16 September 2015 Insurance

Nimble Argo targets China via new Lloyd’s SPS

During a period of intense consolidation in the re/insurance industry, Mark Watson, CEO of specialist insurer Argo Group, is unconvinced such a strategy is right for his company, he told Monte Carlo Today.

Instead, he is focused on organic growth and making more of the company’s existing assets.

“Instead of trying to get big, we’re trying to stay small and nimble,” Watson said. “We’re doing more with the same.

“We’re substantially larger as a business than we were seven years ago, but we have the same number of people. We’re recruiting better people to do that by using technology, so we’re finally getting some leverage from the platform.”

If anything, he believes the consolidation occurring can create gaps in the market and opportunities for smaller players.

“A fair amount of consolidation is going on, mainly among reinsurers, plus it’s impacting some of the operations of the big insurers, keeping in mind we’re mainly an insurance company,” he said.

“While some people are talking about insuring competitors or a reduction in the number of market participants, I think that if you can remember anything about the history of our industry it is quite entrepreneurial, quite resilient.

“Because the barriers to entry are so low I think you’ll see a lot of people pop up and create underwriting capacity in different ways. For us that creates an opportunity—we continue to operate our business and grow our company.”

Watson pointed out that Argo Group has now been operating outside the US for seven years, with 45 percent of its premium and 47 percent of its income now coming from non-US business around the world.

This is also growing. Just yesterday (Tuesday September 15), ArgoGlobal, the Lloyd’s insurer and member of Argo Group, revealed a partnership with Asia Capital Reinsurance Group to establish a special purpose syndicate (SPS) at Lloyd’s to underwrite Chinese risks.

The new SPS, which aims to begin underwriting for the 2016 year of account, will be managed by ArgoGlobal Managing Agency and will be supported by a corporate member capitalised entirely by Asia Capital Re.

Asia Capital Re has a significant multi-class portfolio of Chinese business. Under the new agreement, Lloyd’s China (ArgoGlobal division) will underwrite a selected proportion of this portfolio, with Asia Capital Re providing the underwriting expertise and local risk knowledge of the Chinese market.

The portfolio is expected to represent approximately £30 to £35 million ($46 to $54 million) of gross net premium in 2016. The new SPS will then underwrite an 80 percent quota share of this proportion, with the remaining 20 percent being retained by ArgoGlobal’s Syndicate 1200.

Watson said that Argo Group’s second largest concentration of risk, after the US, was in Europe and the UK, and the company sees a lot of opportunity in this region as well, particularly in the specialty lines.

“I continue to be amazed at the rate of decline of insurance pricing of certain lines. There is still margin in most of our chosen areas and when coupled with our service ethos we still think we can differentiate to our customers, but the risk reward has to be right,” he said.

Watson also anticipates growth on home soil. He said that as the US economy gains momentum, creating more small businesses, there are real opportunities in the US for Argo Group.

He pointed out that these new small companies are likely to be more service-orientated ones, and not the more traditional mom-and-pop businesses that tended to be created in the past.

This means opportunities as long as Argo Group gets it right.

Watson added that the company had put a lot of investment into technology and people over the last few years, which has helped it grow and which it will continue.

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