Straight-talking strategy with Lancashire’s CEO

Alex Maloney, CEO of Bermudian re/insurer Lancashire, was the latest guest to feature on the Voice of Insurance podcast, produced in association with AdvantageGo.

“We’ve done what we said we do,” said Lancashire’s chief executive, Alex Maloney. A guest on the Voice of Insurance podcast, three-and-a-half years after his previous appearance (aside from some comments during a Monte Carlo rendezvous montage), he returned to talk strategy with host Mark Geoghegan.

Much has changed in that period, not least the turn in the reinsurance market, with much greater rate adequacy than a few years ago. Lancashire has also been busy, expanding into the casualty treaty reinsurance arena and opening up a new US excess and surplus (E&S) lines business.

“I’m of the view that there’s opportunity everywhere to different degrees,” Maloney said, adding that there were “relatively few classes that we’re muted on”, such as some energy business. However, property insurance is his first noted area of opportunity. Other classes will be driven by opportunity and by hiring the right people, he suggested.

“Property is a great place to be at the moment,” he said, particularly noting the US market. “At Lancashire, we always try to push a bit harder, where we think the markets are great, and be more muted, where we’re less excited about the opportunity.”

Lancashire Insurance US opened for business in April, providing an onshore US market E&S business for the group, something Maloney thought had been lacking for the firm within the world’s largest insurance market. The new operation will bring new business that did not reach the firm in London, he underlined.

Maloney said he’s “obsessed with the cycle”, emphasising the importance of timing in any entry into a new location or type of business.

“It’s product lines, we understand it’s the right time in the cycle, with someone I trust on the ground, and what seems the appropriate time to enter,” Maloney said. “We want to access business that doesn’t need to come to markets like London,” he added.

Wholesale brokers do not need to bring such business to the London market, typically with smaller limits, he suggested. Through the US platform, Lancashire is underwriting property, some energy, and casualty business. More lines of business would come online, with “nothing off limits”, he suggested.

The upstream energy market is “a cause for concern”, Maloney warned.

“Just look at the limits that are available for clients, versus the premium base. I think it’s completely unbalanced,” he said.

“We have enjoyed a benign period and our [upstream energy] results are very good. That’s what drives any market, but I think history tells you that claims will happen at some point and things could look quite bad quite quickly,” he added.

Casualty represents another area of underwriting caution, he stressed, with long-tail liability risk business restricted to no more than a fifth of the firm’s book of business as a self-imposed limitation.

“I think the only part of our underwriting portfolio where we have a ‘hard stop’ is our casualty treaty business that we started writing in 2021 from our Bermuda office,” Maloney said.

“That [hard stop] is 20% of our underwriting portfolio for the casualty treaty portfolio, because as we know, it’s probably the most difficult class of business that anyone has to tackle. You see the constant reports of prior reserving, which we don’t have. But we’re very aware that class is difficult.”

The paradoxical element to re/insurance pricing, much like stocks investing, is that when a market looks bad, this is the time to get into it, Maloney observed.

“When it sounds horrible, you probably want to be in there, don’t you? And when it sounds too good to be true, you probably shouldn’t be getting into…there’s always a lag in our world, isn’t there?” he said.

Expansion into new lines has led to cross-selling opportunities, particularly through casualty, which Maloney said leads “to some different meetings with brokers”. Specialty reinsurance is a growth area, with more underwriters hired and more business underwritten from Bermuda.

“That market is hard and probably going to get harder. Post the Baltimore bridge event, that’s a good opportunity for us,” he said.

Acquisitions among reinsurers in that sector may also add to the opportunities, he suggested, namechecking Renaissance Re and Validus. “It’s a natural avenue for expansion for us, at the right time in the underwriting cycle,” Maloney added.

Lancashire is roughly 50:50 insurance and reinsurance business, according to its most recent financial report. However, he emphasised that this is not by design, and could very well adjust in the future, Maloney observed, with that flexibility a symptom of and pragmatism of being driven by cyclical opportunities when and where they arise.

“When you’re a smaller business, you have to move quicker than the big guys, and that’s one of the advantages that we have,” Maloney said. “We’re a bigger business today than what we were five years ago, but we can still do that. We can put our foot down harder, in areas that we see great opportunity. Moving the portfolio around in a world that seems to move quicker makes sense to me.”