Challenges of managing a multi-channel business
Managing a mix of retail business and London market risks, Markel International’s Simon Wilson has to balance London market volatility with a foundation of small and steady SME risks.
“What we’ve tried to create is the international operations of Markel, leading with one Markel brand.” President of Markel International Simon Wilson was a recent guest on the Voice of Insurance podcast, and explained some of the challenges of building a multi-channel business differentiated within a broader strong group brand.
Markel International has historically been a mostly London market business, he explained, plus a small minority from the Markel Syndicate 702 at Lloyd’s, underwriting some UK regional business.
“Strategically, we’re continuing to develop our international platform, but we are nowhere near finished doing that. Now, it’s about two thirds London market business and a third non-London, if you will. It’s growing; it’s gone from 5%, non-London up, to about 35%,” Wilson said.
Both aspects of the business have grown, and London remains a powerful hub to play in, not least now that hard market pricing has led to some lucrative opportunities – although opportunism can lead to some nasty surprises.
Meanwhile he has sought to grow smaller risks, such as local UK SME business, to reach a majority of Markel International’s underwriting book: somewhere between 50:50 and 60:40. The goal is to line the book with these risks that provide less claims severity.
“The balance between the local business we’re aiming for – that is business that does not leave regional or country borders, would be 50:50 or maybe 60:40 in favour of the retail platform,” said Wilson.
“I say that because the London market is quite volatile. You need to pick your moments and your areas of your business where you want to specialise. Being able to say no, from time to time, is incredibly important,” he explained.
“If you’ve got the ballast, which is that sticky regional retail business, that gives you much more opportunity to make those decisions. I’m not saying we’re massively opportunistic in London. But I am saying you have to be quite sanguine about what’s really happening in the market and when’s the right time. You need to stay in the market, as well, so that when the opportunity does come, you’re able to take advantage,” he added.
Specialty lines, rather than property, are a big part of Markel International’s book. This is very much the London market part of the business, and subject to much volatility in the past year, particularly since Russia launched its invasion of Ukraine in February 2022.
Wilson explained that, while rates for war risk business have risen attractively, there is also a crucial war risk reinsurance exclusion prompted by Vladimir Putin’s war in Ukraine, known as the Russia, Ukraine, Belarus (RUB) exclusion. For Markel, this affects their business underwriting land and marine war risks, terrorism and political violence. Any such business underwritten within this area will struggle to find a reinsurer to share a portion of the risk.
“You’ve got a choice to make of whether to play in that market anymore, where the stakes are much higher, because you’re running it net,” Wilson explained.
Reinsurance fulfilled the function of a comforting “duvet” for some London market underwriters, allowing a “happy market” in which firms could be more free and easy with their stamp, knowing they could always pass on risk to reinsurers that could lead to spikey claims.
The current situation is radically and suddenly different, he emphasised, putting pressure on firms’ ability to manage the big picture of strategy, big ticket risks being run, the standards of data available, and the relationships that have been crucial to London market books.
“The quality of what you do – whether through data, experience, the relationships you have, and your positioning in the market – all that comes to the fore, because you’re playing for higher stakes and there’s a lot more on the downside,” Wilson said.
Then there is the upside, he suggested, because if a specialty market underwriter is confident and prepared to take more of that risk on a net basis, they’re getting paid in for it, net, without passing a share of premium to reinsurers. In due course, the quality of the underwriter’s picture of risk will determine what turn out to be smart bets or the source of some gamblers’ remorse, he suggested.
“You’ve got to get that balance right between what you’re prepared to lose, and what you’re getting paid for,” Wilson said. “I think that makes the underwriting experience at the moment, frankly, that much more interesting. We’ll see who does well, and who doesn’t do so well, in that environment.”