In the troubled financial climate, how does a start-up insurer not only survive, but become established? David Banks spoke to Torus CEO Clive Tobin about its first year.
Although start-up Torus is still striving to establish a strong reputation, it has got off to a good start in its first year. The specialist insurer, established in mid-2008, focuses on large and complex risks, particularly in the energy sector. This is a habitat usually occupied by experienced and established players, but Torus has already benefited from the energy pedigree of parent company First Reserve, a private equity firm with investment interests in the energy sector, which has made an initial investment of $720m in Torus.
A series of landmarks in the Torus’s first year have also given the company momentum.
In June 2008, it received the highest possible rating for a start-up, with an A- from AM Best.
June also saw the creation of the company’s Bermuda operation.
The third landmark event was the establishment of Torus Re followed by the purchase, in December
2008, of the renewal rights to virtually all of the property catastrophe business of New Castle Re, a company now in run-off. At the same time, Torus bought much of New Castle Re’s infrastructure, and hired 15 of its employees.
The rights to New Castle Re’s business began on 1 January, 2009. Reinsurance now accounts for 20% of Torus business.
As a specialist big-ticket insurer, technical expertise is essential, says Clive Tobin, Torus’ affable, Manchunian CEO. Torus is a company with “significant expertise” in energy, he says, and also a growing property casualty sector, to which Torus prefers a highly technical approach. “People assume that a highly technical approach means a higher price; but that isn’t the case, it means we are more competitive in some areas,” says Tobin, who has been CEO since January 2009.
Parent company First Reserve started its interest in the insurance industry by backing the Petrel Re sidecar with Validus Re in 2006, but soon decided the time was right to form an insurance company specialising in energy, as well as a diversified property casualty portfolio.
Torus now has commercial, professional and specialty property and casualty insurance and reinsurance products and a global client base through its UK, US and Bermuda based insurance subsidiaries.
Tobin says his company has received a good reception and he is optimistic about 2009. “We have to earn our stripes over a period of time,” he says.
Tobin says that the quick formation of a Bermuda presence and Torus Re was essential in allowing them to compete in a rough fourth quarter. “The retro market is very tough and the reinsurance market is hardening,” he says. “The excess liability market is difficult because of shrinkage of capacity.
A lot of private equity companies have moved out of the market and sidecars have moved out,” he says.
“We have that pincer movement that is driving prices up and makes people look at their retentions.
It will shrink their capacity and this will have an impact on the market.”
Tobin now sees Torus as being in a battle for talent, particularly considering its focus on big-ticket contracts and a highly technical, data-driven approach. As well as scooping most of New Castle Re’s staff and a senior executive from AIG, Torus has attracted talent from Tobin’s former employer, XL.
Torus recently appointed David Message, currently at XL Insurance, to take charge of the Torus offshore underwriting team in London, at a date to be determined. Further transfers from AIG and XL are not impossible. “There could not be a better time for a start-up company to get talent with a lot of wounded companies out there,” says Tobin. He has worked in London, Zurich and Bermuda, in addition to 11 years in New York.
David Perez, Torus’ president and chief underwriting officer for global casualty, says: “At a time when many established casualty markets are experiencing a significant intellectual capital drain in the underwriting sector, and buyers are developing new opinions of carrier acceptability, we have created a premier capacity alternative to address this fundamental shift in our industry. In this environment,
the value of customer relationships and communication has never been more important.”
While growth in the energy sector is very attractive to insurers, it also presents challenges. The market’s inherent volatility has to be managed. There is an ongoing debate about terms and conditions for Gulf of Mexico energy installations. Market losses following hurricanes Gustav and Ike indicate insurance for offshore assets remains very testing for both buyers and sellers.
Tobin says that traditional practices in the Gulf of Mexico energy market may have to change. “People are moving out of there, so how do you structure those [deals]?” he says. On the upside, the energy sector is in a strong financial condition and exercises high standards in risk management, he says.
Torus is looking to expand its specialty lines offering in London (see box) while also doing offshore energy business.
In the US, Torus’s business is mainly property, through offices in New York, Chicago, San Francisco, New Jersey and Houston. The company is also looking at the possibility of opening up on the US West Coast. Proximity to regional brokers is considered a key tenet of Torus’ strategy in the US.
Later in 2009, directors and officers will be a focus for the London, US and Bermuda offices.
“The challenge for Torus is to stay focused. The developing and fast-moving market is the US,” Tobin says.
In September, Torus announced its intention to buy Praetorian Specialty from Praetorian Insurance Co, part of QBE Americas.
Praetorian Specialty is a specialty excess and surplus lines insurer with licences in 42 US jurisdictions.
In time, however, there will be increasing focus on emerging markets, in which Tobin has “a huge interest” He has worked in China with XL licence application and helped establish the company in Brazil. With a market like energy, where you look at Asia and South America and the large infrastructure projects there, you have to target them too.”
David Banks is Deputy Editor of Global Reinsurance.
Sights set on Lloyd's
Torus Insurance is applying for a Lloydâ€™s franchise.
CEO Clive Tobin says the company would like to be a part of Lloydâ€™s â€œas soon as possibleâ€.In the credit crisis, a syndicated approach to insurance and reinsurance is considered more secure, he says.
â€œThere is a general concern about having all your eggs in one basket. The drive towards a more syndicated placement is a big plus for the London market and for Lloydâ€™s. It means people will give more companies a chance to take part.â€
Tobin says there has been â€œa huge focusâ€ by brokers on the condition of their programmes. â€œFor others it was a realisation that there was a lot of business placed with subsidiaries of the same company and they did not wish to allow that to happen.â€
However, Torus was first attracted to the concept of a Lloydâ€™s presence by other factors: access to specialty business and a network of global licences
â€œSome of the problems of the market are actually suiting Lloydâ€™s,â€ he says.