Getting to know each other

A boat trip around Manhattan was the closest thing to a team bonding session organised for the reinsurance team of what is now XL Catlin in the aftermath of the combination of the two companies earlier this year. When two companies come together, different cultures can collide. Not in this instance, says Greg Hendrick, chief executive of XL Catlin’s global reinsurance operations.

He recalls walking out of the lift to chair the first senior management meeting after the new reinsurance leadership team had been announced.

“You are never quite sure how the dynamics will play out; it is a new role for everyone,” he says. “But I remember walking around a corner and just hearing chatting and laughing and I knew immediately that things would go well. The reality is that both sets of executives had previously run very successful operations in terms of both client relationships and combined ratios. They all knew each other well and respected each other from working in the market so things went well from the start.”

Hendrick stresses that the two companies had very similar cultures, which made integration easier. “There were many similarities between the firms,” he says. “They were both analytical and underwriting-driven with a very strong emphasis on risk management. That meant it was not a big change to ask people to work together.”

In addition to Hendrick, a team of eight executives runs the market-facing activities of the reinsurance division of XL Catlin—five managing geographical regions while three operate as a central resource managing the unit globally (see box for full profiles). Of these, three originally worked for Catlin and the rest for XL.

Hendrick says that while this represents a reasonable balance in terms of executives from the two companies, the simple fact is that the best people got the job regardless of where they worked previously.

“It is a great blend but at no point did we try and make it 50:50. The fact is that the best people got the jobs.”

Spokes around a central hub

The structure of the operations, based around five geographical pillars, made sense because this was also how XL and Catlin both previously structured their operations. While this works for many clients and brokers, the structure is also flexible: thanks to the central hub, the same product can be sold across multiple locations and clients have the ability to access capacity in the way that best suits them.

“Our aim is to deliver our services to clients and brokers in a very customer-orientated way, which means the way that best suits them. We have a very local presence in many regional markets but if they want to access us through the wholesale markets that is fine too.

“To maintain underwriting and pricing consistency we have some very good people operating globally. Our COO, CUO and chief actuary have decades of experience and their focus is on putting together optimal products and great client service for clients that want to work with us globally,” Hendrick says.

The entity is also flexible, he stresses, in terms of where clients prefer to access capacity. Some clients, for example, may have traditionally worked with one of Catlin’s syndicates in Lloyd’s; others prefer to work with Bermuda.

“Customers may decide they want exposure to different parts of the group. That is fine,” Hendrick says. In part, this has mitigated any potential post-merger fallout as a result of cedants which previously worked with both XL and Catlin seeking to reduce their exposure to the combined entity because it had become too large.

In its recent results covering the second quarter of 2015, he notes that the company had been very specific in tracking business that had been lost in this way compared with business it had walked away from because the price was insufficient. Only 0.5 percent of premium was lost for this reason in the first six months of the year, he says, and that was more than offset by growth in other areas.

“Where clients had previously used both XL and Catlin, we sat down with them and explained our capital structure to them as well as the lines we could offer,” he says. “Our capital structure allows clients to access us in different ways and there have only been a very small number of instances where we have had to move capacity around to a different platform.

“In 95 percent of the instances, if you accessed Syndicate 2003 previously, for example, you continue to do exactly that. Most clients have liked the fact that the business has not changed and see that continuity as a good thing.”

The suite of products and geographic breadth of the offering has improved as a result of the merger, says Hendrick. He says that while both firms already had good products and a solid geographical spread, the combined units complement each other in a number of ways. After heavy losses post the 2007/08 financial crisis, XL exited the credit and surety business, for example, but this is now back in the suite thanks to the deal with Catlin, which has a dedicated team in Zurich.

On the same basis, A&H and workers’ comp are other lines that Catlin has brought on board. By the same token, Catlin did not previously have a US insurance crop portfolio or a dedicated aviation reinsurance team.

There are also areas where they complement each other in terms of geography. Both entities had operations in China but Hendrick sees having offices in both Beijing and Shanghai as an advantage he intends to keep. In addition to this, across Asia, XL Catlin now boasts offices in Singapore and Sydney and in three locations in India: Bangalore, Gurgaon and Mumbai.

In Latin America, XL’s presence in Bogata, Colombia, and San Paolo, Brazil, is now complemented by Catlin’s hub in Miami, offering access to a number of markets and clients in the Latin America region.

Breadth means business

Breadth and global reach are becoming more important than ever as cedants get bigger and more sophisticated and the very nature of global risk transfer changes, Hendrick says. This sentiment pertains to the core of the logic underpinning the XL-Catlin deal: to compete in this changing world requires scale, sophistication and a full product suite.

“With this combination, we have the opportunity to compete with any reinsurer in the world. We can handle almost any risk in any geography and that is something that reinsurers increasingly need to offer.

“The needs of cedants are changing. It depends where you are in the world, but in most developed markets, cedants have narrowed their panel from what used to be as many as 100 reinsurers to more like 10 to 20, and they want to work only with reinsurers that can work with them on a global basis across their entire suite of reinsurance protections.”