London Market reinsurers are increasingly willing to consider taking on smaller risks if they are packaged correctly and the business is clearly profitable, according to Tony Weller, group chief executive, Citadel Risk.
He says Citadel, which has been around for 40 years and has an A- rating from A.M. Best, is increasingly placing US business of this type in the London Market, and there is a good appetite for it as long as it is structured correctly and frictional costs are moderate. Citadel’s structure and method of packaging the business mean this is the case and Weller expects growth as a result.
“The fact is, market conditions are so tough in the London Market that carriers are very open to looking at new business from different sources and even working with much smaller accounts if they are packaged correctly,” he says. “I expect this trend to continue. We placed some of this business in London last year and we anticipate solid growth now because of these trends.”
“We are a one-stop shop and that gives people in London a great amount of comfort.”
Citadel has two insurers in the US: Great Falls Insurance Company, based in Maine, which writes workers’ compensation business; and American Millennium Insurance Company, based in New Jersey, which writes commercial automotive business.
The size of the premiums written by both carriers is small by London Market standards: an average workers’ compensation premium might be around $5,000 and an average commercial automotive premium around $9,000.
But the rates on this business, because they are set by state regulators, are often a lot healthier compared with larger account business in a free market subject to the levels of competition seen in London at the moment. Also, Weller says, smaller risks also often have a much better loss experience than bigger accounts.
“We know the agents and we know the business. It is mainly small companies often in rural areas and it tends to be very profitable. The rates are set by the regulator, so there is less opportunity for competition to squeeze rates down, but the competition is less anyway because it is small ticket stuff,” Weller says.
Citadel is able to underwrite and then package the risk in a way that makes it very interesting to a number of parties. A portion of the business will be reinsured in the London Market, which has an appetite for profitable business and diversity, and a portion by either Citadel Re, Citadel’s own reinsurance carrier, or captives, owned either by the agents responsible for originating the business or by other parties, including London Market brokers.
Citadel Re also fronts the business for agency captives, using a segregated cell facility based in Bermuda owned and managed by Citadel Risk, which can be used by varied third parties, such as London Market brokers, to take a share of the business.
Mike Palmer, head of London operations, adds that the other advantage of the structure is that one company—Citadel—manages all parts of the chain. It owns the carriers, the reinsurer, a captive and, crucially, also does all its own claims management. He admits the company has learned some tough lessons in the past when it has underwritten bigger ticket accounts and outsourced the claims function but now, he is very comfortable with its tried and tested structure.
“We own the carrier, the reinsurer, the captive management company and we handle our own claims. One person oversees the entire account. We are a one-stop shop and that gives people in London a great amount of comfort,” Palmer says.
He also stresses another advantage of the structure: because the agent sourcing the business is also taking on some of the final risk, they are incentivised to place more profitable business with Citadel’s carriers in the first place.
“Our loss ratios on this business are some of the best of any carrier in those states,” Palmer says.
Citadel tested the water with placing business in the London Market in 2014 and 2015 but is now looking to grow the concept further.
“We are very much open for business. The US regulators like the model as they can see where the claims will be paid and the London Market is very keen to get involved in more profitable business.
“We could see more of this happening in the future. The rates are so competitive on the big ticket stuff in London, we will see more interest in shifting capacity away from London and moving down the risk spectrum. What we have set up could be the pioneering structure for how that will work.”
Citadel Risk, London, UK, Tony Weller, Mike Palmer, Monte Carlo Rendez-Vous 2016, London Market, AM Best, Risk management, Insurance, Reinsurance