Monday, 21 August 2017

At the forefront of disruption

Ahead of this year´s RVS, Willis Re gobal chief executive John Cavanagh talked to Global Reinsurance about the WTW merger, disruption and the need to be proactive

Tell me about Willis Re’s recent mergers?

Our immediate counterpart from legacy Towers Watson, Risk and Consulting Services (RCS), provide certification for Services (RCS), provide certification for reserving, advice on reserving and rate making, and software solutions around capital modelling. What they’ve effectively brought us is much more width in the analytical area. While we already had 300 analysts, we’ve gone from a very much transactional broker into much more of an advisory role in any event. In the round it’s been a fantastic merger of interests; with the strength of Towers Watson we have a lot more to offer our clients right across the board, , and I’m very bullish about the future.

We also had the Miller integration. It gave us a very distinctive wholesale platform and that was the principle driver for us doing the deal, aside from the fact that they are a very fine firm. In order to achieve that, what we did was swap assets in a number of areas. Miller in effect closed their reinsurance business and merged it with ours, which was great. We completed that process July last year, so this renewals season was our first cycle with our merged businesses and it’s gone well.

What key benefits have arisen from the initial stages of the Willis Towers Watson merger?

We’re now six months in and we’re starting to see good revenue synergies. We’re moving into the life insurance space where Towers Watson (TW) has strong contacts and involvement. We see it as a massive growth opportunity. TW have a huge advisory role in the life business, around investing in pension funds, in life investment funds, so we’re hoping with their contact base and our skillsets we’ll do really well.

We’ve been very bold on the retail side. While our competitors have kept the advisory businesses distinctly separate, we’re going to offer our retail customers a consolidated product. We’re going to offer the advisory services, the broking services, risk management, everything. We’re aiming to be a deep analytical broker on the retail side.

Taking a more outward view, what emerging markets does Willis Re currently have its sights on?

We have 50 offices worldwide at the moment. The way we operate, we believe in boots on the ground. We like to have local people representing local companies, so that’s how we operate. What we try not to do is build too much infrastructure in the bespoke areas – we try to keep the infrastructure in the region hub.

We are most definitely committed to Latin America and to the Pan-Asian markets, and have been for a considerable period of time. We had a Sub-Saharan African business, but that has been sold. We do a lot of business in north Africa, and we do a lot in south Africa, but there isn’t a lot of business in the middle. There isn’t enough there yet for us to really make a big commitment, but the minute I see the opportunity, we’ll be there. And it will happen.

“We like to have local people representing local companies, so that’s how we operate”

Broadly speaking the industry is facing many challenges and changes. An innovation that is being discussed widely is Big Data and the increase in knowledge and accuracy. Is there ever a fear that with the added insight the policyholder will hold on to more risk?

That’s already happening. Because of the sophistication around cat modelling and capital modelling generally, it’s created an increased comfort level with keeping risk that is driven by a better understanding of the risk.

The advice we gave to our clients was all based on market-shared data and what others were doing. We gave a consensus picture so none of our clients were out of step. Now, there is very sophisticated data, cat modelling and capital modelling around their own business, and that’s created a heightened awareness. Firms are running much more risk against their capital because of comfort principally, and also because there’s a drive for margin now, which they can’t accomplish if they buy a lot of reinsurance.

We’ve never captured any meaningful data as a broker; historically, we’ve captured the processing elements of a contract. We never captured the intrinsic risk data. The market captured that, so they’ve got a much stronger position than us, and that needs to change.

One initiative we’re now putting in place at Willis Re is a mechanism whereby we can capture all of our risk data in a sophisticated way. In the past we didn’t think we needed to, but now we believe we do.

Willis Re is using Big Data in a positive way – but is this double-edged sword also creating a burning platform?

The interesting thing is we’ve had a 15-year period of relatively benign activity, so we don’t know whether its burning or not!

It’s been a very unusual period, and that’s something I try and remind people – this 15 years has been nothing like the 15 before. There’s been such a drop in severity, on every level - casualty, property, specialty. A lot of the actuarial forecasting and the modelling is built around the last 15 years of data, which I don’t think is a particularly accurate picture. I don’t think it’s a great representation of the embedded risk in our business.

Unfortunately, everyone is comfortable, so they are not buying reinsurance. The last 15 years have been very benign in terms of a loss picture, and the reinsurance market is as cheap as its ever been. So why wouldn’t you buy more?

If you look at the Q1 results, there’s a few surprises in there. It wasn’t a massively active first quarter, but you’ve seen the impact its had on the numbers - we’ve had a couple of firms go over 100 combined. It’s an interesting window on the world.

It seems your intention is for Willis Re to take a proactive approach to the evolution of the industry. What will you be exploring?

You either watch it all go by and say ‘what happened there?’, or you get with the programme – and that’s what we elected to do. We’ve got the technology and we’ve got talented people, so we’ve got to use our resources appropriately – and in a way that is respectful of our customer base. I never want this business to do anything we wouldn’t be proud to see on the front page of a newspaper, that’s the acid test.

For us, being proactive is persuading governments that they’re carrying too much risk, and de-risking them in an efficient manner. It’s working with the disruptors. It’s getting involved in new emerging areas, like mortgage insurance in America and beyond. The crop market is evolving and changing, and becoming more derivative orientated. Obviously the ILS market has continued to be exciting. We want to be at the very forefront of all of it.

Finally, what advice would you give a young person, possibly a graduate entering the industry?

I think there are two things: you need to work very hard in this market, because nothing happens by accident; and you need to be true to yourself. And if you’ve got that entrepreneurial spirit, don’t let regulation deter you. 

 

 

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