Book Review: Risk & Reward by Stephen Catlin

Book Review: Risk & Reward by Stephen Catlin

“This book is about insurance and the insurance industry, not me,” Stephen Catlin protests in the preface to his newly available memoirs. Certainly, Risk & Reward (An Inside View of the Property/Casualty Insurance Business) is an excellent primer to the arcane world of insurance, with its chapters on insurance fundamentals. 

However, despite the disclaimer, the autobiography also reveals in some detail what it takes to stay at the top of a quintessentially risky business for over 30 years. 

The approach is in keeping with someone that doesn’t fit the stereotypical image of the entrepreneur as a self regarding and disruptive buccaneer. Catlin is certainly “the standout entrepreneur of his generation in the London market” to quote Insurance Insider’s Adam McNestrie. 

But as Catlin’s memoir shows, it’s never really been about him. Which is odd, in view of what he’s achieved.

Starting as a “scratch boy” at Lloyd’s in 1973, he’d learnt enough to establish Catlin Underwriting Agencies by the tender age of 29. With deputy underwriter Rupert Atkin onboard, Catlin Syndicate 1003 flourished, increasing premium capacity to £170m by the company’s 10th anniversary. In 1999, Catlin was the first Lloyd’s company to incorporate a holding company in Bermuda, signalling its ambitious CEO’s global intent. 

In 2004 the fast growing insurer was listed on the London Stock Exchange and then extended its reach into the US through the acquisition of Wellington Underwriting in 2006. Ten years later, Catlin was acquired by XL Group in a transaction that valued the now global insurer at $4.3bn. 

At the time of the transaction, Catlin wrote annual gross premiums of $6bn through 55 offices in 25 countries around the world and employed 2,500 people. Catlin himself stepped down from the XL Catlin board in May this year. 

Perhaps the most remarkable thing about Catlin’s achievements, and what makes his account of events so fascinating, is that he created a global insurance and reinsurance group out of a Lloyd’s business during a time of painful catharsis for the London market. While value and reputations were being trashed all around EC3, Catlin was busy making a world beater.

Divided into four sections that combine Catlin’s view of the world of insurance with his experience of navigating it, the book paints a picture of a cool headed, natural born, risk taker.

In the section devoted to building a business for the future, Catlin’s intuitive skill at raising capital and making acquisitions are brought into focus. 

There’s the horror of dealing with private equity investors to raise capital, after the 9/11 attack on the World Trade Centre transformed the insurance market. Here Catlin admits he was on the brink of walking away from it all, because the rapacious, short term PE culture was so at odds with his own. “The one good thing about private equity investors is that they want to head for the exit as soon as possible,” Catlin comments bitterly.

Catlin’s shrewd judgement on deals has usually kept him on the right side of investors, however. But luck and well connected advisors were good to him too, business studies students take note. Catlin recalls the 2009 rights issue to raise $300m: the day after it successfully completed, it was announced that the troubled global bank HSBC was attempting to raise $19bn. That mega-deal was done, and then the market promptly shut down. It was only in retrospect that Catlin realised that an advisor had been urging him to act because he knew about the impending HSBC deal.

Catlin has a formidable reputation for knowing how to grow a business from a string of well timed transactions, starting with the £350,000 buy-out of Lloyd’s agency Jago Venton in 1987. To put the deal in perspective, Catlin’s lieutenants Rupert Atkin and Paul Brand each contributed £50,000 that they had borrowed against their houses. 

Catlin’s calculated buy-out of rival Wellington in 2006 reverberated around the market because it doubled the insurer’s size overnight and allowed it to take advantage of an uplift in premium rates after Hurricanes Katrina, Rita and Wilma in 2005. 

But it also effectively rescued Wellington, which had been blown apart by those hurricane losses, and it would go some way to protecting Lloyd’s depleted Central Fund – not to mention its brand name.

Fast follow through was as important as deal making, Catlin stresses. Five months after the Wellington acquisition had been finalised, 85% of the integration had been achieved. “While that transaction took place a decade ago, it stands out as one of the handful of insurance company acquisitions that have truly worked and have significantly increased shareholder value,” Catlin remembers with pride.

The mega deal Catlin engineered with XL in 2015 first shocked the market and then catalysed widespread consolidation. Catlin was characteristically sanguine over the decision at the time, telling analysts in a call, “If you thought that consolidation was about to occur in your industry, why wouldn’t you get on the front foot, be proactive and choose your partner? Otherwise, your partner will probably be chosen for you.”

Again, follow through was crucial with quick integration and client retention big priorities at the newly created XL Catlin. He relates how Peter Porrino, XL’s CFO was worried that the combined group could lose as much as 15% of its business. Porrino relented a little after talking to Catlin and marked his estimate down to 10%. “As with the Wellington acquisition, XL lost very little business after it acquired Catlin. It was more than nothing, but it was less than 1%, which frankly is just a rounding error,” he writes.

Perhaps the only thing Catlin wasn’t expecting from the deal was his own emotional response. Checking his emails in bed on the morning after Catlin ceased to be an independent company, messages of support from staff reduced him to floods of tears.

By the time Catlin sold to XL, the London market had changed dramatically from the three ring circus that he’d entered 40 years earlier. But it took the near collapse of Lloyd’s from spiralling asbestos and pollution claims to modernise and reform the place. 

“Names became increasingly bitter as the 1990s progressed, and I stopped going to neighbourhood cocktail parties at Christmas time,” Catlin remembers. “Why? One year, I had gone to a party at a house down the road. One of the guests asked what I did for a living. When I said I was a Lloyd’s underwriter, she shouted at the top of her voice, ‘You are another one of those lying, cheating bastards!’”

For his sins, Catlin served for several years as a board director of Lloyd’s “lifeboat” reinsurer Equitas, ultimately helping Names to achieve finality.

Catlin doesn’t shy away from outlining the insurance market’s inherent and seemingly intractable problems. Ever the underwriter’s advocate, he gets stuck into the brokers early on in the book, with comments that will resonate strongly at a time when brokers are piling the pressure onto hard pressed insurers. 

While accepting that brokers are a necessary evil (not his words exactly) Catlin is concerned that where there is a chain of intermediaries, the commission structure is opaque to buyers. “I wonder whether many clients realise that often 30 to 40 per cent of the premium it has paid is being collected by brokers rather than the underwriter?”

His detailed account of ripping into the CEO of a big broking firm at Monte Carlo after being asked to pay yet more commission on the business it brought in will be savoured by fellow CEOs when they read it.

A little before this book was published, Catlin seemed destined to be chosen as the next chairman of Lloyd’s, but it wasn’t to be. Ironically, Lloyd’s chose a broker over the underwriter when it opted for Bruce Carnegie-Brown. But there’s still a last chapter to be written. Catlin can now focus his energy on marshalling other senior figures in his role as chairman of the Industry Development Forum. 

On the other hand, the scratch boy made good might just get the entrepreneurial itch again.

Risk & Reward, An Inside View of the Property/Casualty Insurance Business, by Stephen Catlin with James Burcke. Iskaboo Publishing ISBN 978-09575595-5-4; £24-99p

Book review by Garry Booth.

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