Scarcity of naïve capacity will elongate hard market
Naïve capacity is scarcer than it used to be—but the market remains cyclical and it is only a matter of time before it turns again, Charles Manchester (pictured), chief executive officer of Manchester Underwriting, told Monte Carlo Today.
Manchester said that the market, while interesting, was currently off its peak, something that he believes occurred in late 2020 or early 2021. But this does not mean, he added, that the market is in freefall in a way last seen five years ago.
“The market is cyclical. You are going to get a hard market when people start asking if the market cycle was broken, and whether a hard market will never happen again. That’s the point when you’re going to get a hard market.
“We’re running good levels of rating in most lines of business, so you have to expect for it to go down. There are also storm clouds such as Brexit, the global economy, Ukraine, the situation between China and Taiwan, climate change, and inflation. There’s a lot of uncertainty out there.”
Manchester believes these things will keep rates robust for the time being. They explain why new capacity is not yet entering the market in vast quantities. Equally, he states, there is not as much opportunistic but also naïve capacity around now.
“There are still some areas for the brave to enter such as cat business or cyber,” he said. “Some of the longer-tail areas that have seen the most remediation—the results of those haven’t come through yet. The other dynamic that’s probably changed is that with inflation and economic uncertainty, naïve capacity is scarcer than it used to be.”
Manchester Underwriting was acquired by Arthur J. Gallagher in the last quarter of 2021, putting the firm under the umbrella of its subsidiary Pen Underwriting. Nearly a year on, Manchester has had time to reflect on what it has meant for his firm.
So far, he said, the whole process has created a “lot of joy”, although he admitted that it has been an “interesting” year. There are, said Manchester, places where the businesses have been integrated and places where they have not.
First, the integration. “We’re integrating the parts that should be integrated,” he said. “That’s the places where we’re going to get cost or service benefits. For example, we needed more resources in our claims department as we were growing, and finding good people is difficult.
“Moving it into Pen gives us more good people. It’s accretive in that respect. And we’ve also integrated the finance for obvious reasons.”
Where things are still separate? “We’ve not integrated the underwriting,” Manchester said. “One of the reasons that Gallagher bought us was the skillsets we have in our particular sectors, alongside the facilities we’ve developed over time. It’s unlikely they’ll be integrated soon.
“Eventually, we will drop the name and become a division of Pen rather than being absorbed. But they’re not going to spend all the money they did to buy us only to turn round and wreck us with corporate bureaucracy.
“They are very acquisitive,” he said. “I imagine they buy dozens and dozens of businesses across the world each year. They can’t do that and keep them all the same. It wouldn’t make sense.
“So, in time, I expect us to integrate the brand and the Manchester Underwriting name to be dropped. And that’s entirely appropriate. When we were an independent business led by me, people associated me with it. It’s now a much bigger business.
“My influence hasn’t changed, but we’re not an independent business any more. It makes sense for Gallagher to put its own brand on it,” he concluded.
