“A lot of the M&A we’re seeing in the broker, and indeed the carrier, market is about this battle for distribution. The very big global brokers have dominated that distribution battle and have probably won it. Miller is predominantly a London market specialty broker – more than three-quarters of our people are in London – and so how we build and manage our distribution channels is of vital importance to us.”

Key to Miller’s success is getting as close to its clients as possible, be they direct clients, insurance clients, reinsurance clients, MGAs, MGUs, wholesalers, retailers or intermediaries, said Collins. This is especially true as, unlike the major broking houses, Miller does not have the resources to build a global distribution network.

As such, Miller has been investing in technology to help it maintain as strong a relationship as possible with its clients.

“We’re looking to continue our investment in technology,” said Collins, adding: “As we look to get closer to our clients, a big part of it involves technology – partly for speed and also for flexibility around quotes and the ability to bind business online. That will increase over the next few years.”

Key territories for growthMiller’s key territories are the UK, Europe, North America and Asia. Of those, Collins feels North America

represents Miller’s best opportunity for growth.“Half of our business comes from North America – it’s

specialty, excess and surplus lines business. It’s exactly what you’d expect to see [from a broker like Miller]. We do a lot of upstream and downstream energy, professional lines – so E&O and D&O, medical malpractice, cargo and stock throughput and also sports PA. It’s the classic specialty and surplus lines business you’d expect to see coming into the London market.”

Collins spies further opportunities for Miller to grow within North America, although the broker’s CEO accepts that accessing that business is made more difficult by having a relatively limited presence in the region.

“I’d like to get more business out of North America rather than anywhere else, but we can’t have boots on the ground everywhere,” Collins said.

Instead, Miller is focusing on Asia and Latin America.And while Miller undertakes

some business in Latin America, it is in fact Asia that represents a better opportunity with greater prospects.

It is in Asia where Miller has reaped some of the rewards associated with its corporate partnership with Willis Towers Watson. Back in 2015, the legacy Willis Group became a corporate member in Miller by taking an 85% stake in the partnership.

Under the terms of the deal, Willis’ wholesale broking arm was transferred to Willis, while Miller’s treaty reinsurance, UK corporate client and financial institutions retail teams moved to Willis.

As part of this partnership, Miller and Willis Re have partnered on a facultative reinsurance joint venture in Asia, specifically Singapore and Japan. However, this is the only part of the business where there is any cooperation between Miller and the business that now trades as Willis Towers Watson (WTW).

“We compete with WTW day in, day out, whether it’s on marine, or energy, or financial lines, in the UK or US. It doesn’t matter what or where it is, we’re in competition with them, and both sides accept that’s the way it operates,” said Collins.

This competition continues to pressure Miller and its peers, and the wave of consolidation currently underway within the global re/insurance industry has arisen as a direct response to it.

Competition fuels the London marketCollins believes this competition is healthy as is means companies must be on the front foot of innovation. That, Collins explained, is especially important in the London market.

“We need competition in the marketplace, both on the broker and the carrier side,” said Collins.


m BROKER FORUM

PLAYING TO ITS STRENGTHSGreg Collins explains how Miller Insurance Services LLP is positioning itself amid the intense broking market competition at play in London.

“[London] is still the place where there’s the strongest concentration of talent of any insurance market in

the world”

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“There’s no question about that, and for London to remain at the global epicenter of specialty lines insurance and reinsurance, competition is a key factor in that. So we want a marketplace where there is lots of competition because it’s a good thing for our clients.”

Collins added: “We’re strong believers in the long-term future of the London market as a player in the global specialty market place. It is still the place where there’s the strongest concentration of talent of any insurance market in the world, and we need it to remain like that. In order for that to happen, it needs to be innovative, it needs to have quick decision-making and it needs to provide its services efficiently.”

The concentration of intellectual capital within the London market helps it to stand out from its peers in the global re/insurance industry marketplace. For it to retain its prominence, this intellectual capital must be fostered and supported, but Collins warned there are certain market trends within EC3 that may prove a hindrance to its future progress. One of those trends involves the rise in prominence of broker facilities.

“If over time we allow facilitisation to take over, there will be a very small number of lead carriers and lots of

following capacity where there’s no expertise required,” Collins warned. “Where are the underwriters and brokers of the future going to come from if the only job to be done is to place a facility at the beginning of every year, or even every two or three years. If we go down that route and follow it all the way through to its logical conclusion, there won’t be a marketplace in London as we know it today and that would be a bad thing. We have to be very careful – there has to be a balance.”

Collins was keen to point out that he is not against facilities as a rule, but the nature of the ones coming to market now are far greater than those of the past.

Facilities have long played a role in the London market, but the difference now is the sheer scale, Collins said.

“The biggest brokers have so much more scale now and are bringing much more business into the market place

as a percentage of the overall, which gives them the ability to both model and influence how

that business gets placed,” Collins stated. “Intellectually, [the facilities run] against what the London market says it needs to be which is a specialist, innovative, intellectual capital-led

market. It’s not intentionally working against those principals, but it is a consequence.”

BROKER FORUM m


How good a job is the London market doing in terms of modernisation, and what else do you think needs to happen to push it forward?Modernisation is a clear focus, and there is certainly good progress being made across the market. There is a well-established programme in place, the London Market TOM (Target Operating Model), which has a number of elements to it. The part that is arguably gathering most obvious momentum is the so-called PPL initiative – the electronic placement platform. Lloyd’s has now mandated the usage of the platform, and given managing agents a target percentage of risks to be bound through PPL throughout 2018. We think this is very positive and a sign of the market moving in the right direction.

For me, talent is another really important part of the modernisation programme. The talent pool for our industry has been limited for a number of decades and we are seeing this start to change with the industry,

both at a company level and collectively. This is putting a great deal of focus on Diversity and Inclusion. I think the energy and intent in this space is very encouraging, although clearly we still have lots more to do.

What does modernisation mean for Aon?From an Aon perspective, and in the business I run (the ARS Global Broking Centre), we transact and process a large volume of business over a 12 month period – from issuing invoices, to processing premiums and managing claims. We have a huge “machine” that executes all this.

Modernisation to me is finding ways to make this machine more effective so we can invest more money and resources into creating products and solutions for clients across the globe; less time focused on the mechanics of how we work, and more time and resources focused on innovating on behalf of our clients.

How will this modernisation help clients – what are you hearing from them on the subject?We work with over 170 countries around the world. The London market has a genuinely unique value proposition in its ability to price and underwrite complex and large risks and its continuing ability to lead product development. The challenge is making it easy


m BROKER FORUM

Q&A: RICHARD DUDLEYLondon is gearing up to stay relevant in a fast moving world of risk, according to Richard Dudley, CEO of Aon Risk Solutions’ (ARS) Global Broking Centre.

14

for people around the world to transact with, and into, the market. What clients want to see is more innovation on product, and transactional processes and efficiency improved, so that it is easier to do business with the London market. If we can find a way to make the way we do things faster, slicker and more accurate, that will be of real value for clients.

What does the London market offer that others can’t?There are a number of factors that make the London market particularly compelling, and able to create superior outcomes for clients.

The aggregation of talent, with deep, genuine expertise and specialism, is unrivalled. London is still the leading global hub for a number of lines of business – from traditional risks such as marine to emerging risks such as cyber, where London is leading proposition development in what is a major global growth area for the industry.

Another differentiator is the risk appetite of underwriters, which is typically broader and deeper than can be found elsewhere. They are happy to take on very complex, very large and often very difficult risks. Although this is possible elsewhere, there is greater opportunity to do this in London across a bigger range of risk classes with a greater chance of finding solutions for clients. We also have the ability to syndicate these large and complex risks in a relatively localised environment.

Data is a further advantage that London has. The depth and history of the market creates a wealth of data that in turn should enable us to both improve product design and find more efficient ways of transacting our existing products.

What are the biggest threats and opportunities for the London market?A big opportunity is to capture and leverage the data we have more effectively. What we keep hearing from clients is that they want new solutions. It is very important that the London market stays at the leading edge of product development across the board, and data is now a big part of that. Cyber clearly stands out as an area where product development is key, together with emerging risk in general.

The biggest threat is the market failing to move forward effectively – relationships have always been central to how business is transacted, but relationships alone are no longer enough. While they are still critical, continuing to evolve the existing value proposition and methods of doing business must be front of mind. London already has all the tools, it is about ensuring it uses these in the right way as the landscape changes.

What are Aon’s priorities for 2018 and beyond?Aon has made a number of investments recently that are not about scale but are about capability. For example, [acquiring] Stroz Friedberg, the cyber risk consultancy. A real focus for us is getting the most out of all the capabilities we have, so we can offer a single “Aon United” value proposition to our clients. There are not many problems our clients face that someone, somewhere in Aon, can’t fix for them. We have a great

platform; we are working to get more out of it to benefit our clients.

Growth, more generally, is also a priority. The world of risk is getting more complex. Organisations are facing more volatility than

ever before, driven by economic, demographic and geopolitical changes and accelerated by

rapid technological change. This all means that the opportunities to provide solutions to

clients will keep growing.

We hear a lot of talk about innovation, but what does that actually mean for re/insurance? What are you doing at Aon to drive innovation? We are using robotics with

the aim of speeding up some of the processes across the business and to streamline our operating model. We are also looking to innovate more and more on insurance products, led by client demand and supported by both data and our team’s expertise.

Innovation is also taking place in how transactions are executed, which is really important for the market as a whole. Aon Client Treaty (ACT) is a really good example of how Aon is doing this.

Aon is very active in Diversity & Inclusion in the UK, what role do you play in that? Both our outgoing Aon UK Ltd CEO Dominic Christian and incoming CEO Julie Page are heavily engaged in market-wide and Aon UK initiatives on Diversity & Inclusion. They are both hugely passionate on the issue, so the tone is set from the top. If you have a diversity of thought you will have more balanced and appropriate solutions for clients; a more diverse workforce creates better business outcomes and a more fun environment in which to actually work.

A big focus for me is mental health. Our modern lives are incredibly stressful, especially in financial services, with technology only making lives busier. It is really important that we help people manage their mental wellbeing. We are rolling out a number of initiatives, including giving people the access to mindfulness techniques, training some staff to be mental health first aiders and educating our people leaders to increase awareness of, and de-stigmatise, the issue of mental health.

BROKER FORUM m


“London is still the leading global hub for a number of lines of business –

from traditional risks such as marine to emerging risks such as cyber”

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RISK MANAGER VIEWS: SUSAN HITESHEW

Is the insurance industry meeting your needs?The insurance market has a tough job to think ahead and work out how risks are going to materialise and what sort of products will be relevant to insureds. It’s a tall order, especially when you think about how much certain coverages have evolved in a relatively short amount of time – take cyber for example. But for the most part, the industry is meeting risk professionals’ needs, although there are definitely opportunities and areas where there are gaps in resources.

One of the biggest gaps I experience as a risk manager for a multinational company is to do with the infrastructure outside of the US and Europe. The infrastructure resources outside of the US and Europe can be a little thinner. Sometimes, the claims adjusting process and expediency with which payment is issued isn’t what we’re used to [because the infrastructure isn’t there]. Maybe we get a little spoiled with our partnerships in the US and Europe as well, but that is an area where [improvements could be made] and where there’s an opportunity for the insurance industry to grow.

Are there any products or coverages where you think the insurance industry needs to do some work? Or are there any exposures your business faces where you would like some more support?Cyber and supply chain are two areas that immediately come to mind for new risks. Both are very complex, and to be able to underwrite an end-to-end supply chain product would be a massive undertaking. I know certain carriers have put forward products, but they haven’t necessarily gotten the pick-up from insureds because of the complexity associated with the underwriting process.

When you think about it, supply chains are so much more complicated,

lead times are much shorter and so it really emphasises the interconnectedness of the risks within your supply chain. To be able to do that and write a product around it, you have to have a really deep understanding of the organisation you’re

insuring and how they drive their revenue.Supply chain is definitely an area

where there are opportunities for additional products, but I understand why we haven’t seen a multitude of products and a significant uptake by purchasers because it’s a very complex risk to unpack. And that’s particularly true when you overlay the lack of catastrophe modelling that exists outside of the US.

Comprehensive supply chain solutions would be impactful, but the only way there would be a significant purchasing of that product would be if the underwriting process was reasonable

and a little bit shorter than what I’ve seen come to market thus far.

What are your thoughts on the broking industry? Do you see brokers as an integral part of the insurance market?I get some business direct, and some I use a broker for. The broker relationship is very important to me. Brokers have an extensive amount of client knowledge and loss data and their ability to provide an objective, strategic view of the insured’s business is a critical value-add. Being able to disseminate their perspective into actionable ideas and help you as a risk manager tell the risk story with that independent viewpoint is very valuable.

When you’re on the brokerage side, it’s important to take a keen interest in the insureds you’re supporting; read through the 10-K and get a real understanding of that organisation. What do the analysts say? You have to think critically about what issues that business is facing.

My brokerage team does that on a regular basis and is very supportive of us, and we definitely rely on them for an extensive amount of work, guidance and expertise.

“Brokers have an extensive amount of

client knowledge and loss data and their ability to provide an objective,

strategic view of the insured’s business is a

critical value-add”

Under Armour’s senior manager for global insurance and risk financing, Susan Hiteshew, tells Reactions the insurance industry needs to do more to help combat cyber and supply chain risks.

BROKER FORUM m


In the cautious world of insurance, Steve Hearn is a somewhat iconoclastic CEO. When he left Willis

(where he was deputy CEO) to lead Cooper Gay Swett & Crawford, he did not just take a pruning saw to the broker, lopping off Swett & Crawford, he re-branded and boldly re-planted it as Ed, a consciously global wholesale intermediary.

Since then he has routinely stuck his neck out and questioned the conventional wisdom of the market, sometimes criticising what he sees as the hegemony of the blue chip brokers.

Characteristically, Hearn has some forthright advice for the Financial Conduct Authority, which is in the midst of an enquiry into London broker practices, and especially on how it should view the growth in underwriting facilities.

“In the context of competition, the regulator should bear in mind that when a piece of business arrives in London it has already been subject to significant competition, whether in local markets, through brokers vying for the business or through a subscription market. Also, there’s an underlying assumption that all facilities are bad – and they are not all bad,” he says. “Groups of carriers providing high quality policies in an efficient way is a positive.”

Hearn thinks it is inappropriate when a bespoke specialist risk is forced into a facility which is not best suited for that risk. “Second, it is wrong when the reward structure isn’t equitable. If half of every dollar of a customer’s premium goes to pay for intermediary services, that merits an investigation,” he states.

“The FCA shouldn’t presume all facilities are bad and should have an open mind: but it is right to make certain that our industry’s customers are properly protected.”

Another London market preoccupation that’s close to Hearn’s heart is modernisation and the slow progress made with PPL. The incoming PPL chairman Bronek Masojada urged the market to get on with it, “rather than enjoying the spectator sport of watching others fail”.

For its part Lloyd’s recently announced a mandate for electronic placement: from the end of Q2 this year, each syndicate will be required to have written no less than 10% of its risks electronically. The target will rise by 10% each quarter until Q4 2018 (to 30%).

Hearn, a past chair of the London Market Group, says:

“We must consider ourselves as custodians of our market, responsible for leaving it a better place than that which we find it. Brokers who resist change, whether because of arrogance, cultural reasons or cost, could be criticised for wishing to sustain their position rather than acting as custodians.”

He believes change is around the corner. “When the customer questions the value of outdated and inefficient ways of doing business, which is happening now, it’s a sad reflection on our market. But at least it forces change,” he says.

London must do better in terms of innovation as well, Hearn reckons: “In insurance offices in Munich or Zurich it is not unusual to see people in white coats whose jobs

are purely to scientifically approach innovation. Innovation in London has been more entrepreneurial but I question whether we are doing all we can.”

Hearn believes the best examples of innovation

happen when there is a balanced tripartite conversation between insurer, broker and client. A good example is the group that has come together to look at the potential offered by blockchain in the marine market, he says.

Last year, EY and Guardtime announced a blockchain platform for the marine insurance sector. The platform includes shipping line AP Møller-Maersk A/S, with ACORD, Microsoft, MS Amlin, Willis Towers Watson and XL Catlin. The aim is to increase transparency and reduce manual data entry or reconciliation and administration costs.

Hearn rejects the idea that brokers risk being sidelined by technological advances and disruption.

“There’s a view that as capital and customer come closer together that it necessitates the removal of the intermediary from the value chain. I don’t believe it. Intermediation becomes even more critical in these disruptive processes,” he says. “Some of the biggest businesses in the world are by their nature intermediaries: Amazon, Airbnb, eBay, Alibaba etc. who have been successful in matching customers to third party product. Intermediaries have evolved and are more relevant, not less.”

He says that comparison websites like Moneysupermarket and Comparethemarket are frequently described as disruptors – but they are simply brokers that efficiently match capital and customer.


m BROKER FORUM

BROKING TO A DIFFERENT TUNESteve Hearn, outspoken CEO of wholesale broker Ed, has no time for London’s existential angst.

“We must consider ourselves as custodians of our market, responsible for leaving it a better place than that

which we find it”

BROKER FORUM m

“And in the global wholesale market, brokers are an incredibly efficient way for underwriting capital to marry up to customer risk – provided we make best use of technology to keep frictional cost to a minimum and pass savings back to our customers. Disruption is not a threat to brokers – it is an opportunity for those prepared to evolve,” Hearn says.

But doesn’t the insurance industry have a problem attracting and retaining talent, as so often heard?

“Ed has hired 175 new employees in London in the last 18 months (following the rebrand in September 2016) and hasn’t had a problem attracting people from outside. We [all] need to attract the expertise that will help us become more technologically efficient and that will often come from outside our industry. One of our recent hires is a technology expert brought in to design the interface for TradEd, our tool used by Ed’s brokers around the world, through their smartphones, to access client and insurer data across all classes.”

Hearn adds that Ed is in the process of hiring a new chief technology officer and so far he has not interviewed anyone from within the insurance industry.

“If we are to grab hold of the future, a blend of experience is necessary and it’s going to require diversity in all sorts of different ways, including where that comes from in every sense.”

It is a commonly held view that the growing role of analytics is going to define successful brokers: a development that favours the biggest players. Hearn is not so sure though.

“Analytics is table-stakes, it’s mainstream and while it’s important in providing better insights into our customers’ risks, there are so many other factors that need to be brought into the broking equation.”

Bu he concedes that data is going to have a bigger role in underwriting and pricing risk and points to property cat business, with so–called cat in a box solutions using live pricing. “We need to think about how that might develop further. Look at aviation for example, where airliners in flight generate huge amounts of measurable data which could provide real time insight into risk vectors. It is therefore not a huge leap to imagine live pricing in the aviation market,” he says.

“But analytics alone is not going to differentiate intermediaries.”


“When the customer questions the value of outdated and inefficient

ways of doing business, which is happening now, it’s a sad

reflection on our market. But at least it forces change”

How do you view the insurance industry and is it meeting your needs?I think that the insurance industry has the potential to be one of the most cutting edge industries from a technology perspective. Some insurers are embracing this while others are falling behind. The most successful carriers in my opinion are those that seek out the input and feedback from their clients. Carriers who have risk management counsels or hold risk management summits in which clients and risk professionals come and give honest feedback to them and help track changes in their business practices or propose new ideas – they’re the ones who are going to be the most successful. I’ve actually been very fortunate and been able to participate on two different task forces for a carrier. On one task force, I along with other risk management professionals, helped to redesign their RIMIS system – or their Risk Management Information System – that they had in place. It had become antiquated and wasn’t user friendly.

By working directly with us and getting our input on what we needed through the task force, they were able to completely overhaul the look and design of the system and make the data more easily accessible. This allows me to better analyse our claims data and help make decisions that will impact our company and reduce our risk.

What areas can insurance improve upon?Many of us risk professionals, we either work solo or in very small departments and so it’s hard for us to know everything. I’ve been put in charge of our company’s business continuity planning. CBIZ is spread out across 38 states and over 100 locations, so it would be great if the carriers could give us some tools to utilise in planning for our business continuity planning since disruption of business can directly impact an insurance carrier through business income insurance. Tools to help us manage and mitigate those risks would be very helpful.

Another area where we struggle and where carriers can help is the cyber world. Currently, there are 48 different state regulations that we have to follow in the

event of a breach. We typically have to engage outside counsel on how to comply with

the complexity of the notification requirements to ensure we are doing

it correctly in each of the state’s where we are obligated to file. This challenge is only multiplied when you factor in business done internationally as well and all the different regulations we have to follow there. So I think

carriers can play an important role in helping to establish maybe

a solo Federal reporting standard that would be applied across all of the

states. That would make my life easier and it would reduce the overall cost of the claim

as well. We’re going to put pressure on Congress and support for legislation to drive that change. But it can’t just come from the policyholders and the clients. It also has to come from the carriers and the brokers.

What are your thoughts on the broker relationship? Are they necessary, or do you feel your relationship is strong?It depends on what you’re looking for in a broker. If you just want someone to help buy an insurance, there isn’t much value in that. But if you want to be engaged in helping to develop and execute risk management strategies, then it adds a lot of value to the broker relationship. Our insurance broker helped us to develop a risk transfer strategy and purchased our coverages very effectively. They aggressively used their industry relationships to negotiate terms and pricing, and we’ve gotten great results over the past several years. I think the true value of our broker relatonship is the commitment to engagement. The team understands CBIZ as a company and its risk profile, as well as the risk management objectives that I have put in place. To me this is key. I make sure of this by engaging my brokerage team in strategic conversations throughout the year about my company’s needs and expectations. A good broker will have an engagement plan that will facilitate their active involvement in these types of conversations.

Another critical value they add is access to individuals that have deep experience in complicated areas of coverage, as well as claims professionals that have played key roles in getting claims paid. I’m lucky because I have a unique situation. My brokerage team is already employed by CBIZ – we have CBIZ Insurance Services, so they have a specially vested interest in helping our company meet its risk management goals and help me succeed in my position.


m BROKER FORUM

RISK MANAGER VIEWS: KRISTEN PEEDAhead of this year’s RIMS conference, we hear from Kristen Peed, director of corporate risk management at CBIZ, on how the insurance industry can improve its offering and the role brokers play.

Q&A: ROSS HOWARD

How do you view the current reinsurance broking landscape and JLT Re’s position in it?Options for clients are becoming less and less with the top four brokers pulling away from the remainder. The reason for this is clearly the analytics and service offering that is part and parcel of the business today. That is not to say that there are not quality businesses outside the top group who are trading in a space successfully, but this group is getting smaller and smaller as M&A activity continues. The truth of the matter is that these expanding service offerings come at a cost that only a handful of reinsurance brokers can accommodate. As for JLT Re, we believe that we are in the strongest position, we have all the analytics in the business lines that we are in but have hired some very accomplished brokers in a number of business units to complement an already strong broker and analytic team which, given the changing market place provide us with a strong belief in our business model.

Do you think greater re/insurance broker consolidation is on the cards? If so, what does that mean for your clients?Yes, most of the medium to small broking operations would sell if the right offer came along, particularly the smaller ones. Whilst there remains a place for the specialist brokers, it is getting harder to keep the business of any scale if the larger brokers go after the clients with all their resources available. So the better ones will get bought or merge to get some size. Clients will therefore have less choice which is not a good thing although as it stands, there are alternatives, albeit less of them. We believe that JLT Re does indeed offer an alternative at the upper end, quality broker service with analytics and claims handling of substance.

How do you view the consolidation going on within re/insurers? Is it good for the market? Do you have any concerns?Underwriting consolidation will no doubt continue as well, recent examples of XL Catlin and AXA remind us that this process is not over, with more to come. The

drive for growth in both top and bottom line is not going away and the race is on for the large global companies to sweep up the good middle market operators who remain. This is definitely not good for the business and whilst AIG and AXA should be very happy with their buys, it remains a problem for the business and clients over choice. The question is, are the next group going to step up into the void that this creates? That, I think, will depend on market conditions as volume growth in a poor market is not advisable.

The global re/insurance industry continues to evolve at a rapid rate – how do you ensure you remain at the forefront?There is no doubt that developments in the business continue at a pace, whether that is in different forms of capital or expanding product lines. For brokers, sticking with your lines

of knowledge and expertise is a formula for a reducing book as is investing in the wrong areas

which tends to hit the bottom line. So finding expertise in the areas that are of most

concern for our clients is key. Cyber, no doubt is one, and knowledge then becomes the big drive. In cyber we have hired Erica Davis in the US for her expertise in this line.

What do you think the industry’s likely response to the HIM hurricanes, wildfires, and earthquakes of 2017 will be? Is the toughened rating environment going to continue?Some pretty poor results are beginning to come through from HIM and other losses in 2017 and this coupled with the deteriorating US casualty reserves is going to continue the changing market, not in all lines but definitely in some. The big questions are how many more losses are going to come through from 2017 and what is 2018 going to be like? Both are likely to have a major impact on the market place.

What can we expect to see from JLT Re in the coming year? Any new areas of expansion or particular parts of the world you’re focusing on?Trade credit and political risk is an area that we have invested strongly in. Our London-based team have considerable experience in this area and have already begun to demonstrate their value to this business line. In addition, we have changed our leadership in the Asia Pacific region and have appointed Jeremy Fox as CEO and more recently Vinod Krishnan as head of treaty for Asia. We expect to see our business grow in this territory over the next number of years.

JLT Re has gone through an unprecedented period of expansion in recent years, with North America a particular focus and now Asia Pacific garnering the company’s interest, executive chairman Ross Howard explains.

“The big questions are how many more losses are going to come

through from 2017 and what is 2018 going to be like?”

BROKER FORUM m


How do you view the current reinsurance broking landscape and Guy Carpenter’s position in it?These are exciting times to be a reinsurance intermediary. Our insurance clients worldwide are increasingly looking to us for both strategic and transactional support in their quest to achieve profitable growth. They are managing their business in an exceedingly complex environment characterised by cyclical trends such as low interest rates, excess capital, a competitive pricing market, weakening reserve positions and low growth. Meanwhile, secular trends such as climate change and the rise of convergence capital add additional challenges. And customer expectations are changing as the sharing economy and emerging risks like cyber demand new products and services. But opportunities exist, and Guy Carpenter is ready to assist insurers with all facets of their business, from strategic

and capital advisory to enterprise risk management solutions for traditional and emerging risks.

At Guy Carpenter we feel we’re well positioned for the future. We’ve aligned ourselves with clients in all facets of their business, offering the strategic advisory and transactional solutions they need to satisfy regulators and rating agencies while uncovering opportunities. We’re honoured to be ranked the top Reinsurance Broker in the Reactions Lloyd’s Broker Survey, just as we are to receive other industry recognition like the highest Client Advocate Score in Flaspöhler’s most recent reinsurance study. But more important is the validation of our approach to client service. Our near century-long history of adapting to clients, our robust industry knowledge and our deep market relationships afford us a unique perspective on the risk landscape, and we want to communicate that insight to our clients to help them drive profitable growth.

The global re/insurance industry continues to evolve at a rapid rate (alternative capital, M&A creating larger firms, new exposures like cyber, new technologies and modelling, etc). How do you ensure you remain at the forefront?By adapting. By being capital-agnostic. By seeing disruptions as opportunities to improve products and platforms to help clients tackle evolving risks, and by engaging with new stakeholders to access more data, insights and resources. We’ve tried to empower our clients with the tools to stay ahead of change. Cerulean Re, our joint venture with Marsh Captive Solutions, provides efficient, standardised access to bespoke collateralised reinsurance and catastrophe bonds and a transparent, streamlined collateral release. It also brings investors closer to original risks by introducing elements of primary corporate exposure from Marsh Captive Solutions’ client base. Our analytics teams are leading development of best practices for catastrophe model management and interoperable models, helping clients calibrate and adjust assumptions for their own unique risk profile, diversify data sources, and lower costs. And we’re working with exciting new public sector partners like the World Bank to cover emerging risks like pandemic; and the government of Mexico, to help it narrow the protection gap following catastrophes like last year’s earthquake.

We’ve seen Guy Carpenter ramp up its client offerings in recent years - the business now provides a whole host

of ancillary services to clients. But we’ve also seen insurers increase their in-house use of analytics and modelling. Is being a multi-faceted broker as important as it was? Is there now again a growing focus on the placement aspect of the business, especially because insurers have been increasing


m BROKER FORUM

Q&A: DAVID PRIEBEReactions speaks with David Priebe, vice chairman of Marsh & McLennan Companies’ Guy Carpenter, about the state of the reinsurance broking market.

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their retentions in recent years and who, in response to last year’s cat events, may now rethink that strategy because they were hit with claims that didn’t pass onto their reinsurance programmes?Being a multi-faceted broker is more important than ever. Clients are looking at risk management from a holistic perspective, and their brokers need to do the same to properly advise them on all aspects of their business. But that doesn’t mean we’re sacrificing transactional excellence; in fact the two go hand-in-hand at Guy Carpenter. Our proprietary system GC MarketPlace® leverages the vast amount of transactional data collected across all client placements worldwide, while maintaining confidentiality, to identify strategic insights for profitable growth. Combined with our global analytic capabilities, such data helps us more effectively and efficiently match the right capital solution to clients’ risks to protect against volatility in targeted lines of business or enterprise-wide.

Property catastrophe had a difficult year, but it’s important to remember that unlike historical firming events driven by supply and demand imbalances and shifting views of risk, the 2017 events were not outside modelling parameters and did not produce the “shock” losses some expected. So carriers aren’t necessarily panicking about the effectiveness of their traditional reinsurance programmes. And many companies are reinvesting savings from higher retentions in the convergence market, so it’s important we develop these capabilities as well. Many carriers don’t have the time or resources to navigate this still relatively-new segment of the industry, and Guy Carpenter and GC Securities have tried to position ourselves to assist clients in this regard.

One last point – carriers have done an excellent job adding in-house capabilities, but even the largest players can use a fresh set of eyes to consult on strategic partnerships, licensing contracts or insurtech investment. This is an incredibly rapidly evolving area, and rather than view it is a threat, we see it as a new opportunity to serve and advise our clients. The captured data set for auto, for example, is growing exponentially, but the ability of carriers to mine it for usable insight then integrate it with underwriting, pricing and claims strategies is already strained. We can help them take the next step to modernise infrastructure and enterprise risk management.

What do you think the industry’s likely response to the HIM hurricanes, wildfires, and earthquakes of 2017 will be? Is the toughened rating environment going to continue?

The industry did a great job responding to the events of late 2017. Again, the HIM losses, wildfires and earthquakes were significant, but they did not behave in any drastically unexpected fashion and reinsurers proved resilient by quickly paying claims.

The market’s thoughtful response to the events was further evident at the January 1 renewals, as moderate rate firming allowed capital dedicated to reinsurance to be quickly replenished.

While assessment of the full market response will continue through spring, when many of the most heavily

loss-impacted policies renew, we expect it to continue to be reasonable.

In Katrina, the impact of storm surge exceeded the assumptions inherent in most modelled loss estimates. The Tohoku earthquake had unexpected magnitude. Even the Christchurch earthquake surprised us with extreme liquefaction. Previously hidden

attributes such as these did not materialise following the 2017 events, and the loss mitigation programs in place proved effective.

Combined with the emergence of convergence capital, this has created an environment in which proposed rate decreases or improved terms are receiving greater scrutiny from reinsurers, but there is no indication markets were unwilling to support the sector. And in many cases, higher renewal rates on line at January 1 were driven as much by exposure growth as rate increase.

That said, we do expect insurers to continue integrating convergence capital in risk transfer strategies. The payment performance of these deals following the 2017 events, combined with renewal pricing to-date, has demonstrated the stability and reliability of investors, and access to third party capital is increasingly seen as a measure of senior management’s preparedness to succeed in a changing environment.

What can we expect to see from Guy Carpenter in the coming year? Any new areas of expansion or particular parts of the world you’re focusing on?I think you’ll see a focus on new products and services for the areas being most disrupted by innovation, political and economic volatility, emerging risks, and changing customer expectations.

Traditional P&C lines will of course continue to be an integral part of our business plan, but these are areas where we feel we can be a real differentiator and drive solutions that not only help our clients and our industry, but the global community as well.

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“These are exciting times to be a reinsurance intermediary. Our insurance clients worldwide are

increasingly looking to us for both strategic and transactional support in their quest to achieve

profitable growth”

Last year’s Risk and Insurance Management Society’s conference saw The Schinnerer Group unveil an

industry first in the form of its Alternus product – a property insurance facility for US companies.

The offering represented something of a watershed moment in the market as Alternus was the first dedicated commercial insurance facility for retail clients that was supported by alternative capital.

Alternus has been offered to clients by Schinnerer’s fellow Marsh & McLennan Companies’ subsidiary Marsh. The product is underwritten and managed by Schinnerer and backed by traditional market Allianz Global Corporate & Specialty and alternative capital through specialist asset manager Nephila Capital.

The facility covers up to 10% of a client’s property insurance programme with up to $200m of limit per programme.

Speaking to Reactions, Schinnerer’s chief executive Christopher Schaper said the offering has done very well since its launch.

“Clients have absolutely attached to the product, and we’ve been able to enhance their coverage as a result,” Schaper said.

As Schinnerer’s CEO explained, the launch of Alternus has brought with it some educating. Not all of Marsh’s clients have an understanding of the alternative capital space and the role it has played in the retrocessional and

reinsurance markets, and as such there has been some knowledge

sharing.“The Marsh brokers are out there discussing it with their clients, and for the clients some of

them are very familiar with how alternative capital works and some are not,” said Schaper, adding: “For some markets it’s an

education, and that’s good because it’s important they’re

learning about new risk transfer opportunities and

getting engaged in new product

developments, so we’ve undertaken that education

process over the last year, both internally with some of our brokers as well as externally with our client base.”

The launch of Alternus saw the product being described as a “facility”, but Schaper said such a title is in fact something of a misnomer. Instead, it should be thought of more as an alternative insurance product.

“We don’t call it a facility - we think of it as a product,” said Schaper, highlighting the work that goes into offering the protection.

“There is an underwriting process that takes place which verifies the risks coming on board and makes sure they in line with the prospective of what we’re trying to accomplish, and then ultimately they’re provided with a quote,” said Schaper.

It is now close to a year that Alternus has been on the table, and Schaper says Schinnerer and Marsh have seen “a very steady uptake of it”.

“When you introduce a new product to the market, it generally takes a bit of time for everyone to get used to it. I can’t go into details about volume, but it’s achieved the goals that we set for its first year

out, and we are continuing to see steady growth. In fact, this coming month [April] is looking like the strongest month we’ve had,” explained Schaper.

Alternus is currently only being offered to Marsh’s US clients, but Schaper said there are discussions to see whether it can be spread further afield.

“We’re certainly looking to offer it to the existing client base, but we’re also looking at expanding it geographically. Right now, it’s a US product but we’re looking to expand it beyond the borders to clients that are outside of the US. We’re also going to determine whether we can offer more than the 10% participation.”

And while Alternus is currently targeting middle market and larger clients, Schinnerer and Marsh are now considering whether the product’s reach can be expanded to middle market and smaller accounts, as well as into new business lines.

“We’re looking at multiple dimensions, but the first year was very successful and beneficial in a myriad of ways in terms of knowledge as well as security for our clients.

“Eventually, I could foresee it [moving beyond property],” stated Schaper, adding: “There are other short to mid-tail lines of business where the construction of this could certainly apply. As long as you have the markets – meaning the insurer and alternative capital sources – lined up, there’s no reason you can’t roll this out to other classes of business and eventually we will look to try and do that.”

“Clients have absolutely attached to the product, and we’ve been able to enhance their coverage as a result”


m BROKER FORUM

SUPPORTING THE FRONT ENDMarsh & McLennan Company’s Schinnerer Group and Marsh unveiled Alternus at last year’s RIMS conference, and the product has been steadily growing since, Christopher Schaper tells Reactions.

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RISK MANAGER VIEWS: PAUL PIAZZA

Is the insurance industry meeting your needs?Overall, I think insurers do a great job. Partnering with a global conglomerate like Honeywell and our diverse businesses creating multiple complex exposures is never easy. For example, insuring our aerospace product liability, the aviation insurance market responds the best as far as claim payments and being involved in the litigation process.

What concerns me is the consolidation of insurers, and I think a lot of risk managers are feeling that way. The market is probably going to make the turn, and it looks like it’s doing it already on property, casualty and in some other perils. Honeywell is very concerned about its spend on premium dollars and I am watching this very closely.

But overall, my insurance partners have done a great job providing coverage solutions for us and paying claims. However, I am little concerned about how the consolidation may affect pricing.

Which emerging exposures are you most concerned about?Cyber is something we’ve been addressing for a long time, and it’s one of the top three exposures we’re concerned about, we do purchase a large cyber insurance programme. Honeywell is evolving into an industrial software manufacturer and the end goal is to have all our products inter-connected.

Because of this, software E&O liability can be more of a concern for my team than actual first party cyber coverage – this is very important, especially when you’re providing software solutions to major industrials and the oil and gas industry.

We’ve seen cyber claims and how they relate to consumers and their credit exposure, but Honeywell isn’t in the business of collecting personal information and this is not viewed as a major concern for us.

Honeywell is also a government contractor, as a result we have one of the most sophisticated cyber security and technology blueprints to protect our assets. The insurance market is doing a good job in providing this

coverage, and we work with our brokers to read through the policy to ensure we’re

getting the broadest coverage at the best price. We’d love to have the

property damage coverage added to it, but understand that comes at a cost and it’s something we are addressing for the future.

I am seeing the hardening of the property market, I’d say that’s another issue for us. We’ve

had some minor property claims unrelated to the hurricanes, but it’s

the knee-jerk pricing reaction from the marketplace that concerns me.

What are your thoughts on the broking industry? Do you see brokers as an integral part of the

insurance market?Brokers are our partners in negotiating premium and in obtaining creative coverages where we need it – third party product recall, M&A solutions and certain aviation, space and satellite coverages for example. We need insurance products that maybe the mainstream companies don’t always buy, and brokers are pivotal in helping us out. In addition, certain types of warranty insurance, especially in the UK for rip and tear exposures related to our meter business. Europe is undergoing a major transformation needing these measurement devices to charge for water.

Overall, the brokers are an invaluable partner in assisting us in this process. The people are their main attraction, and so when you see certain brokers jumping from company to company, it makes me a little nervous.

There are some companies out there that have had a long-term relationship with their brokerages. At Honeywell, I look at which individual broker team is the best fit for the exposure. We do have frequent RFPs, however we try to keep a broker on for at least five years, we’re constantly watching and seeing who is going where. If we feel a certain brokerage team will obtain a better solution for us on an exposure, then we’ll do an RFP and make the change. Some companies tend to follow the firms, and at Honeywell we follow the talent. It’s really paid off for us and we have had a lot of the success on our programmes. When you have that strong business relationship with an individual broker, they don’t want to disappoint you so they’ll go above and beyond to get you what you need. I can understand why companies will stay with one firm for a long time, but in my opinion the decision to do that isn’t based on the actual brokerage, it’s based on the individual brokers working on that account.

Paul Piazza, assistant treasurer and vice president of risk management for Honeywell International, gives his thoughts on how the insurance industry is responding to his risk management needs.

BROKER FORUM m


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