Taking a broader view

Aspen Insurance Group is primed for growth while keeping a wary eye out for potential problems, says newly promoted group president Christian Dunleavy.

Christian Dunleavy is one of the leaders of a generation of Bermudians who entered the insurance industry around the turn of the century and is now taking a senior leadership position. 

In July, Dunleavy was promoted to Aspen group president and chief executive officer, Aspen Bermuda, while continuing his role overseeing group underwriting. 

He compares his new position to conducting an orchestra, in the sense that he ensures that all the musicians are playing their parts and moving in the same direction. 

His experience at Aspen will play a part in getting that right—the former Axis Capital and RenaissanceRe underwriter has helped steer the re/insurer through a major turnaround—as the company looks to build on several recent successful years. 

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That is not to say it will be easy. Insurance is a risk business, after all, and Dunleavy borrowed former US Defense Secretary Donald Rumsfeld’s aphorism to explain that he worries most about the “unknown unknowns, not the known unknowns”. 

“This is a complex business with a lot of unknowns, so we all need to remain humble and recognise that we don’t understand everything, and make sure there’s adequate margin in the product we sell to assume some of the surprises that will come out,” he said. “

“We are in the business of surprises and that’s the near-term challenge for the industry. 

Current concerns 

“I don’t worry so much about catastrophe risk any more. We have that quite well-contained. When we look at the surprises of the last couple of years, it’s not been large cat events,” Dunleavy said.

 “It’s been either an accumulation of smaller cat events, the COVID-19 pandemic, or unforeseen wars that had dramatic impacts. The way sanctions against Russia were applied essentially cost the insurance industry billions of dollars, in aviation losses in particular. If those sanctions had been applied slightly differently, this could perhaps have been prevented. 

“If anything keeps me up at night it is ‘what am I not thinking about here?’. But that’s all part of the insurance business.” 

Aspen writes a political risk book as part of its insurance business and underwrites terrorism on the reinsurance side, so it is obliged to watch global politics carefully, and is a natural fit for Dunleavy, who describes himself as “a politics junkie”. 

“We spend a lot of time here at Aspen thinking about the global geopolitical picture. We have implemented a forum where we bring in external speakers three times a year to speak on economic, social and geopolitical issues,” he said.

The forum is attended by people from across the company, not just the underwriters. 

“We’re trying to get everybody out of the weeds and thinking more globally about what’s happening, and that’s been useful,” he added. 

New tasks 

In his new role Dunleavy is focused on bringing different parts of the company closer together, along with several new appointees including Mark Pickering, who has taken on the role of chief financial officer and treasurer. 

“It is an alignment of some other functions internally to get us making faster and better decisions across the organisation,” he said. 

As president, Dunleavy will continue to preside over underwriting, which includes third-party capital, business claims and business development. 

“The exposure management account modelling and modelling teams report to me, so it formalises in a very joined-up way how we were working, to make sure we have a very coordinated appetite across the group, and that we’re able to solve customer problems in a quick and organised way. 

“It doesn’t mean a lot of change. It’s evolution, not revolution, within Aspen, but it enables us to conduct the orchestra a little more tightly and further advance the ways we’ve been working.” 

Third-party business 

Much of this requires getting the company’s insurance and reinsurance arms working more closely together and, Dunleavy said, this is typified by Aspen’s burgeoning third-party capital business, which was started by Brian Tobben in 2014 and has developed rapidly since. The third-party capital arm largely consisted of catastrophe re/insurance to begin with, but now writes many longer-tail lines as well. 

“The majority of the assets under management within the group now are longer-tail lines, insurance and reinsurance on the casualty, cyber, finpro side, as well as the longstanding cat piece,” he said. “Getting all those people and pieces working together—and this is how I see myself—means being able to zoom out and look across all of it and check that we are heading where we want to go.

“We’re shifting into a slightly different market than we’ve been in for the last couple of years, so trying to be more coordinated and integrated across the group should help facilitate that.” 

Dunleavy said the reinsurance market, which has been enjoying the most favourable conditions in close to two decades, is now beginning to flatten and will not see the rates growth it has been enjoying. 

“It’s been a very strong market with compounded rate growth over the last three or four years, in particular since the pandemic. That was needed. If you look at earnings across the industry, it hadn’t covered its cost of capital for a very long time, and we weren’t being paid for the risk we were assuming and the volatility we were taking on as an industry,” he explained. 

“The market may be plateauing, but it is still broadly attractive and better—a lot better—priced than it was a few years ago. One of the challenges is going to be how, as the market transitions from the last four years of compounded rate growth to more of a plateauing market, that plays out over time? 

“The challenge for the industry, and this is for insurers, reinsurers, buyers and sellers of the product, is that the pricing and risk environment is quite fragile. 

“There is a lot of risk in the world today, and while the pricing environment is stronger, there’s not huge excess rate in virtually all classes in the industry. 

“We all talk about climate and cat risk a lot. But look at geopolitical risk, social unrest, and manmade perils such as the recent CrowdStrike cyber event that wasn’t malware, but was caused by a vendor,” he said, noting that many risks can upend the industry and that it is important to acknowledge that not everything can be predicted. 

The role of government 

For the longer term, Dunleavy said the challenge is continuing to be able to provide solutions to the perils for which people need coverage. 

“At the same time, there is a lot of tension in the system between the cost to consumers and the risk that’s being socialised on to government balance sheets,” he said. 

“That can be unhealthy, in part because it can distort the pricing of the risk but also because it may make the insurance industry irrelevant, something that our chief executive officer, Mark Cloutier, has raised as a concern. 

“A lot of risk has been transferred to governments,” Dunleavy said. “There’s tension in the pricing environment for that risk at a consumer level for homeowners and business owners in a high inflationary environment.

“I don’t think it’s healthy to have taxpayers shouldering all this risk when there is capital that is prepared to assume most of it. There are challenges in some of the tail scenarios for which public-private partnerships probably make sense, but the industry has to remain relevant and continue to support the transfer of risk.” 

New risks need new products 

It can take time for the industry to design products and price them appropriately for risks that emerge. 

“The way we think about it is that we learn about these risks in the industry by taking losses sometimes,” Dunleavy said. “It’s okay to test these products, the risks, the new structures, but you need to do it in a measured way so that you’re not overexposing the company to undue risk. 

“The process of discovery and learning around how some of these perils play out takes a number of years. When you look at everything that’s happening in the world—with climate, social unrest, inflation, wars—people can’t necessarily wait a few years. 

“However, we have to be very careful that we’re not overly exposing ourselves to some surprises, because one thing I’ve learned in the industry is that the things you haven’t thought about are the things that come back to haunt you. 

“We try to be very clear on what we’re selling and why. We’re willing to think about product innovation, but we’re going to be very cautious as we size those products and try to think about how they fit into the portfolio, and make sure they’re fully understood before they scale into large participations.” 

Aspen is now well-equipped to deal with these changes. Dunleavy recalled the “turnaround era” of Aspen from 2019 to 2022 when it focused on underwriting performance, sharpening focus on the lines it wanted to be writing and executing a loss portfolio transfer, which drew a line on previous years’ adverse developments.

“We’re very much in an era of going forward and maximising the opportunity that Aspen has in the market, being there for our customers and trying to help them solve their problems. We are growing shareholders’ equity and there is a good earnings profile coming through for the company,” he added. 

“We’re very proud of what everybody has done at the company to get Aspen to where it is, into a place where it’s one of the higher performing companies in the industry, which is our ambition—to be a top quartile performing company in the industry.” 

Dunleavy said the company is sharply focused on its existing lines, which number 40 classes across the insurance and reinsurance segments in property, first party, specialty, casualty and FinPro, while it has cut its catastrophe exposure to reduce volatility. 

“We want to show continuity towards clients,” he said. “We don’t want to come in and out of classes constantly based on the market, but we are willing to turn the dials quite aggressively based on where we think profitability is to make sure that we’re being paid for the risk that we’re transferring over to our balance sheet. 

“The balance sheet is a lot stronger than it was five, six years ago, giving us the ability to look at partnerships with different groups, and exploring whether there’s something we’re not doing that we should consider. 

“However, we’re going to be very selective in anything new that we get into because we think there’s a lot of runway left in our existing portfolio.” 

Tax matters 

Dunleavy was heavily involved through the Association of Bermuda Insurers and Reinsurers (ABIR) and Association of Bermuda International Companies (ABIC) in negotiations over the Bermuda Corporate Income Tax, which comes into effect in January 2025. He does not think it will affect Bermuda-based re/insurers in the near term. 

“It’s been a multi-year journey of working through this issue,” he said. “One of the real benefits of Bermuda and the Bermuda market is the proximity that industry has to government to be able to work closely and collaboratively on these issues. There is a genuine industry working partnership to understand the implications. 

“What could it mean for Bermuda reinsurers? I think it’s manageable—in the near term it isn’t going to change the way the Bermuda industry operates dramatically, but it does mean that Bermuda has to be very cognisant of everything that goes into operating on the Island. It’s an expensive place. 

“We, contrary to what some people think, pay quite a bit of tax in Bermuda — we just pay it in different forms. The cost of living is high so Bermuda has to be thoughtful about the market and the environment that the companies operate in. The good news is that I think that’s the case.” 

Noting that the Bermuda government is still in the process of implementing a tax collection system and thinking through domestic tax reform, Dunleavy said it needs to grapple with the realities of a new tax which will be dependent on the re/insurance sector. 

“The major consideration is that Bermuda’s economy and the insurance industry are not particularly diversified. The financial services sector is very dominated by the ABIR companies, who tend to make and lose money in the same years, so the Bermuda government’s tax base could be quite volatile in that scenario, and we must work through that issue as well,” he explained. 

“But overall, for the industry, there’s a lot more to Bermuda than just tax. It’s a genuine market. There’s a regulator with whom you can have authentic and constructive conversations, and who is responsive. The speed to market is still very real. 

“The quality of life in Bermuda is high. Companies and people are here because of the quality of life in Bermuda as well as the business environment, and as long as we can retain that in a way that makes sense, Bermuda will navigate through this fine.” 

A successful domicile 

As one of the most senior born and bred Bermudian executives active in the industry, Dunleavy has a particular interest in the Island’s continued success as a domicile. 

He said Bermuda has to continue its delicate balancing acts between innovation and regulation on one hand, and between attracting the top minds from the global insurance industry and ensuring Bermudians have the opportunity to advance and succeed, on the other. 

“Bermuda has a very good formula. We have to continue to strike the right balance with strong regulation while ensuring that companies are nimble and flexible enough and that we don’t lose speed to market, because the ability to raise capital in Bermuda is truly one of its distinguishing features.

“However Bermuda is a small place, so we have to be careful around the impact of that. Bermuda needs to continue to be welcoming towards the people who live and work in Bermuda, and do that in a way that makes sure we’re bringing Bermudians along for the ride and giving them a lot of opportunities. 

“There’s a lot of different ways that can be done. I’m involved in ABIC, and recently we hosted a luncheon where we awarded $760,000 worth of scholarships to 25 students, all towards international business careers.

“Bringing Bermudians through is going to be very important, but this is ultimately a people business, and it’s about intellectual capital, and we need to make sure that we have the best and the brightest in Bermuda thinking about this industry as well as its challenges and opportunities. 

“That has been one of the hallmarks of Bermuda—the concentration of intellectual capital on the Island. It’s not a particularly hierarchical industry, in the sense that there is close proximity to the most senior people in the companies. 

“We’re perfectly positioned to continue to succeed, and it should not be government-driven, but government-enabled, to empower people to think through where their companies should head over time,” he concluded.

 Christian Dunleavy is Aspen group president and chief executive officer, Aspen Bermuda. He can be contacted at: christian.dunleavy@aspen.co

Putting AI at heart of Aspen’s business 

Aspen Insurance Group has moved technology and data to the heart of its business with the launch of Aspen Data Labs, which is designed to explore how to use artificial intelligence (AI) to leverage data to come up with better and faster solutions. 

Group president Christian Dunleavy said the formalisation of Data Labs came after the company spent two years focusing on its data and analytics capabilities. With the rapid advances made by generative AI in the last two years, Aspen wanted to make it central to the company’s thinking. “I think about it in a couple of ways,” Dunleavy commented. 

“Efficiency gains will come out of AI, and operational enhancements. There are also value gains for us as an industry, helping us to select risks better and to sort through much larger datasets in a much more efficient way, triaging submissions, filtering out high potential opportunities, looking for things that don’t make sense and maybe matching our private datasets with public ones.” 

Dunleavy said the company sees this as an opportunity to create a competitive advantage for the company. 

“We want to own that skillset within Aspen,” he asserted. “We don’t want to outsource it. There’s an element for partnerships, but we need to be good at this ourselves, so it was a logical progression to set up the Data Labs. 

“Some people within the company already had expertise with AI going back a long time, so we focused on building a dedicated team internally who could help us move pretty quickly.” 

Although Dunleavy believes the immediate impact of AI on the industry may be modest in the short term, he believes it will lead to major changes in the next five to 10 years. 

“I remain convinced that the insurance companies that embrace technology will do better than tech companies which try to get into the insurance business,” he said. “The loss ratio still matters in our business, so selecting risks, but not replacing underwriters, is where we’re heading here. “It’s what I and others refer to as the ‘decision support system’, so that our underwriters can make better, faster decisions and build a better, higher quality portfolio.” 

Dunleavy agrees there is concern about the potential negative effects of AI. 

“From a cyber risk perspective, I can’t decide whether AI is a good guy, a bad guy, or if it cancels itself out. Do the AI opportunities harden your defences or neutralise AI opportunities for the attackers? I don’t know. 

“There’s still a long way to go here, and I think its potential is still unknown at this point,” he said. He notes that predictions about the impact of new technologies often turn out to be wrong. “Generally, with these technologies, the things you think they’re going to do don’t end up being the thing that becomes the killer app. I don’t know that Steve Jobs had any real sense of just how transformative the iPhone would be. 

“There’s a lot of unknowns with AI that we need to be careful about, plus we need to be very careful about privacy.” 

For insurers, policyholder data must be kept confidential, so Aspen has built a dedicated secure environment. “With AI, there’s a long way to go, and we have to be respectful of the potential of the technology, but also mindful of some of the downsides it could bring over time,” he concluded.

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