Inside FAC’s profile piece of Neil Russell, head of property, ArgoGlobal, features Neil’s responses to questions about his role, background and ArgoGlobal’s offering.
Reprinted with permission from Inside FAC.
You joined Argo in 2012 and became head of property in April last year. How has your job changed since stepping up to your current role?
I am still involved as much as possible in day-to-day underwriting, going to Lloyd’s. The trading is a fun part of the job, so I try to ensure my extra responsibilities don’t get in the way. It is about finding the right balance between getting to the box, providing a good service to our broking partners – and by extension our clients – and the managerial side of my role. I was pleased to see that I was ranked in the top five London underwriters by brokers in the latest Gracechurch survey, which it is a great compliment and, I hope, a reflection that I am getting the balance right.
Aside from the continuing decline in rates, what significant changes have you observed in the property direct and facultative (D&F) market during that time?
Combined with a decline in premiums, terms and conditions have loosened over the past five years. Insureds’ retentions have decreased in many cases. Limits have become stretched, and for Lloyd’s syndicates, which on their own have more modest individual line sizes compared to some of our larger peers in the company market, this makes some risks less appealing.
The other change has been a rise in acquisition costs from our broking partners. Everyone’s margins have become squeezed over the past few years, and they have looked to counter this through increased acquisition costs. For underwriters, the combination of a declining top line and increased brokerage is an unsustainable model. Technology is changing the way industries across the world do business, and paying more for the delivery of your service is an outdated model which must be corrected.
What are your bread and butter markets and where have you been breaking new ground?
Our focus is on light occupancy property risks. We do not write steel or chemical production facilities, rather we prefer those areas which are highly risk-managed and where the casualty side of the risk, which takes into account the highly litigious nature of the US, will support the property side of the risk. We write worldwide and have sought to increase our share of international business in the last two years, but the book remains predominantly US-focused.
It’s been a tough few years for property business generally. How has your book fared, and where have you been seeking new opportunities?
2016 was a difficult year, and in a subscription market anyone who writes North American property will have had a similar set of results. The privatisation of the National Flood Insurance Act will create more opportunities for us on the coverholder side of the business. Key to these will be finding a credible model for inland flood. On the D&F side, given the current conditions we are looking to concentrate our core book of business and focus on risk appetite and underwriting discipline.
Historically, your book has been fairly evenly split between primary and excess-of-loss business. Is that still the case?
Since I joined the syndicate we have written mostly primary business. However, we do write excess of loss. The split is about 75 percent/25 percent in favour of primary.
How would you describe your loss experience in 2016? And how is 2017 shaping up for major losses, industry-wide?
We are very early in 2017, but, touch wood, to date there have been no major losses. 2016 is likely to have been a challenging year for anyone in London who writes a book of primary business.
Are there any classes where you can see lesser players having to pull out over the next few quarters? And are there any areas where it might be unsustainable for Argo to keep committing capacity?
We tend not to declare that we will not write particular areas or risks. Instead, as each account is unique, we try to treat them as such. That said, the habitational risks space (essentially, buildings cover for commercial residential properties) is looking increasingly challenging. A number of syndicates have announced they will now no longer be writing it. As with all business, the top-line margin has reduced significantly. With soft market conditions deteriorating even further, it is an area that has come under the spotlight, as it becomes even more of a challenge to make it profitable. It is not an area in which ArgoGlobal has a significant presence, and we always keep an open mind, but habitational risks are looking difficult now for all London underwriters, and not as easy to place as they once were.
As memories of major cat events become ever shorter, is London still holding its own as a D&F hub or is competition from local markets still increasing?
Prior to 2016, cat losses were relatively benign. However, last year saw quite a few. There was some impact from Hurricane Matthew, the flooding in Louisiana caused losses across the market, and US convective storm, when totalled up, was more costly than Hurricane Ike. When added together, 2016 was not benign. As a result, London underwriters have become much more disciplined and controlled in their underwriting.
However, many underwriters in the US are still underwriting under the same margins as 2016. This is a problem for London. Now, sometimes, if not every time, London is more costly than the US to have on a programme. We are fortunate that most clients are savvy enough to retain a London order on their domestic placements. They have seen the cycles come and go, and understand the need for this relationship.