9 October 2015

An ideal partnership

It is more than a year since Qatar Insurance Company (QIC) acquired Lloyd’s managing agent Antares, offering the growing Qatar operation a much more global footprint through Lloyd’s Syndicate 1274.

Stephen Redmond, managing director of Antares, says some kind of deal was expected by the company because they knew the private equity owners and supporting shareholders would be looking to sell at some stage.

“Antares was owned principally by private equity and we knew that there would be an exit at some time in the future. It was decided by the principal shareholders in the autumn of 2013 that they’d look to exercise their investment in the business,” says Redmond.

QIC ended up being a good fit—for both parties. The Middle Eastern player was looking to develop a more international focus and diversify its portfolio. Antares fitted in with its vision. Within five months of an offer, the deal was complete.

In the first year, little changed, Redmond says. However, this is starting to change, a move he welcomes and embraces.

“By the time we were acquired, the business planning process for 2015 was already well advanced and QIC was comfortable for us to proceed as planned. However, this year QIC has had the opportunity to become more involved and we welcome this,” says Redmond.

He adds that it was necessary for the firms to get to know each other from business and cultural points of view, a sentiment echoed by rating agencies at the time.

“The London Market has a certain way of conducting itself, which can be a bit alien to other parts of the world. Business is done face to face and there’s so much more regulatory oversight when running a business in London, particularly at Lloyd’s,” Redmond says.

Maximising potential

The QIC-Antares deal came at the start of what became a torrent of merger and acquisition (M&A) activity within the industry as competitive pressures drove consolidation.

Antares has been open to looking at acquisitions, although it would have to be the right kind of deal, Redmond says.

“We aren’t necessarily looking at other Lloyd’s players as we see distribution as key. Antares is very interested in coverholders and managing general agents that are looking to get value out of their ownership structures,” says Redmond.

He is a strong believer in the notion that the time to maximise your potential is when you survive events that others haven’t come through as well as you have.

“You can maximise the positives in your business when others don’t have that same opportunity. But specifically, it’s all about ensuring we are well regarded in the market,” he says.

Redmond adds that working with QIC has been very beneficial for Antares, as the insurer understands the market cycle and when it is time to push its foot to the floor.

Back in London, Antares is also looking to diversify: in June, the insurer re-entered the property direct facultative class, a business line it exited in 2010 because of market conditions.

“It’s not just a case of growing the business, it’s ensuring that our people feel they are part of the business and are proud to work for it. It’s also important to ensure our clients are treated well and that claims are paid efficiently and promptly,” says Redmond.

Also on Antares’ list is a spot on the Lloyd’s Asia platform in Singapore to develop its business lines with an emphasis on specialty classes. The operation is planned be up and running in time for the January 2016 renewals with formal approval from Lloyd’s and the Monetary Authority of Singapore recently granted.

Lloyd’s: past and future

Redmond is clear that, while there continues to be significant interest in overseas markets, plentiful business opportunities also exist in the London Market.

As an industry veteran and former chairman of the Institute of London Underwriters, he has seen Lloyd’s go from strength to strength.

Around 20 years ago, Lloyd’s comprised a large number of sole traders, but now it has taken a step up the professional ladder, according to Redmond.

“It’s not just a case of growing the business, it’s ensuring that our people feel they are part of the business and are proud to work for it."

“I have a great respect for how Lloyd’s has changed the way it operated. Everything changed: the systems, the controls and the way Lloyd’s spoke about risk. Lloyd’s took its approach to business to the next level,” he says.

“Lloyd’s may have been lagging behind but it definitely caught up and overtook where the rest of the market was. That’s why, in my opinion, Lloyd’s has pre-eminence today.”

Lloyd’s is slowly losing its market share, however, with business reducing year on year. Research by the London Market Group (LMG) and the Boston Consulting Group in 2014 revealed that London is only tracking global growth in commercial insurance, while it is losing its share in reinsurance—London’s share declined from 15 percent to 13 percent between 2010 and 2013.

Relying heavily on the UK, US, Australia and Canadian markets, Lloyd’s has only 0.5 percent of the absolute growth in premiums in emerging markets such as Latin America, Asia and Africa. It is taking steps to equalise this imbalance.

To maintain its share in the market, Lloyd’s has looked outwards and launched platforms in Asia and the Middle East.

“There is a growing demand for catastrophe reinsurance and Lloyd’s is still the largest cat market. But the individual players within Lloyd’s are not, on their own, significant markets. Lloyd’s isn’t necessarily trying to be the cat market, it’s more focused on specialty,” says Redmond.

“A real demand in the future will be for cyber cover and if Lloyd’s can take advantage of that, the market will maintain its position.”

He also believes that Lloyd’s can still attract start-ups because of its people-focused business, with future success drawn from the market’s ability to regenerate and repopulate. However, he adds that it is more difficult, given current conditions, for people to do well.

“The traditional cycle of soft and hard markets is no longer there and I don’t believe that a single loss will change that. The market needs at least two major losses of $50 billion-plus, probably in the US, for this to really change,” he says.

Redmond is confident that alternative capital is here to stay although he also believes its levels could fluctuate if better returns become available elsewhere.

“Alternative capital could leave the market if there is a drastic increase in investment returns in a different market. In reality, investments made by pension funds are relatively modest, given the size of the funds, but we should ignore the impact of these funds at our peril.”