Don’t stick too closely to a business plan – Convex’s Paul Brand

Paul Brand spent three decades building Catlin’s underwriting portfolio to nearly $6bn; at specialty insurer and reinsurer Convex, it’s taken only five years to surpass $4bn.

Convex’s CEO Paul Brand returned to Mark Geoghegan’s Voice of Insurance for his second time on the podcast. Brand noted that prices have risen consistently over the five years since Convex was created, helping the re/insurer’s market journey thus far.

The re/insurance market veteran spent thirty years of his career as Chief Underwriting Officer at Catlin. It took Catlin (sold to XL in 2015, now AXA XL) thirty years to amass gross written premium (GWP) of just under $6bn. As Convex approaches its fifth birthday it is likely to surpass $4bn GWP this calendar year.

“Depending upon what’s happening to the price outlook, I would anticipate that Convex might, in the fullness of time, broadly, get up to a 5% market share, and lead more business and be more influential if we do everything right. And if that’s what our clients and our distribution want,” he said.

Mark noted that Brand bucked the group think trend at this year’s reinsurance rendezvous in Monte Carlo by calling the market rally “brittle”, sounding a more cautious note than most exuberant reinsurance CEOs enjoying the fruits of the market turn.

“I would still say it gets very brittle,” Brand said. “There’s an awful lot of talk about casualty tails wagging again and actually reserves really stepping out, beyond where people might have thought they might end up, other than perhaps Steven Catlin who did predict this,” Brand said.

Not only that, but shareholders of carriers have not felt some of the benefit, he suggested, lagging behind brokers and distribution firms. Investors are still hesitant to open the gates to an inflow of capital. “A couple of quarters” isn’t enough to make those fears go away, he suggested.

The many moving parts within the sector that feed into investor appetites, including inflation and social inflation numbers, as well as trends such as climate change, are also in competition with trends in other sectors that compete for investment, he emphasised. In comparison, the insurance industry has shown investors volatility, especially in recent years.

“The recency bias is likely to keep people sat on the sidelines until such time as you can say: ‘the recency is actually pretty good, and casualty insurers and reinsurers are making a ton of cash,’” said Brand.

Understandably, Brand is confident about Convex’s robustness to face what remains a highly uncertain macro risk environment. In relative terms, he said the re/insurer is conservative in its risk appetite and strongly capitalised, but he still remains cautious in absolute terms because a big enough combination of events could still pose challenges for any firm in the market.

He remains upbeat about the growth that rate increases have afforded Convex in recent years, and resolves to stay fleet of foot to continue to benefit from hard market pricing across specialty insurance business as well as reinsurance.

“Would we be at $4bn at the end of 2023 if you’d seen nothing but rates falling since we started in 2019? No way, we’d probably have packed up and gone home because you wouldn’t have got that kind of ‘run in’ to a market where growth would have been possible in the way that complex has grown,” he said.

Brand had some sage advice for firms drawing up and acting on their business plans.

“Do we look at short term opportunities and weigh them against longer term? Yeah, quite,” he said. “Is the portfolio that we’ve got in 2023 exactly what we planned? No, because we made certain price assumptions, which in some areas, we’ve been fortunate and seen better increases. And in some areas, we’ve seen prices fall. So you adjust.”

The worst thing, he stressed, can be for a firm to follow a business plan too closely, with insufficient adjustment for unfolding events, particularly where growth targets are concerned.

“The business plans is your best guess at a point in time,” he said. “You sometimes get people who put more effort into the business plan than they do into the actual execution around it. That feels foolish to me, because you’ve got to react to what you see; you’ve got to have those long term themes, which have to be well developed and thought through, and then adapt to actually what the market is offering.”