By CHAD HEMENWAY, Advisen
Endurance recently reported strong 2015 financial performance and all indications are that positive results will continue into Q1 2016 and beyond. Launched in 2001 as predominately a reinsurer, Endurance has transformed itself into a major global excess and primary insurance player. And, with the recent successful acquisition and integration of Montpelier Re, Endurance’s Jack Kuhn, CEO of Global Insurance, said the company is well positioned to recognize and make the most of opportunities in the marketplace.
Advisen recently got a chance to sit down with Kuhn to talk about an assortment of topics, including Endurance’s strategy for future growth.
Kuhn said Endurance was “quick and decisive” when it came to letting employees of Montpelier know where they stood (Endurance closed on the Montpelier deal in July 2015). This was a lesson learned through past experience in other mergers. “I believe that our (Endurance’s) biggest asset is our staff, so getting everyone onboard quickly was paramount, so both new and existing staff could focus on our business and our clients.” Communication is “one of the key issues that can really drag down the success of any integration, or the synergy you might get from a deal,” he said.
The Montpelier acquisition “was a good strategic decision” that gives Endurance access to a broader geographic reach and range of product offerings including a Lloyd’s platform and Blue Capital, an asset management platform.
“It opened up opportunities especially in the London market, where the acquisition further accelerated the growth Endurance has achieved over the last few years,” Kuhn said. Asked for an example, Kuhn mentioned the marine insurance market. “These risks typically go to London for coverage.”
There has been a very interesting mixture of organic progress and M&A driving growth at Endurance. Since Kuhn joined in 2012, Endurance has experienced substantial organic growth across both geographies and products.
“A couple of years ago we had no UK presence on the insurance side, now we have seven lines and teams and will have a few more shortly. In Bermuda, we started with 3 lines, now we have 6 and here in the States, our business has grown to 13 or 14 lines,” he said.
According to Kuhn, when an opportunity is presented in a line Endurance wants to expand into, the company recruits the best and brightest individuals and teams to meet that need. And Endurance hasn’t ruled out another acquisition if it’s the right strategic fit.
Kuhn would agree that there is excess capacity in the marketplace resulting in price pressures. There is no shortage of capital says Kuhn.
He said Endurance is “still in a strong position to deploy and use our capital to grow the business,” but not at the expense of undermining the stability of the marketplace. He added that Endurance’s current strategy doesn’t include stock repurchases for the time being.
Kuhn said the growth in Endurance’s P&C business has been “substantial but below the radar.” They are not undercutting pricing or offering broader coverage extensions or grants, but rather Endurance’s growth, according to Kuhn, has been driven by its underwriting.
“We have attracted and hired the best talent in the respective lines of business we trade in,” Kuhn said.
When asked how Endurance balances competing in the marketplace with discipline, Kuhn said the answer is simple.
“Our focus is always on the underwriting process and underwriting profit,” he said. “We don’t count on investment income or the use of reinsurance. We look at everything on a gross basis. We are not building something predicated on a soft reinsurance market. With every team we bring in, we are making sure that the team can stand on its own with the underwriting focus that they should have.
“We’re prepared that if the market moves away, we would shrink. But you can shrink and still be profitable.”
There is a trap some fall in: growth for the sake of growth; getting fixated on a percentage growth goal. But at Endurance, “disciplined underwriting is by far our most important objective,” Kuhn said.
A highlight of the insurer’s recent quarterly results was its ability to avoid large losses. While Kuhn was modest in chalking up some of this to luck, he was very clear that the underwriters on staff, both the new teams that joined since 2012 and those here before that, are what gives Endurance the advantage.
“They’ve seen the cycles and we understand there will be an attritional or surprise loss but our underwriters know which accounts they should and should not be writing and where we should be attaching.”
With about 65 percent of its business in the excess market and 35 percent in primary, Endurance has a good view of the forces at work.
Searching for profit, insurers that typically do not dabble in excess risk sometimes enter. But as the year progresses, Kuhn said he expects to see a “greater separation of companies that are truly underwriting-focused versus those that have been more or less following the market.”
“As we’ve seen, you can’t hide behind investment income and that doesn’t look like it’s going to change,” he continued. “Also, reserve releases are drying up for a number of carriers. You can start to see it in the numbers—their underwriting is getting exposed.”
This and some other undercurrents are creating a certain inflection point. Some of Endurance’s competitors are experiencing rough seas—whether it is with operations, recent mergers, or management shifts.
“It is a really unique time,” Kuhn said. “Buyers of insurance are concerned and looking for stability in their trading partners.”
Kuhn admits, Endurance has seen its share of challenges but, he said, “When you look at us now, we don’t have the internal issues that others do. Since [Chairman and CEO] John Charman’s arrival 3 years ago, Endurance has become a more stable, bigger and stronger organization.”
On the primary side, Kuhn is positive that when the opportunities to write primary are presented, Endurance is ready, having both the individuals and teams on staff with the experience to write primary successfully.
Kuhn is ready to consider program opportunities that offer a strategic value to Endurance. They recently entered into a relationship with W. Brown, one of the largest writers of aviation risk in the U.S. This is an example of a strategic opportunity to further expand their U.S. capabilities.
Without a doubt, Kuhn sees cyber as an opportunity for Endurance but writing the risk is fraught with challenges. As with any cyber underwriter, there is an inherent problem insurers deal with: “This is not a risk like an earthquake or hurricane, which we can track and model.
“You may be able to ascertain how a company will handle the knowns—viruses and attacks, for instance—but [the risk] is always changing. There’s nothing out there to help you predict what new attacks are coming or where they are coming from, whether it be political, economic or just malicious individuals.”
Therefore, like other carriers, Endurance seeks to partner with best in class cybersecurity firms while having seasoned, top-talent, cyber-risk underwriters like Brad Gow on board to lead the efforts. “We can clearly articulate our breadth and our experience in this space,” said Kuhn, which not everyone can do.
Kuhn said he thinks cyber insurance towers should be quota shares from the ground up because “if you have a serious attack, it’s going through the whole tower.”
“Align everyone—equal share of the premium and equal share of the loss,” Kuhn said. “But brokers don’t like that.”
“We’re not putting up a banner saying we want to be the largest cyber underwriter,” Kuhn said. “We’re pretty particular about what we’ll write. [Cyber] is here to stay and Endurance will be a player in it.”
Chad Hemenway is Managing Editor of Advisen News. He has more than 15 years of journalist experience at a variety of online, daily, and weekly publications. He has covered P&C insurance news since 2007, and he has experience writing about all P&C lines as well as regulation and litigation. Chad won a Jesse H. Neal Award for Best Single Article in 2014 for his coverage of the insurance implications of traumatic brain injuries and Best News Coverage in 2013 for coverage of Superstorm Sandy. Contact Chad at 212.897.4824 or [email protected].
