Aspen’s head of risk redistribution believes long-lasting relationships are vital to success in the industry, which is why he has devoted almost four decades to working in the reinsurance sector
After 35 years in the business, Robin Clark will be happy to finish his career exactly where he began – in reinsurance.
When he left school in the 1970s, he had three job interviews – with a bank, an investment firm and a reinsurance broker. Offered two out of the three jobs, he took the reinsurance option (at a small Lloyd’s broker) and has never looked back.
He spent 26 years at the firm, but when it merged with Aon, Clark accepted an offer to join insurer Aspen as its new buyer.
Founded in 2002 by Chris O’Kane, Apsen writes a diverse range of lines globally, including specialty (re)insurance, property and casualty reinsurance and property and liability insurance, principally in the UK and USA.
Here, Clark discusses his reinsurance – and golfing – tactics.
Q: How would you describe the current pricing situation in the reinsurance market? Would you say we are in a soft market at the moment?
A: Yes, I would say that we are in a soft market. We have been for a while and, given the excess capacity in the market, I see little to change this in the immediate future. Reinsurers would describe pricing as not where it needs to be, but not getting much worse.
Q: How do you approach deciding what to buy and structuring your reinsurance programmes?
A: Our reinsurance approach is aimed at reducing volatility in the most cost-effective manner. This can be divided into two elements.
First, there’s balance sheet protection. We aim to mitigate the effects of very large single event losses or a series of medium or large losses, such as earthquakes, hurricanes and multi-class clashes. We want to ensure we remain within our stated tolerance for natural catastrophe events and optimise our capital adequacy from a rating agency perspective.
Second is earnings protection. The focus here is on limiting the impact of a moderate or series of moderate losses on different lines of business. Historically, such cover has been purchased on a class-of-business basis, but reinsurers are displaying an increasing appetite for whole-account structures.
Protecting classes written in multiple territories under single reinsurance structures and protecting classes of similar characteristics and exposures under whole-account structures is a consideration as we continue to diversify.
Q: What in particular is important to your company as part of this process?
A: Risk management is very much integrated into the group. One lever for managing insurance risk is through purchasing reinsurance. We manage our business using quantitative modelling skills, but also apply qualitative knowledge. We use models to provide a consistent base set of metrics to compare structures, terms and pricing. It is, however, important to combine market experience within this analytical framework.
Q: How has current pricing affected your buying strategy?
A: To use a quote: “Price is what you pay. Value is what you get”. Price has to be considered along with the classes being reinsured, the state of the market within those classes, loss activity, anticipated development and strength of counterparties. We think about ability and willingness to pay – that is all part of the value we are looking for.
Q: How has your buying strategy changed post-financial crisis?
A: For us, little has changed. The financial crisis focused minds on balance sheet strength and for cedants that meant ensuring a rigorous approach to counterparty risk. We have always taken that aspect seriously. Our buying programme has been shaped by restricting our relationships to high-quality reinsurers, with a mix to avoid concentration of risk.
Q: What impact will Solvency II have on the purchase of reinsurance?
A: The impact of full implementation is not clear. It will, however, undoubtedly increase capital requirements, so introduce strain for some. Reinsurance is a solution to protect against this. For Aspen, the Quantitative Impact Study 5 process suggested we would not be subjected to any strain.
Q: How much premium do you cede to reinsurers?
A: The reinsurance spend as a proportion of the total income has changed as the gross written premium of the company increased from $1.3bn in 2003 to more than $2bn in 2009. Reinsurance appetite has also been dependent on Aspen’s expansion into new territories and classes. In recent years, the spend has ranged between 8% and 12%.
Q: To what extent do you make use of alternative reinsurance structures?
A: Aspen has always been open to and enthusiastic about exploring all avenues for ceding risk. In the past, we have issued a catastrophe bond and used innovative structures for providing protection against reinsurer default risk. There has been some debate on the role of capital markets in the insurance industry, and the financial crisis exposed some issues that have since been addressed.
Q: What do you most look for in reinsurers?
A: We have three prerequisites: consistency of approach in both rating and coverage, claims-paying ability and willingness to pay, and longevity of relationship. A respected friend coined a phrase many years ago that there should not have to be a “mug in the equation” for a reinsurance transaction to be considered of benefit to both parties.
Q: How is the success of your reinsurance purchasing measured?
A: The process starts at the planning stage and continues through to consideration of group objectives met through the role of reinsurance.
In simple terms, success will be dependent on whether the reinsurance responds in the way envisaged. Measures of success include price and coverage achieved against plans, the quality of the information developed and provided to our reinsuring partners and the quality of relationships developed with them.
Q: Who do you most admire in the insurance industry and why?
A: Ajit Jain [head of Berkshire Hathaway’s reinsurance businesses] and John Berger [chief executive of Alterra’s reinsurance unit]. Ajit for his intellect, imagination, encyclopaedic knowledge and speed of appreciation of any risk. John Berger for his statesman-like demeanour, values and consistent approach. Both for approachability, for engaging brokers and underwriters of all ages, experience and ability, and for remembering them years later.
Q: What do you do in your spare time?
A: Golf takes up a lot of time. There are advantages to getting older: on reaching 50, I played in the British Senior Open at Troon. I ski and watch my wife and daughter’s equestrian activities – in fact, all my children’s activities. I should also mention walking Merlin the dog. GR