With mans insurers now wanting to tap the specialty market that is generally delivering higher margins than traditional P&C business, it should come as no surprise that HDI Global and other companies in the Talanx Group wanted more of the action. But while others have created refocused specialty divisions, HDI took the major step of acquiring the majority of Inter Hannover from Hannover Re to form HDI Global Specialty.

The joint venture between HDI Global and Hannover Re launched in January. Hannover Re, which owned Inter Hannover, holds 49.8% of the new company and HDI Global 50.2%.

Richard Taylor, HDI Global Specialty’s chief marketing officer, chief underwriting officer for short-tail classes and member of the executive board, told CRE the decision to create a dedicated specialty lines carrier was taken to deliver undivided focus on specialty risks.

“I think with anything in life, if you really want to make something work you need to focus. Other insurers have created a division to do this, rather than a company. But I think the difference when you set up as a company is it becomes the ultimate focus, because it lives and breathes completely on its own merits. It is a bold move from the group perspective, but also a good move because it delivers the highest level of focus,” he said.

Special Attention

Mr Taylor, who reports directly to HDI Global Specialty’s new CEO Ralph Beutter, explained that previously, companies within the Talanx group were writing specialty business without the required level of attention.

“The group had two areas of business that wrote specialty lines business – Inter Hannover and HDI Global. Inter Hannover was 100% owned by Hannover Re and was stymied a bit because it was not the core business of its previous owner. HDI Global wrote a small share of its income in specialty business and being a large industrial carrier, didn’t have that focus. So it made a lot of sense to bring things together, taking the primary carrier’s name,” he said.

Mr Taylor said the new business sees specialty as a growth area where margins are reasonable. “So why wouldn’t you look at the opportunity?” he asked.

And there appears a good foundation on which to build.

HDI Global Specialty already has six offices in the UK, Sweden, Germany, Italy, Canada and Australia. But importantly, it will also have access to HDI Global’s network in 150 countries. This will allow the company to offer HDI’s existing clients specialty products. Remember that before the new company was set up, only a small share of HDI Global’s revenue came from specialty lines. So there is clearly room to grow.

“The ingredients for success are there. It is just about making those ingredients work,” said Mr Taylor.

The company’s geographical footprint is predominantly in Europe and North America, with companies in the latter region serviced via a surplus lines licence. But HDI Global Specialty is less strong in Asia.

The plan is to expand in all areas, with clear and impressive growth targets.

““The company has an ambitious growth plan to grow from €1.2bn premium to €2.1bn by 2022 and has the full support of its stakeholders to achieve this. HDI Global Specialty will invest heavily in infrastructure and staff. It has plans to increase the number of its dedicated offices but in a controlled way, in line with the development of the business in a particular region or market,” said Mr Taylor.

Risk managers in Europe, including those at multinationals, can therefore expect a growing partner for their specialty risk needs.

“We will be looking to push the US market, which is very strong for specialty business. We want to explore what is available in Asia and what is required there. London will be a strong feature of growth. We will also work alongside HDI Global’s European footprint, utilising its existing clients base to cross-sell in that region,” Mr Taylor said.

“If some of the HDI offices are not writing specialty business, they can be writing specialty business. If they need support from us to write from our any of our offices, we can do that. We can offer either a local service, or currently work on a freedom-of-services basis from Hannover or London.

“We want to push in Europe. If risk managers want specialty cover from us, they should be confident that we will look to deliver, wherever they are,” he added.

Hand in glove

Mr Taylor stressed that with HDI Global and HDI Global Specialty now working closely together, the companies will increasingly be able to service entire risk profiles.

HDI Global Specialty’s areas of focus include delegated authority business, accident and health, aviation, crime and crisis management, including cyber, energy renewable and offshore, extended warranty, financial and professional lines, legal expense, marine, political violence and political risk, pet and farmpack, sport, leisure and entertainment, and bloodstock.

It is looking to acquire new teams or businesses to expand its expertise. The company acquired Neon Underwriting’s bloodstock team in March and said more specialty acquisitions are likely. Later that month, HDI Global Specialty Australia appointed Jamie Bowes from QBE to create and head up a new general aviation team in Asia-Pacific.

Mark Mackay will join HDI Global Singapore from AXA Corporate Solutions this month, to head up energy in the Middle East and Asia-Pacific.

“We are looking for well-known, established teams. We are looking for leaders in their market. We are looking for teams that fit our mandate. If necessary, we are looking at acquisitions if they fit. We have budget for it. Bloodstock shows our statement of intent. When an opportunity comes along in specialty classes, that is exactly the sort of thing we are looking for,” said Mr Taylor.

“The changes at Lloyd’s and M&A that is going on are throwing up a lot of opportunities. But we need to work our way through those and have the infrastructure to absorb any addition,” he added.

Of course, the famous Lloyd’s specialty market has run into trouble in recent years as losses hit. It has been forced to cut back the worst loss-making business and remedial work continues. So how will HDI Global Specialty avoid making the same mistakes and make money where Lloyd’s has recently failed?

The answer, said Mr Taylor, is a long-term look at risk and strict underwriting discipline.

“Within HDI’s DNA is long-term stability. The company takes a very long-term view on risk and we are not looking for short-term gain. If you have that in your DNA, then you are quite prepared to walk away from poor markets and poor risks. I think that underwriting discipline will help us grow and have sustainable profits over time. That is the only way you can make money,” he said.

While specialty business offers slightly higher margins than typical P&C and some lines are firming quite considerably, it remains, overall, a competitive landscape, continued the insurer.

“With competition comes price considerations,” he said. “So, for us it is about maintaining a lean organisation, a low-cost base, delivering quality service, but, crucially, maintaining underwriting discipline.”

So, is the hardening of certain specialty lines and continued difficult P&C market conditions the reason for this play by HDI? Apparently not.

“The P&C market is very difficult at the moment. But that is not the reason for doing this. Both Hannover Re and HDI Global have been successful in P&C business,” said Mr Taylor.

Fresh Opportunity

Adding: “We have appetite in aviation, and also in marine, because we have fared relatively well in the past due to underwriting discipline. But we are not now going to go really hard just because rates are going up 10% to 15%.”

HDI Global Specialty is also focusing on service and wants to match, or even better, that offered by its majority owner HDI Global.

“HDI Global has a good service proposition in P&C. Really it is looking across the specialty lines and making sure that service is on par or better. Creating the focus with the new company enables that to happen. Quite often it is smaller classes that get overlooked because they don’t have the same level of focus,” said Mr Taylor.

Things have gone to plan at HDI Global Specialty so far. Mr Taylor said it retained all the clients it wanted from those inherited from HDI Global and Inter Hannover at the 1 January renewals. It also hit tight deadlines to get everything ready for the new venture.

“So far so good. It was a very quick setup. The process of change only began in the middle of last summer and then we launched on 1 Jan. This was with existing businesses, but to bring that together in such a short period of time, launching a new brand and advising clients, was a big journey,” said Mr Taylor.

That left us to ask about multinational programmes and where, how and for which lines HDI Global Specialty will look to exploit its global network.

“It will mainly be in financial lines, D&O where we can offer a fully admitted global programme. We can write any line of business globally, it just comes down to whether you want a fully admitted programme or not. The beauty of our structure is we can offer fully admitted paper or write non-admitted if permissible. We also have a surplus lines licence for the US and access to Hannover Re global reinsurance licences. Whichever way the client wants to manage programme, we can do that,” said Mr Taylor.

Mixed reaction from brokers and risk managers to market on the turn

Underwriting discipline is returning to commercial insurance, but the market is only on the turn rather than hard, according to Richard Taylor, HDI Global Specialty SE’s chief marketing officer and chief underwriting officer of short-tail classes, who warned that a mixed response from brokers and risk managers is causing problems for some.

“I think underwriting discipline is coming back across the market. I think there is a change. Market price has fallen for years. I think there is now a realisation that this has to come to an end. There is now a point where we have had to say no, and prices have had to go up. That is why you are seeing certain segments suffer and insurers pull out,” Mr Taylor told CRE.

“I would add that it is not a hard market, it is a turning market, and generally capacity is still available but at a price,” he said. “Pricing in property remains too low but, overall, there is definitely a push towards moving pricing and conditions up rather than down. I think risk managers are waking up to that,” he added.

Mr Taylor explained that the state of the market varies by class of business. “For example, prices are increasing in financial lines. Aviation is slightly on the turn and marine is definitely on the turn. But these are systemic, underperforming markets,” he said.

However, many good risks are still being placed at good prices, he continued. If a client has looked after its business and managed its risk well, they will be ok, said Mr Taylor. “It is the bit in the middle, or where areas are grey, where things have become a bit trickier for buyers,” added the experienced insurer.

But he explained that even dealing with a partially turning market has been a shock to some brokers and risk managers, particularly those that have never operated in such conditions.

“The fundamental problem out there is the lack of knowledge and understanding of the dynamics of a hardening market, and how that changes process. In a softer market, there are no issues with getting deals approved at the last minute. But in a hardening market, brokers need to come to us earlier, as do our clients. It takes time to get used to that when the process has systemically changed for so long. We have had 15 years of soft market conditions, so it is understandable,” said Mr Taylor.

The current approach from brokers and insurance buyers to this change is “mixed”, he continued.

“There is a difference between buyers that know the situation and have responded, with others in slight panic not knowing what is going on,” he added. Airmic recently raised concerns that insurers are not communicating changes in strategy early enough in the renewal process to its members. This has left some buyers only finding out about higher rates, reduced capacity or tighter conditions at the last minute.

Mr Taylor does not believe HDI is guilty of such behaviour, but reiterated that insurance buyers should talk to their insurers as early as possible and are right to expect carriers to communicate changes in strategy as soon as possible in the renewal process.

“We believe in partnerships. If we are required to make changes to terms and conditions, we like to engage as early as we possibly can. So usually clients will be aware long before renewal that something has got to change. But equally it makes sense for clients to approach insurers in good time,” he said.

Source: Commercial Risk Europe, Vol.10, #33, May 2019