Hardy Underwriting is on the cusp of entering new territory, according to its CEO Barbara Merry. Emma Jones looks at the grand plans of a “niche” Lloyd’s insurer with 30 years of unbroken underwriting profitability.

“Big is beautiful”. It’s not a phrase immediately associated with Hardy Underwriting.

The modest, yet ambitious, Lloyd’s insurer prefers to sit contentedly in the shadows of market heavyweights such as Limit and Catlin, who flex their billion pound capacity muscles in the world’s most renowned insurance marketplace.

Hardy, contrastingly, has an overall underwriting capacity for 2007 of some £175m, split between the company’s backbone Syndicate 382 and its newborn sibling Syndicate 38Twenty. It may appear small in size compared to many of its compatriots, but the traditional Lloyd’s business has journeyed far since its inception in 1975.

Its founder, Peter Hardy, a widely respected and innovative businessman who retired from the board at the 2006 annual general meeting, established the group with little more than £530,000 to play with. The company has gone on to achieve a unique record of 30 years of unbroken underwriting profitability, unique within the Lloyd’s market, and, in 2006 posted a record profit before tax of £16.8m – the highest in the insurer’s history.

Hardy is currently preparing to close its book for 2005 with a “very good” profit, something that is even more remarkable considering the market as a whole made multi-billion pound losses in the wake of the three ugly sisters, Katrina, Rita and Wilma.

Much of the company’s success in the last 30 years has to be attributed to Hardy himself, described by his peers as “certainly one of the most talented underwriters”. He stepped down from the fray as active underwriter in 2002 passing the mantle to Barbara Merry, a women conscious of the company’s reputation.

“The trademark of our business is the focus on the need for the proper pricing of risk and what the outcome of a claim will cost,” explains Merry. “If we don’t think it is properly priced then we will drop it in a day. That gives us a huge amount of flexibility, because we are such a small company.”

This is particularly so in the aviation market, a key element of the Hardy business, where it specialises in “difficult, unusual” risks, such as helicopter insurance, rotor wing and small fixed wing aircraft, rather than the big ticket airline risks.

A sense of belonging

Merry is not your archetypal CEO. She is mild-mannered; softly spoken and her unassuming nature appears to have been imitated throughout the company. It therefore comes as little surprise that reinforcing Hardy’s cultural values, allowing for training, personal development and career advancement in a content and motivated environment for her 50 employees, is imperative to Merry and integral to the continuing success of the company.

“Hardy is a business that is very niche, very specialist, very technology and underwriting focused, but essentially a bit traditional

“I like to run the business in a relatively informal and collegiate way and I don’t think that would be possible if I had 500 staff,” she admits. “I like to know people, I like to know the names of their wives, and I like to know their children’s names. I don’t want it to be a 2D experience, I think there’s a huge advantage if can be a very personal experience.” Peter Hardy was keen to remain in post until a suitable chief executive was found; and in Merry it appears he found it.

The qualified chartered accountant has risen to the Hardy fore after 14 years at the Corporation of Lloyd’s where she was responsible for developing regulatory policy, before becoming managing director of fellow Lloyd’s insurer, Omega. The Lloyd’s Council member is unapologetic about where she wants the company to go despite having both the “burden and the blessing” of maintaining the loss-free reputation of a business renowned for “thinking outside the box”.

Growing and diversifying

“The point at which Peter retired was a very significant part of the business,” admits Merry. “It was the point at which we had to be able to show that we were able to run the business successfully and carry on the fantastic legacy we had been left. Being a listed company it was quite a critical moment, the point at which our active underwriter retired. His name was above the door and people bought shares on the back on Peter Hardy being there.“It became clear to us that we needed to expand our business, see what we could do with the fantastic competency that we had inherited.”

Attention was turned to more mainstream classes, which previously Hardy had little exposure to, namely reinsurance treaty and property catastrophe, both direct and facultative. These classes perfectly complement the aviation, non-marine, marine and offshore energy accounts that form the basis of Syndicate 382. The additional business, which now falls into the lap of 38Twenty underwriters, makes up 55% of the business that comes into Lloyd’s and represents £5bn of premium in the market.

Merry insists: “If we are saying that Hardy is a Lloyd’s-focused business and that it’s our predominant platform, even if we do something later, we need to be able to write business that is accessible and business that is coming through the door. That is where we are now, but it is not always where we have been historically.”

Foundation for the company’s growth was laid in 2006, and the key features of that strategy, investment and diversification, brought the advent of Syndicate 38Twenty. The new venture was established at the beginning of 2007 with an initial capacity of £65m.

It has been charged with enhancing the Hardy underwriting portfolio by writing a broad mix of non-marine business lines including aviation, marine and non-marine lines, more than 90% of which are short-tail non-marine risks. As Merry tells shareholders: “The Hardy business stands on the cusp of entering new underwriting territory and being able to participate more actively in the hugely significant non-marine property classes of business that are available in the London market.”

This might be a family-like business, but it is no pushover. It is clear on its limits and intent on leading risks as it is so sensitised to price. Within those limits it plays to its strengths, takes charge of business, and leaves anything outside of them for the multi-million pound outfits to fight over.

That is a position that Merry is perfectly content with and she shows little concern about how the company is perceived amongst its peers. “Hardy is a business that is very niche, very specialist, very technology and underwriting focused, but essentially perceived as being a bit traditional,” she describes.

“The company may choose to stretch its wings to more tax-friendly jurisdictions, such as Bermuda

She is happy to accept the judgement of those who have far reaching offices, employees in every continent, and are awash with capacity. In her opinion the world where “big is beautiful” will run its course and the larger, more global players like Amlin, Brit and Hiscox will cease to be as effective in the 319-year-old market in future.

“Having the business model that Lloyd’s has, the ability to set up a business, buy into the protection offered by the Lloyd’s Central Fund, and as a result get access to an international licence writing business in 70 countries in the world, is to me a sophisticated model that plays very well into the hands of small business,” says Merry. “In the longer term, therefore, I cannot see the value of big businesses being at Lloyd’s when one might expect them to acquire all the licences they need for themselves.

“For us it is about maintaining the best of the tradition, using the most up-to-date technology, so we can build on the way we do things and get into a position to grow and do much more. But what I don’t want is to throw away the traditional things that make Hardy what it is, they’re very good values to have.”

Hardy will continue to grow in size and complexity from its office at 40 Lime Street and two underwriting floors at Lloyd’s, both in niche aviation and marine lines of business, which it is well known for. With an additional string in its bow in the form of 38Twenty it will also strive to develop its footprint in more mainstream non-marine classes, in a bid to maintain the unbroken profitability that has made it so unique to Lloyd’s.

The company, which until now has been faithful to Lloyd’s, underwriting exclusively in the market since its origins, may choose to stretch its wings to more tax-friendly jurisdictions, such as Bermuda, which has been so favoured by its peers. But, that will only be if the business case becomes strong enough. So far Hardy has been unable to identify real commercial advantages, and as Merry admits they cannot bring themselves to do it. “We’re too British to do it just for tax reasons”.

One thing Hardy is secure about is the fact that it will never grow to the extreme where it can sit shoulder to shoulder with the likes of Catlin and QBE (Limit). For Merry, the company, which listed on the London Stock Exchange in 1999, has the unique opportunity of remaining small enough that its underwriting focus, strong cultural values and the Hardy reputation are not undermined, while moving forward enough to continue evolving.

“I think there are probably more pressures on the larger businesses to utilise the capital that they have got and to underwrite in whatever conditions,” she insists. “On the other hand there are drawbacks to being one of the smallest insurers in Lloyd’s, because if people believe you are bigger you are less likely to be gobbled up. We know we are vulnerable to everything, but the best remedy is to ignore that threat and do what we do well – stick to the knitting.”

Knitting, to Merry, is about creating a business that is focused on making a profit, but also on being part of something special: a family that has got a corporate conscience, a company that knows it has done things in the right way.

She admits: “You have got bigger, more complicated Lloyd’s insurers but to me it is about being at a business with integrity. I want us to grow and expand the business without ripping off the Names and business partners. If you haven’t done things in a proper, honourable way, it doesn’t mean anything.”

Hardy: Barbara Merry

Barbara Merry qualified as a chartered accountant in 1984. She joined the board on 29 January 2002, having been appointed as chief executive on 14 January 2002. She is also a director of the other Hardy Group companies. Barbara has extensive Lloyd’s experience, having worked at the Corporation of Lloyd’s for 14 years, latterly as a general manager in the regulatory division and as managing director of another Lloyd’s managing agent, Omega.