Insurers Hiscox Ltd., Beazley Plc and Catlin Group Ltd. are reaping the benefits of the U.S. market-and are committed to it for the long term, says SNL.
SNL data shows how the three companies have developed their direct premium written through their US subsidiaries since 2008. Catlin has enjoyed particularly rapid growth, with premium totaling $742.7m in 2013, up from $142.9m in 2008. In 2009, it grew by 127.8% year over year.
The company has a very steady, long-term strategy to build up its US business, explained Nick Johnson, a London-based analyst at Numis Securities. The US business was given a considerable boost in 2006 with the acquisition of Wellington Underwriting for £591m, he noted. "Since then it's been a case of fairly steady, strong growth year in, year out, driven by ongoing investment in resources, marketing and building up their franchise," he told SNL.
Meanwhile, Hiscox USA ceo Ben Walter told SNL of how various investments in the business over the past couple of years are now paying off. According to SNL data, Hiscox Insurance Co. Inc.'s direct premium grew to $114.1m in 2013, up from $14.6m in 2008. Furthermore, the business held a profitable combined ratio of 92.69 in 2013, after writing at unprofitable levels for the four years prior.
"More than anything, we've invested in quality people," Walter said. "We've had a good strategy for hiring, we've trained them well, and we've given them a career path to help retain them. We've also invested a significant amount in marketing and IT to drive our online platform."
In the case of Beazley, the strategy has been "a strong focus on underwriting profitability" without seeking premium growth for its own sake, according to the firm's Chief Marketing Officer William Pitt. Indeed, our data shows that while premium growth has not strongly accelerated between 2008 and 2013 — the largest year-on-year growth rate was 52.8%, in 2008 — Beazley Insurance Co. Inc. has reported comfortably profitable combined ratios in the past two years, at 83.52 and 84.70 in 2012 and 2013, respectively. "We have seen some strong growth in our marine division, mainly because we have expanded the scope of this division into aviation insurance and we have increased the volume of marine liability insurance underwritten," Pitt told SNL. "Our largest division-specialty lines-has also grown steadily as premium rates have strengthened for the main lines of business we underwrite."
Specialty lines appear to be the formula for US success for the Lloyd's underwriters. Walter said that while recent benign catastrophe years have seen property lines perform well-even with the challenges of a soft market-Hiscox USA continues to see strong demand for core error and omissions and directors and officers products.
"Demand also continues to explode for cyber and data breach- we're a player here but we've chosen to be somewhat cautious relative to much of the competition," Walter said.
Conversely, cyberinsurance is Beazley's fastest-growing line of business, according to Pitt. "We are unique in having a dedicated business unit, BBR Services, which helps clients manage the consequences of data breaches.To date, we have helped clients manage more than 1,400 data breaches."
A major element of Beazley's rationale in establishing a local presence in the US some 10 years ago was to access smaller-scale risks in lines of business the company knew well, but that would not normally be shown to Lloyd's underwriters in London, explained Pitt.
"This strategy has been performing well," he said. "In addition, our specialty lines business is increasingly oriented towards high-growth sectors of the US economy, such as health care and technology, which offer strong growth potential."
Hiscox, meanwhile, sees opportunity in being a solution provider in the small and medium-sized enterprise space.
"That starts with E&O, D&O, and [general liability], but it also includes our more specialized lines like kidnap and ransom," said Walter. "This is broadly an underserved market, and we believe we can bring our expertise and service model to these clients in innovative ways."
Johnson believes that Catlin will continue to accelerate its premium growth going forward, even in a softening rate environment.
"It will possibly be a small headwind, but there is a lot of momentum to Catlin's US business and international business more generally, from a relatively small market share," he said.
Notably, CEO Stephen Catlin said, at the February presentation of full-year 2013 results, that the group still has "a lot of headroom" to grow its US business, without specifying what opportunities the firm is seeing. At the time of publication, Catlin had not responded to SNL inquiries on its US strategy, but SNL's 2013 excess and surplus insurer study showed that it ranked 21st in terms of market share of E&S insurance in the US.
Of course, SNL says operating in the US is not without its challenges for a U.K.-based insurer. A different approach is required toward regulation, while building a reputation and brand on the other side of the Atlantic takes patience, time and money.
"Marketing expenses here can easily be a multiple of what they would cost in the U.K.," said Walter. "We have invested quite a bit and have needed discipline to persevere, but we're in it for the long run."
Pitt also noted that one has to work harder to establish and foster the broker relationships for attractive business, which can come far more easily when operating within London's Square Mile. However, both Beazley and Hiscox told SNL that the companies' affiliation with Lloyd's benefits their brand building in the U.S.
"Many of our key brokers here have been doing business with London for many years, and that gives us instant credibility," Walter said. But there is also a downside.
"Lloyd's is generally a trading market, but our business here in the U.S. is focused on building a robust renewable book, so we do have to fight the assumption that we may not be around for the long haul — but we will," he said.
In 10 years' time, Hiscox would like to see its U.S. business as a "$1 billion-plus unit that is one of the cornerstones of the overall group's footprint," said Walter. "We want to be a household name with small businesses as well as our key broker partners in the industry."
Equally, Beazley has no plans to exit the market any time soon.
"Our success as a specialist insurer will continue to depend, as it always has, on our being adaptable and innovative and in providing the specialist coverage our clients need, backed by excellent claims service," said Pitt. "That said, we see the U.S. as a market of huge potential for Beazley. The U.S. is the largest insurance market in the world and is a particularly vibrant market for [the] lines of business — such as management liability and professional liability — in which Beazley specializes.
"Competition is stiff, but a recovering U.S. economy in 2013 benefited our business, and we expect that to continue."
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