Mark Geoghegan
Nick. Welcome to the Voice of Insurance
Nick Line
Thank you, Mark. It's nice to be here.
Mark Geoghegan
For anyone who doesn't know you, why didn't you introduce yourself? It might be quite easy, because I think you've been at Markel for a very long time, but then that might develop into being a history of Markel international itself.
Nick Line
Well, absolutely. So I joined Markel or I joined a company called Terra Nova which.
Mark Geoghegan
I used to broke Business in there.
Nick Line
Everyone I mentioned Terra Nova to says they used to broker business. I can come back to you on that later. What happened to the results? But I joined Terranova in 1997. I was a part qualified actuary. I'd spent a few years in an actual consultancy. Nice, comfortable job out in the West End.
But the London market was calling quite a few actuarial students at the time were studying the general insurance exam. And like the London market, and Lloyds was very appealing. So I. Came over to join Terra Nova. And for a few years kept my head down, did my exams, learnt about the industry and reserving and the actuarial stuff.
Mark Geoghegan
And you were sort of in the finance department in the back where?
Nick Line
Actuarial team. It was the actuarial team and the actuarial team was being built up turn over then had grown. It had moved to Bermuda, listed in New York and bought this managing agency called Octavian, which a lot of people.
Mark Geoghegan
Weren't frontline or back? Yeah, yeah. Remember. Yes. No, I certainly.
Nick Line
Do 8 or 9. Syndicates as well, and that all went fairly calmly and I qualified in 99, became head of reserving which all sounds very grand but kind of sensible. And then March 2000, something very special happened to me and the organisation, which was that Markel turned up and they bought Terra Nova March 24th. I remember 2000 and Tony Markel actually turned up. He was in the building. He walked around the building making this little stump speeches. And sounds like the beginning of a film. If I was to make it, because actually the next few years were, I would say slightly.
Mark Geoghegan
Chaotic well, I suppose events did occur.
Nick Line
Yes.
Mark Geoghegan
It wasn't the best time to buy a business.
Nick Line
It was a great time for them. I think history, you know, we can well forward to now, but early on the best advice I was given at the time was Nick, it's going to be quite turbulent. There's a lot going on. We don't know much about these people. Going through an acquisition could be quite interesting for you could be quite good for your career. You might learn a lot, stick around and 25 years later I'm still living off that fantastic advice and Tony and Steve and others would come over, every quarter would go through the reserves. Because the business has grown quite heavily in the late 90s, there were some reserving challenges.
So every quarter I tend to find myself reporting some reserve deterioration and it was really hard work actually. I found myself having been in the back office back in actuarial all of a sudden thrust to the front. Putting all of our numbers. Onto this strange new basis called US gap, which I had to explain to people people up in arms because we were adding expenses into their numbers, which they thought was supposed to be covered by investment income. The reserves kept moving out and I think it took, I would say.
Four years, which is only 16 quarterly reserve meetings explaining what was going on. On and they were massively formative years for me. Most of the actuarial team left. I had to be super organised. I had to understand our data quickly, understand what we'd written in the late 90s in particular. So I had to get slips out. Go and see claims people go and see the underwriters. If they were still here and say, what on Earth did we write and where's it going? And? All I would say is that there are some very heated meetings at that time with Tony and Steve Markel sat in front of me, which was quite intimidating, but they were always extraordinarily polite to me. I was the messenger with some really bad. Messages, but I would always remember they were very polite to me. No one ever yelled at me. They yelled at each other and other people and underwriters, but I was treated with incredible respect. I guess the other thing I learned there was presenting was working hard, being prepared. Being honest, and if I didn't know something or didn't know where a number was going to go, I would say so.
And they really respected that. So that was kind of the storming, forming years of the acquisition and then things settled down and we started to grow and having been at Lloyds London market. Business, we started buying things and opening up. We'd put a guy into Madrid and started growing in Spain. We were one of the first people to go into the Lloyds platform in Singapore, which I think was 2008. We bought a cover holder in Canada.
We bought a small business in Germany and then Holland. And then there's Singaporean thing grew to Hong Kong and Mumbai, Dubai and and so on, and it kept going. And that was quite exciting times. And then personally I had to grow the team. So we have to build a reserving team again, build a pricing team. This is a bit of a history of the market, isn't it? So we had Katrina, Rita, Wilma in 05. That smashed up all the cat models, so it's like, Nick, can you run the cat team and kind of take control of that?
And then of course, solvency too started coming over horizon and we had to build a capital modelling team from scratch as well. So in parallel to all this growth going on around the business.
We’re growing the actuarial team and I was learning a lot about the market and what was going on and he's kind of Fast forward a bit through all of that we got to 2017 and our CEO came to see me one day and said, Nick, our friend and colleague, the CUO is going to retire at the end of the year. How about you apply for his role and the polite verse device said was you must be joking. I'm not an underwriter, I've never underwritten. Don't be ridiculous. And he said, well, Nick, you've been here a long time. You really get the culture. You understand the underwriters and underwriting, they respect you. Which was a surprise to me that after all the discussions.
Mark Geoghegan
Because you never know, you never know, because there's always. There's always the potential.
Nick Line
We'd had sort of respectful conversations about loss ratios and reserves, he said. The guys in the US know and respect to you and let's face it, Nick, the next 5-10 years and beyond, underwriting has beg to become more data led and who better to lead us through that than to factory.
Mark Geoghegan
Conflicts isn't there. Must miss being a CUOA chief undressing officer. It's different from being an underwriter day-to-day because that is not business that's been brokered to you. You're not underwriting, you're looking after a team of underwriters, which is a very different thing.
Nick Line
Yeah, the best thing about me being the CUO is I'm not gonna try and interfere with what you're doing. 'cause. I'm not going to kind of poke around.
Yeah, but I can promote data and underwriting and risk taking and everything else. I understand the numbers and it works really well and all those things there. I was told all those years ago have come to fruition and what I would say is to be given that opportunity to change. Direction mid career I wasn't my mid 40s. I think it's fantastic and I never thought
I knew everything by any means. But I just learnt so much doing this job and the actuarial world is very friendly, very collaborative and you meet a lot of lovely people and people say insurance is full of lovely people. Well, I've met more of them. I've been so lucky to get out and meet brokers, other CEOs, customers, clients going around the world.
And it's been a great change for me and I guess a couple of other historical moments that people will remember is I took over in this role beginning of 2018. So that was after him. There was a lot going on pretty depths of the soft market. January, February, March worked out. What we need to do. To do and then in May 2018, a chap called Jon Hancock stood up in the old library to give what was normally a fairly mundane Lloyds market messages speech.
It wasn't the normal mundane speech, it was all about the performance gap, and he introduced Decile 10. And. For the sort of second time in my life I've all hell broke loose again and it was interesting, as you know, and I think what he did was absolutely necessary. It was absolutely vital. We backed him 100%. It made my job of remediating certain classes much easier.
You can have done it. Actually it made it much harder because we had to write lots of different plans for the same class multiple times. And it was a tough time. I think you'd know that too. But the impact of that time on people was terrible. The uncertainty people had about their syndicate, their class of business, even cover holders around the world didn't know where they were. It was it.
Mark Geoghegan
A lot of very also. Was tough, unhappy people all the way down the chain saying, you know, people in America are saying to me, hey, Mark, what's happening in London?
Nick Line
Yeah, exactly. And if you're coverholder in Australia, you didn't. If your syndicate was going to get business plan approved and we're taking business plan approval for. Granted, for so long and literally I remember where I was when I got the phone call to say the business plan had been approved, which you wouldn't have thought that before.
So that was quite tough, but we did all the remediation and the way I said it and I still say it now is that Lloyd's had to do five years worth of performance management in five months and it was necessarily kind of chaotic and. But we got things tidied up here. We started growing again and with a remediated book in 2019, things are pretty set fair at the end of 19, put our business plan together for 20/20.
Looked really good. And then of course two or three months into that. That didn't so well either, because he had some Covid losses and we had some contingency exposure that meant we had to do some remediation and we all went home and the priority was people and and their safety. But since then things have been almost and upwards.
Mark Geoghegan
Well, you mentioned in dispatches that I was just doing when I was doing my research for these questions, 2023 annual report singled out and CEO’s letter for specific press for spectacular. These are the words. These are not words I'm making up spectacular results. Double digit growth rates of profitability. So is it going to be as easy to keep going? It feels like we're at this sort of high watermark.
Nick Line
Yeah, I think the market has been incredibly good for us. You know, for all of us and everyone's producing pretty good results. Obviously recently cat. Lots of had a bit of a say in the last quarter, but we have produced good results, spectacular results across all of our portfolios, all of our locations and all of our classes and that is partly to do with the following wind that we've had. Let's not pretend it, but it's also due to incredible amount of hard work by a lot of people across our portfolio hiring people.
Growing business, launching new products and it will get a bit more difficult as we go forward, but we've not spent these good years. Resting on our Noles, you know we've been building new offices, new locations and a lot of capability that from a sort of actuarial point of view I think is very important. So we've built an enormous number of pricing tools. We built our first pricing tool back in 2004. We've rebuilt them all again new software. New platforms we've built far more detailed reporting for our underwriters and these are reports that they then ignore. We've built a culture where underwriters are super interested in their portfolios, the good bits, the bad bits, we almost make them talk about it. Quarter that I think will sell us in very good stead and I think the growth will continue.
We have to remember the market is still hard and the rates are still adequate classes where rates are falling but rates are still adequate and the new things that we've done in the last year or so two years. I think will stand us in very good stead.
There's a few tangible things I can mention that we've done. So a year ago we opened in Australia, which is the first time we've put a new flag somewhere for quite a while and we identified the opportunity and we said well. Back in 2005, we put one man in Spain and we'd get a second man in Spain with Australia. We said opportunity, let's hire 10/12/15 people and given the geographical spread, we'll go to Sydney, we'll go to Melbourne, we'll go to Brisbane as well and we've opened there a year ago, tremendous success, got some great people over there.
And that will help us grow. Quite recently, we launched International Casualty Division. Now that's actually been worked on for almost 12 months where we've been hiring people and getting people in. That's a whole new department. Effectively, we haven't launched a new team here for quite a while and we doing GL environmental and life science and that. Help us grow too. But every part of our ecosystem we've worked on, we. Open development team.
We've worked on those relationships with brokers, so they're very clear on our risk appetite and the communication with them is extremely good. We've worked on a number of things that will help us grow and continue in the next few years. But there's a few things that we've done all these things that are that are important. I summarise it really as capability and culture, because without the culture of high performance, people won't use their pricing tools and look at their data.
The other couple of key things I think are important in the market is that I think our peers have been doing that as well. I'll call them peers, not competitors, because actually we're working together. To some degree. And there's no point of doing all these fantastic things if other people aren't doing the same.
Mark Geoghegan
As busy if they're just there to undercut you without much sophistication, that's it. It is always frustrating.
Nick Line
Yeah. So I think that's important. And of course the other variable which we've kind of alluded to already is Lloyd’s, the way Lloyd’s overseas, the market and behaves in the next years is really important. I know you've met Rachel Turk recently, then your CUO at Lloyd’s, I think she says a lot of extremely.
Mark Geoghegan
Phrases come straight back to me right now is let's not talk ourselves into a soft market.
Nick Line
She's been around and spoken to people like me and all my peers have said the same thing, which is Rachel, please make sure 2017 doesn't happen again, and that was the year where Lloyds really did hit rock bottom in terms of results. I think it was a £2 billion loss and we don't want to repeat 2017 in terms of performance, but we don't want to repeat 2018 in terms. All that desperate remediation either so. There is some onus on them, but I think the people we deal with at Lloyd’s now, Rachel in particular and Patrick as well, say very sensible things. They know what's happened before and I really hope that between them and our peers and us, we can navigate the next phase.
Mark Geoghegan
Of the market cultures thing that you just mentioned, it's interesting that you say, yes, you're getting those underwriters interested in looking at those numbers and all the different metrics.
Nick Line
Yes. Yeah.
Mark Geoghegan
Because. You and management, you can incentivize them to look at those and you can say, well, if that number’s good, then. That's good, isn't it?
Nick Line
Absolutely. I mean, we're a combined ratio driven business and I think the profile of the underwriter has changed a bit as well over the years. But literally in our quarterly business review. The underwriters have asked questions, which means they have to look at this information. They have to understand, even in a class that's. Well, which are the risks that aren't so good? Which are the risks that we would probably lose first if the market softens, which are the bits that we want to grow, which are the areas that we should be telling brokers to bring us more of? So I think that culture of performance, like I said is really important. That feels very different. Ten years ago.
Mark Geoghegan
We'll move on for any listener who doesn't know what's the definition of Markel International. ?
Nick Line
Everything that's not US and Bermuda, the purpose of Markel International is what it says on the tin. We're here to grow the international footprint of Markel. When Tony and Steve came over and bought Terra Nova, that was the purpose. Obviously, it took a few years to things. Settle down. But that's what we're doing. We're like I said, we're in Canada, we're in Europe, we're in the UK provincially and we're in Asia PAC, and we're very happy. Areas and the products that we're writing, they are what we're backing to help grow our portfolio and as we grow. That doesn't mean planting more flags in more countries, but making sure that people know that we're there and that we're providing a full suite of products.
Mark Geoghegan
The other thing that's happened more recently, obviously you were part of that insurance reset and Lloyd’s resetting and obviously many other global players resetting at the same time. Reinsurance took a bit longer to reset. It happened just over two years ago. Did that affect the way you're running your business, you've got reinsurance within the wider market group, which I'm sure you can't really comment on, but.
Nick Line
Yeah.
Mark Geoghegan
As an insurer primarily to that affects you.
Nick Line
To some degree, we don't buy a lot of.
Mark Geoghegan
Reinsurance because I mean, you're part of a big group, you can have run a much bigger net and.
Nick Line
You've quite well diversified anyway. Yeah, we've got a big diversified group, a big balance sheet which we'd like to use.
Mark Geoghegan
The writing of cat.
Nick Line
No, we're not writing a lot of property cat, so we like to eat our own cooking. So generally we like to buy as little as possible. We like to protect the balance sheet, protect the big peak losses. And so that did affect us a couple of years ago when there was a bit of a reset on our specialty portfolio. But after Russia, Ukraine happened, we were talking to our insurer straight away. We've got some very good long term relationships with Big Markel belief really is long term relationships with anybody. So we knew what was coming in terms of the exclusion and. Pricing and and deductibles and kind of saw it coming, so started to address pricing, risk appetite and prices went up. We tried to push that through the front end as much as we could, but it wasn't a huge discontinuity. That was a huge shock. And because we don't buy a huge amount, it wasn't too difficult for.
Mark Geoghegan
Of us. So yes, we have a very material conversation about whether Milton's affecting 1.1's.
Nick Line
Because we don't property cat, not a great deal. I think with Helene and Milton, maybe whatever softening might have happened may not happen, but I think it's what we're reading. The papers kind of nuanced, so sort of BAU, not for the people concerned and we were promised quite a heavy cat season with sea surface temperatures.
Mark Geoghegan
You're right, I think it's just sort of nibble around the edges.
Nick Line
They definitely caused very rapid strengthening of both of those systems. Obviously, if Milton had gone a bit further north like it was going to do towards Orlando, very different number. But I think it's just sort of kept people remembering that what the exposures are and where deductibles need to be. But.
Mark Geoghegan
I'm sure in the thick of all business planning for next year or you've already done it or whatever. Where were the numbers? Were you most hopeful? Were you looking at good numbers and hoping they'll get even better next year?
Nick Line
Well, I think as I look across our portfolio, what is most noteworthy is just how well everything is doing. It's a bit of a boring answer to.
Mark Geoghegan
Some degree, but that's good. But if everything's good, that's good.
Nick Line
Everything's good. Everything is, everything is fantastic and you know, it's a sign of the market we're in and the work that people have done. But if I was to call out some areas that have been particularly successful, I think our Asia PAC team are doing a fantastic job since we planted that flag in Singapore in 08, it took a long time to grow that business to start with. We opened in Hong Kong and further into Mumbai where we hope we'll have some friends soon. But we are Lloyds, India at the moment Markel.
But it took a long time to grow that and what we found was happening was. Local underwriters were referring back to London a lot and not feeling fully empowered. And as you know, as a broker, if someone says to you, I'll get back to you later, it probably means they're going to phone someone. And I christened it at the 4:00pm problem because basically they wait till 4 0’clock when London comes in, then phone someone. So we worked really hard to empower that team.
Mark Geoghegan
Yeah.
Nick Line
And since we've changed the leadership and invested in that team, they've just gone from strength to strength and we have massively accelerated our Asia plans. Now it's Asia PAC with Australia, but I feel bad calling out Asia PAC when actually other people have done such an amazing job. Our Canadian team, which was a cover holder we bought in. 2010. Then turn into a fully fledged division of Markel International, now done a great job in what can be called a difficult market. Our European team have gone from a handful of people to goodness. How many people we have now across Europe and that business has grown and our UK team as well. We have a team in Leeds which is a service company which was hidden inside one of those little Octavian syndicates. By doing that £30,000,000 . But it was an absolute.
And I remember actually pulled the numbers out, which the syndicate didn't want us to do. We put the numbers out, they were amazing. We made them a separate division back in 2002 and they've done a brilliant job and they are now forced to be reckoned with in the UK market and recently, of course with the way the markets moved our wholesale operation in London and Asia have done fantastically as well. So it's hard to pick out when the numbers are particularly good because everything is firing on all cylinders which. I guess in this market it should and with the investments that we've.
Mark Geoghegan
Interesting you mentioning a direct UK focused regional business. It's interesting that it's as being part of a global business that you've got obviously mostly wholesale, but some interesting direct businesses. They're still going to be brokered, but far more localised businesses.
Nick Line
Yes, yes, yeah.
Mark Geoghegan
How do you think that balance is going to change? I mean, has that been a strategy you really like because not many other people have got that experience, they'd say no, we're London, we're we're London, Singapore, Dubai, Miami and we know where we're playing. We're playing at the high end, bigger ticket. Stuff, but here you're getting right into the weeds with much smaller premium, much higher frequencies.
Nick Line
Yeah. And that goes back to the vision that we had in our previous. 10-15 years ago, starting with this little office in Leeds, the SME business, hugely profitable, they're doing DNA professional. They then grew that to a care business, which is a huge piece of it. Now the European business was similar and the Canadian business was similar.
So we put those into a wrapper called National Markets because they're based in those countries writing in those countries generally SME GL professional. That's about that business is its low volatility. And I think about in two ways. One is the business is not very volatile and it's low limit staff 100% well spread. So large numbers, if I'm allowed to say that, but also the pricing cycle is not so volatile in that business as well. So the strategy was to grow that to balance out the more volatile in both senses of the word wholesale business. And we have done that successfully to some extent.
The national markets is roughly 1/3 of what we do. We are expecting that proportion to grow, but of course the last couple of years our wholesale business has done so well that growth in Asia, that growth in London with the way the environment has been has sort of kept wholesale moving ahead of national markets as well. So that ratio has kind of stayed the same. It might change a bit as the market moves in the next few years that national markets might catch up. But the key thing you asked about.
There's actually another word there, which is blend and what we're finding is that these businesses have grown. We've got some fantastic products that we sell in London that we don't sell into these regions and we also have products in the regions where we'll write smaller business but don't have the appetite for larger business that we don't write locally. But it doesn't come to London. So we now see quite a big opportunity. To bring the best of our products from London into these regions and I think that's going to be a source of growth. In the future, so actually blending the two, other than thinking it's sort of binary is a new kind of strategy for us.
Mark Geoghegan
So it sounds like your strategy is also more organic anyway, that you don't say, well, I've got a particular idea of this being 60/40 is the ideal blend or the ideal mixture. Well and I suppose it'll fluctuate as those markets fluctuate.
Nick Line
No. Absolutely, absolutely. And that that kind of best of Markel project. I like it as CUO because I think one of the riskiest things you can do is launch a new product in a new country that you don't understand. That's sort of the one end of things, but launching more products that you understand in countries that you understand is at the low risk end of things. So looking forward to getting stuck in and actually using that blend that we have.
Mark Geoghegan
It would be crazy not to ask you. I know it's not your core day job, and we're mostly talking about US casualty here. But I thought, well, if we're imagining we're in the bar having a pint of beer after work, and I knew how brainy you were, I would ask you, were you standing on the great US casualty reserves?
Nick Line
Well, it's 'cause being a trained actually doesn't give me a crystal ball in any way, cause may be an expert at all. Like you say, we don't have a lot of US casualty exposure here. We have a little bit. About social inflation, type exposure through things like reliability, our cousins in the US are dealing with that themselves. I think it's very difficult when we have looked at new countries in the past, we look for stable legal and regulatory environments to work in. And of course they've had this kind of shock where there's been a big change in that environment and they're now trying to catch up and they're responding the way other people are. Compressing limits? Putting. Pricing out absent talk reform, if claims are going to keep going up 10-15%, then pricing has to match and it's not great to have to do that, but that has to follow and that the difficulty you have is that if you're expecting inflation to be 10 and it's 12 or 15, that's still quite. Big miss.
Mark Geoghegan
Yes, actually when you compound things, it's painful.
Nick Line
4-5 years all over the tail. It's very difficult. So I don't have any magic answers.
Mark Geoghegan
It sounds like it's all politics that we had an interesting conversation in Monte Carlo and someone said it was actually it was. Charlie Goldie of MS Re said, well, it only really happened when my local swimming pool shut. That was in the 1980s crisis. Suddenly people realise that this is real. Actually, this is our local council. Couldn't get any liability insurance.
And suddenly everyone said, oh, right. OK, maybe tort reform isn't such a bad idea. Before they were all on the side of the plaintiffs.
Nick Line
Exactly. Yeah, it's a long feedback loop, unfortunately.
Mark Geoghegan
Yeah, it's. I mean, it took an awful long amount of time, you know. Yes again with your. Technical brain something's really interesting is that I've been thinking about a lot recently is when we're having interesting or high level discussions about the industry where the industry is in terms of its handle on genuine understanding of risk. In such a changing environment. I talk to people and they say, well, you know what, none of the models really understand. This isn't property cat. So they really get climate change, do they? How can they prove to me that they're really incorporating a view of climate change into the model? Because I suppose one thing about models is obviously they're full of data and data, by definition, is historical because it had to have happened.
Nick Line
Yeah.
Mark Geoghegan
In order to be recorded, therefore. So they're out of date. Where do you stand on that, do you think? Are you optimistic that we can be able to get there because of suppose some of these things by definition that you are looking at the past and trying to project it into the future, but there are other ways of doing things, other methodologies of trying to get a better handle on where the future is going to be.
Nick Line
Yeah, I think the changing risks that we're exposed to from climate risk is important. And it's not just in property cat, it's in many, many areas. Come back to that. But we've done some. Simple stuff. Looking at the cat models with all the buttons turned up to 1 1/2 degrees, three degree warming to understand what that does to our book. The issue you've got with the weather and hurricanes don't happen often enough for you to really get a sample from the distributions to what's going on, and if you have a long gap between them you then discover actually the world has warmed and the intensity gets worse and the Cat's 4/5. Happened with greater frequency, so like I said, we don't run a lot of property cat.
We moved all of that to our friends at Nephila who do have a much better handle on it. That's where all the eggheads are in terms of the cat modelling and the climate modelling.
What things that hit us or concern us a little bit more are some of those. I call them pales, formerly known as secondary, so the convective storm. The wildfire where we've been looking at aggregation modelling, better pricing at wildfire, both in the US and in Canada where we've got some exposure. But I also think about the other impacts that the climate change have on our own portfolio, so. Political social unrest, for example. So we know that in in warming climate, climate. Climate there is generally more social unrest, and we've seen that in the UK even.
Mark Geoghegan
Riots do happen in the middle of the hottest day of. Don't they? What's just?
Nick Line
Yeah. Well, Sarge has been done. You can sit all over the world. Temperature goes up, people out on the streets. And there's more things to do with that. So it gets hotter. Maybe crops fail. Price of food goes up more social unrest, more immigration, social unrest and even unrest. That's going to happen due to access to water and that kind of thing as well. So I think thinking about all. Expect as import. And I also think I'm not getting onto ESG particularly, but keeping it technical companies that are seen to be polluting and and not doing their best in. Aspect are potentially more likely to be hacked, for example by activists. Or be subject to protest and everything else.
Mark Geoghegan
So you could actually, I mean they are being sued. Yeah. I mean, literally being sued for causing climate change aren't tey?.
Nick Line
Yeah, well, you've got the sort of the DNA. Yeah, the DNA and sort of DNA exclusions and the liability exclusions. But I think given what?
Mark Geoghegan
I mean, we'll see how far. Goes but.
Nick Line
Exposure on the cyber book or even the terrorism book companies being attacked or hassled in some way.
Mark Geoghegan
Because we see vicarious liability and, you know, in just standard general liability if the grounds Tinder dry. And of course, you know an electricity company as we've seen in the US, it depends how their liability laws are structured, of course. And over there it seems to be that it is always the powers companies fault. Yeah, you know that you can cause a wildfire, whereas the fact that if it'd all been wet 20 years ago might never, of course, wildfire if you.
Nick Line
It doesn't matter.
Mark Geoghegan
Over he just fell over and he put it back up again.
Nick Line
That's right. And I think keeping track of all these different ways that climate change can run through our book is really important. Trust.
Mark Geoghegan
Away from the sort of negative side of climate change and being prepared for that and, you know, heard for that, not hitting your loss ratio as bad as it might do, it's also our societal reaction to climate change, to combat climate change is producing new classes of business. I've had carbon credit insurers.
Nick Line
Yes.
Mark Geoghegan
On the programme really, really interesting, that's creating a new asset that now needs to be insured, needs a new insurance products around it. So it's really exciting times. I want to gauge your level of excitement about some of the prospects of some of these, particularly we're looking. For 2015, net zero, some of them are being touted as the next cyber, for example, cyber still pretty good at being the next cyber already, but any of these classes getting excited thinking oh, this could be really good.
Nick Line
Very excited. I think there's huge opportunities for us. I think just going back to the demoglen bit, I think the insurance industry has always been here to help stuff happen. We allow the economy to work smoothly. We allow capital to be allocated, we help banks lend money so things can be done. And I think we have a huge part to play. In helping the world build the infrastructure, whether it's physical or financial, that it needs to transition.
So we already have a sizeable book of renewable energy, so wind and solar being the obvious pieces we invested in that quite heavily quite a few years ago, seeing the opportunity. But when we talk to the team, you start thinking what else we're doing, you know, so beyond the wind and solar, we're doing battery storage as well. Grid scale batteries obviously.
Vital to smooth out the supply demand. And again, our friends at Nafee have got some interesting products which help people who own these kind of battery farms operate, which I won't go into because I don't have the details of it.
Mark Geoghegan
With some of those interesting products aren't that they're actually you're getting into ensuring the efficacy of those operations, yes.
Nick Line
And some of the highs and lows and some of the financial highs and those you can get. So there's the battery, then there's the hydrogen as well, which is big opportunity and then even to the nuclear and we've expanded our appetite on nuclear business and you've got these small modular reactors, SM Rs which are like sort of flat packed. As you can put wherever you want. Yeah, put one over the end of the street.
Mark Geoghegan
It's so scary the idea that you could just go and buy one in IKEA.
Nick Line
But the thing that's really knocked me sideways recently, and what you might have seen is someone came to the other day and said, oh, I'm gonna go to a presentation on nuclear fusion. And I said, yeah, yeah, yeah. Nuclear fusion. You know, it's 30 years away.
Mark Geoghegan
I thought you needed like a £500 million reactor somewhere in Oxford and it makes enough to boil a cup of tea or something.
Nick Line
That's what you and I might think in the JPS fusion is 30 years away and always will be and actually people are coming to the market now. The commercial people who are running these things and getting up and running and they're thinking actually we need some insurance. So even something that I thought was way in the future.
Potentially coming a bit closer.
Mark Geoghegan
You. If you get atoms to go to whatever it is million degrees, then you're not quite sure what happened.
Nick Line
The risks are a bit different. I mean, you're not going to have release of nuclear material because the products are very safe water or whatever it is. So it's still a big lump of machinery doing something. But yeah, that was quite surprising to say. The message is I think we have a huge part to play in that transition. And Rachel and Lloyd say similar things.
Mark Geoghegan
I'm interested.
Nick Line
Ensure the transition. Let's help build the capability.
Mark Geoghegan
And I presume you're very much in favour of the innovation class and the transition class and the sort of thing that you'd like it to be.
Speaker
Yes.
Nick Line
Using your full allocation of, yeah, when we're using the innovation as much as we can, the ICX, we're still looking at how we can use the TCX as well the transition class that they've created as well. But absolutely like to use that as much as we can.
Mark Geoghegan
But it's nice to be given permission to go and do. Yeah. Exciting new things. Yeah, which I think we all agree are going to be the dnos and the cybers of the future. Yeah, absolutely. Talking about cyber interesting over the last four or five years, particularly it's been obvious that perhaps when we started when I started relooking at it, when it started to really take off. To go, it was a sort of ecosystem.
The underwriters would have. You know, I've got my favourite breach response sort of people over here and I've got my whatever you know, people who come and rebuild your systems over there and people might try and recover your ransom over there, those of people. But over the last four or five years, the idea has been to bring all of that in House as well.
This is actually this is a holistic, more of a service, because actually we get a relationship with our customers to the point where they don't have a loss in the 1st place. We don't just talk to them once a year. We talk to them every week or every 5 minutes. Where do you stand on that one? Do you think that's been a positive development, presuming that does cost more than certainly I've had discussions with cyber specialists on that to say well, yeah, well, you know the combined ratio can be made-up anyway you like. And sometimes you have to have a higher expense ratio or to have a lower loss ratio on this. It seems to say that was acceptable. Good. They good and it doesn't really matter how you get there. Do you think that is something we can learn in other classes? Do you think it could be something to be applied?
Nick Line
I stand on this very enthusiastically. First thing I'd say is that cyber was not the first class that's had all this sort of service. If you think we've been sitting here a few 100 years ago in a building with insurance, the. Was the fire brigade would turn up and fire? Yes. So we have a number of areas where we do that kind of service risk management type thing. It's not just should you have sprinkler systems or not, but our care book in the UK, we have a lot of consultants going into care homes, helping them manage their risk, which is very much welcomed.
We have engineers. Energy and renewables book, again providing advice on risk management and project management. I think it's quite exciting. Cyber's obviously the poster child for that because you can look at your client in advance and sort of pre underwrite them and understand their protection.
Mark Geoghegan
Because that technology makes it sort.
Nick Line
Everything else, it's so easy. You can do a sort of pen test or a pre pen test. You can then underwrite them and the bit I love about that is.
Well, here's the price. If you change your system. And this lower price. It used to sort of surprise me a little bit that we didn't do more of that thinking about it. The. Point of view report all this data into a price and give the price to the customer and not say well actually if you change your business you can get a different price.
So the ability to actually help your customer manage their risk. And then, of course, if you've got the post event and everything else, but when you think about it, the lifecycle of a policy. See doesn't start when somebody goes. Oh, I need an insurance policy. The life cycle starts before that. When they go, I have an asset I need to protect it. I don't want to lose it. It's going to cost me too much to replace it. I've got money or I've got buildings or whatever.
So no one likes to have a claim. It's a pain. You get some money back, but the money's not the same as what you had before. And there's a bit of a hassle. So to give advice to our customers. That make it less. I'd have a claim. That's great. And I'm all on for that. If actually you have a slightly higher expense ratio and a lower loss ratio. Actually doesn't have the combine is made. And in fact, I think that's better for the world, because if someone has a claim, it probably because something blew up or blew away or got broken and the world is worse off.
Mark Geoghegan
Yes. And if they've done all your risk management and you've done all your hygiene around them and then they have lost then you know you can pay it quicker because you don't have to discount all these potential bad actions that they may have done. You know that they've that it's just been incredibly fortuitous and You should just pay quickly.
Nick Line
Absolutely. They've done everything they said that the insurance policies becomes a backup. Well, if everything that we said you needed to do, you did great. This still happened. Never mind. We'll pay. What's interesting to me.
Mark Geoghegan
And you sort of alluded to it is what other classes? Where else?
Nick Line
Be useful and I guess first party. You can cover things with sensors, you know you know companies that are doing this. You start covering all platforms and drilling works with sensors and when they start wobbling you stop drilling rather than wait for the claim. How that relates to a law firm or an accountant? I don't yet know. I asked this to our teams all the time. I say how are we going to get this kind of concept? Into other areas and they probably are solutions, probably AI probably solutions to that somehow, but I'm very interested in the idea of supporting customers and not just issuing an insurance policy which feels like a bit of a blunt tool when you think about. In detail like that.
Mark Geoghegan
Yeah, I want to talk about AI. Well, for example, with AI, yes, you could get AI to read every Enron annual report or every bit of communication from Enron throughout the 1990s and see if you can spot any red flags. Knowing what you now know about what happened in the year 2001, it was exactly when it was no longer. Where do you think the best applications of AI are going to be generally?
Nick Line
Well, I think AI is going to be everywhere across the whole ecosystem, from Craig to Grove.
Mark Geoghegan
I suppose it's from where do you think the first ones are going to be? The lower hanging fruit and where do you go where? We get wins now.
Nick Line
I think in the process of preparing a submission for the underwriter to make a decision, so where we're using a lot of AI now is our team here in our wholesaler doing a huge amount of work cleansing data to improve pricing. So we're filling in gaps in data, we're filling in gaps in ship. Data and we're even I learned the other day some of your pricing tools we had where I thought the data would sort of die to death, they've kind of brought it back to life using AI. So data analysis and augmenting data from elsewhere is a big thing. We've used AI in what we call submission triage. So whereas risks come in prioritising the risks that are more likely to bind and on risks that we like.
Classes and reading the engineering reports and summarising submission is a key element. In the actual moment, the underwriters got a risk, it's pulled together. Everything that they need. I still believe in the magic moment where underwriting happens. I think we're writing specialty commercial business. I say we write complex products over complex risks and for those large or even medium sized risks, we still need someone to look at all the information and to make a judgement. Once that magic moment has happened, yes, AI and automation can happen further down the line, but I think we're already in our business using copilot, and people are finding a lot of shortcuts to even meeting notes and all that kind of stuff and summarising things. Really helpful. There's.
Mark Geoghegan
A little talk about workbenches and those sort of things that be the ideal user of this of course, because it's your job to see everything in some ways. Do you have designs on creating some single pane of glass where you can see everything that's going on, everything that's happening and how that's affecting everything else, how that affects your aggregates, how that affects your capital position, how that affects your reinsurance position et cetera?
Nick Line
Our underwriters want a single pane of glass rather than using multiple systems, and that's what we're building for them. A happy building is allowing that experience for them to be really slick from the beginning. And building some sort of amazing tool that I can see everything. It's not really my style to be honest. So you might think I want to cover my screen with lots of data, but actually it's more to do with delegation empowerment and trust to our team. So I don't think I need some sort of big giant dashboard where I want to see the AI being used is to make their lives. Easier and smoother so that we can actually provide a quick service to brokers, write the best risks quickly and let the underwriter. On to the next one.
Mark Geoghegan
So we did one of those levers where you can drop people who's sitting opposite you into the Shark Tank below.
Nick Line
Actually not, no, I don't need that.
Mark Geoghegan
But yes, you've got that aggregate job above all of them, but far better to make all their jobs much easier and therefore in aggregate it's going to be.
Nick Line
Yes. Yes. Yeah, yeah, absolutely, I think.
Mark Geoghegan
Perhaps where they can see everything they can see all the model output. They can see what's going to the aggregate. This can see what it might do to my book in general and my diversification. Whatever.
Nick Line
Yeah, one of my favourite phrases is decision making should be where the information is and if the information is at the frontline, that's what decisions can be made. We're working and living in a very fast moving world and I hate referrals. I hate people thinking they've got to phone me and phone someone else and make a decision.
Get back down again. The Singapore 4:00pm problem is an example of that. Underwriters come to us and they're amazed by how much empowerment we give them once they're fully trained and understand I wish appetite. We want them to go make decisions. It's good for their morale. It probably means better decisions get made because they have all the information. I don't have any information. So I'm the last person to be making a decision. And the broker gets a better service as well. So I just love the idea of pushing out as much information as we can. We democratise. People can see their numbers and and make decisions in the Moment.
Mark Geoghegan
Yes, we could say if you wrote this, it would theoretically make your book more profitable because this one's so good. It actually moves the dial on your Whole portfolio.
Nick Line
Yes. And that's what I think we might get to at that local level and some of that portfolio management tools that we're building, people will let them do that and say, well if you did this then this would be what your loss ratio would go to. Came back to the portfolio management topic.
I had this amazing conversation with one of our underwriters few months ago and I think she's been on a course about portfolio management and we had this conversation. She said, yeah, Nick, I took one of the new dashboards that the team had produced. I asked them to add some new fields. I then took it away for a couple of hours. Work and I discovered I could add X million to my book without annoying any brokers by increasing these line sizes and reduce the loss ratio. I was like, wow, I've been waiting for someone to say that to me for about 20 years and I was like, I want to bottle that and spread that across the whole organisation. And that was like a real moment for me.
Mark Geoghegan
Get them to do a lunch and learn for everybody else. It would be well worth shelling out some extra expensive sandwiches.
Nick Line
Yeah, absolutely. Yeah, yeah.
Mark Geoghegan
What about automation of underwriting? Another fascinating thing that's been happening here in London is what we've seen with automated follow and smart follows strategies and all sorts of things. And of course, when the market gets properly digitised and the friction gets completely removed, then all this stuff's going to be even more plausible and even easier and easier and easier to do. We're getting there and we know we're going. Get there. We're just probably frustrated. The speed at which we're getting there right now, but how far do you think it can go? And also you still keen on the magic to happen somewhere on a kind of glass with a human?
Do you think there could be someone else employed by Markel who has a portfolio underwriting strategy where they can have another pane of glass where things Happen?
Nick Line
Lots of different things there. So you mentioned automation. I think the automation can. Some magic decision I think on the smaller business, a bit like personal lines, it will go straight through what the SME business that we write in national markets, parts of that are online. And again it's answer 5 questions or 10 questions and take some yeses and get a quote. But anything above a certain level, a human being will look at an underwriter will look at. In terms of the lead follow, I've always found the lead follow concept very interesting 'cause if you look through Lloyd's rules and regs, it doesn't mention Lead follow. I looked at it back in when Blueprint one came. I said.
Mark Geoghegan
What does this all mean? Does this find it?
Nick Line
It's what a biologist would probably call an emergent feature of the market. So in terms of that lead follow model, I think when that blueprint one came out, it made me think quite deeply about expense and the structure of the market and. About it and rolled it all forward, you came to the conclusion that the market could end up with quite a few consortia because a consortium is basically a leader and a lot of people following quickly, who've all decided to back that person. But there's two features of the market issues that are in tension and and they will find a natural balance. So first of all, we need leaders.
You can't have followers without leaders. When brokers come into the market. When clients come into the market, they're looking for solutions. The leader is where they go. They want a structure.
They want a wording, they want terms and conditions, and they want the pricing. They want someone who's done the acts and the sanctions and everything else, so we need to have leaders in the market. The market doesn't work. That's the front. The next thing is if someone's led a risk off and they've done all this kind of extra work, what happens after that? Now you could go straight into a sort of fast following model, but then I hear people who are counting these stories about how the first follower, the second follower, found issues with the leader's work and the sort of second, third pair of eyes.
And they don't like the idea of you going straight into a sort of follow after the leader, but at the same time, all that work. The leader did. Let's not do it again across the whole slip. That doesn't sound right. That's really what John Hancock was talking about when Blueprint 1 was launched. Is like if we're all doing all this stuff multiple times. This dreadful word re keying at every syndicate.
That doesn't sound like good use of time either and that 40% expense ratio that we all talked about. That wasn't going to come down unless we can somehow get some efficiency both within syndicates, not all replicating each other. Work, but also saving the broker visiting 10 or 15 different places to get the risk placed.
So coming up the other way, you've got this idea of automated, fast, smart follow and you can see there being a business model and you can see that back with Blueprint 1A follow only model where you're a super thin, lean business. You're linking risk to capital efficiently, maybe different models, so maybe once a year in January you decided to follow when you follow them for a year. Some people do that.
Or you're deciding maybe on another key type thing and risk by risk basis. Yep. Who you're going to follow based on some parameters, but you need to do it quite cheaply and eventually you might have a model where leader fees come in, or differential pricing or verticalization.
So the leader gets paid for all that infrastructure they've built. If you've got a follow only model, does that mean you've also got leader only models? Probably not. The market won't let you lead everything. So if you're a leader and you want to lead most things now, I would say that Markel, our first instinct is to lead. We want to be a leader in all our pursuits. If you want to be a heavy on the leading, you probably have to do some following.
Whether you do automated follow and smart follow just to sort of keep the volume up and to help with brokers out to some degree. I think leading 100% is quite difficult, but you can be predominantly leading and you've got the capabilities. Like I said, the pricing and the ads and everything else that.
Mark Geoghegan
So. Auto follow if it gets too big. Do you worry about a kind of fat finger error type situation where you know there's a 10 million line and it gets multiplied to 500 million and before you know, you know it's too late for anyone to say. By the way, I think you got it wrong.
Nick Line
Yeah, sort of. London Whale. Something. I don't know. Yeah. So I think there is going to be a natural point where if you chew up the bottom of the slip with automation, it comes to a natural point. And I think Lloyd’s has to think about it like this.
Mark Geoghegan
They could want that leader and they want that alternative. They want that second opinion as well. They want an alternative leader as well. And if you don't give that alternate leader enough business, they can't be a leader. They can't be an alternative leader.
Nick Line
Yes. Exactly. Yeah. People have to have enough practise. Being a leader effectively, so you need to sort of spread that business around. Around those leaders, so then the market needs a critical mass of leaders and how we do the fast follow. I think it's going to be really interesting as a student of the market, a study with the market. I mean obviously you have the luxury of not being in it as it were. But I think it's. Just to understand and and see how that will develop over the next few years as these different models mature and we've seen some of the names we've mentioned are maturing rapidly and then we've got this market change coming as well. And how will they cope as rates change and everything else. So I think it's fascinating. Obviously we're stuck in it and we'll experience it, but.
Mark Geoghegan
Is the definition of as leader. Is someone who has, even if it was, they were writing something. And the definition of them is that they're someone who's convinced capital to follow them. The capital's following them. I think you're a better underwriter than the one next door. Therefore, you will be allowed to have a $50 million line and not a $5,000,000 line because you know the capital will be comfortable with you wielding that line. But if you gave it to the person next to you, they would run away.
Nick Line
Yeah, exactly. Yeah, that's what I think of. Thanks. Yes.
Mark Geoghegan
And so I don't follow you. I will not allow you to do that.
Nick Line
To it.
Nick Line
The invisible hand should push the capital towards the leaders and then the followers who are good at picking leaders.
Mark Geoghegan
Yeah, and having a good follow market of course is just another way for that capital to follow that leader and let the leader lead I, there's no point being a leader if you have a 1% line, you can't lead. That's because you haven't got the capital.
Nick Line
Yes. Absolutely. Yeah. And that's where the capital will be attracted to. So I think, yeah, we'll see how.
Mark Geoghegan
It pans out. You sound like you're what's, say, laissez faire about where it would end up should find its own balance that you don't have an idea of saying, well, if it goes to more than 50. It shouldn't. It's safe the percentage of risk that was automatically followed.
Nick Line
I don't think I'm gonna say fair, but I do understand the risks of it chewing up the slip too much. Yeah. So you've got one leader and like you said, fat fingers. Something goes wrong, and then it's all gone through a machine. I like that idea of having a couple of lines of defence, as it were, before that automation, all that fast follows. So whether that cuts off at 50, I guess it depends on the complexity of the class, perhaps. And the sizes of the risk. If you think that smaller risks probably go through all this stuff quite automatically anyway, but once the magic moments happened, how many more people need to have that magic moment to really make sure that everything is done safely and sensibly?
Mark Geoghegan
You're running a team of underwriters. You're training a team of underwriters, you're encouraging and cajoling a team of underwriters and trying to incentivize them to do the things that you want them to do. What sort of skills, the underwriters of the future going to be having more of compared to the ones of the past?
Nick Line
That's a great question. We talk about that quite a lot. So you go back to when I joined the market 97 and you wander around Lloyds, a lot of underwriters. To some degree, one man bans and I say man 'cause. They probably wasn't man, to be honest, which has changed as well, which is brilliant and they did a lot of the stuff themselves, often extremely effectively. So if you think about the cradle to grave of a risk, the underwriter would do their own business development normally perhaps a more than old. Way than we do now.
Mark Geoghegan
And I was working Madrid. Yes. Yeah, some would come and visit me because I was part of their book.
Speaker
Yeah.
Nick Line
They would do the business development, they would run events, it might be bacon sandwiches to watch the rugby, but they did. As an event, they had their own pricing, which is usually some papers in a ring binder, and they'd hand write some stuff in. Usually the paper had Munich rewritten on the top and they'd been photocopied 100 times. I remember seeing that they did the pricing. They would do their, maybe their analysis, they would keep their acts on a bit of paper somewhere in a system. As it turned out, they would do some analysis. They might even see which bit of that was running. Badly in portfolio steer. Some would even set their own loss ratios. Didn't need actuaries set my loss ratios? They came into the syndicate accounts.
Mark Geoghegan
As Mesopor we buy a lot of their own faculties of.
Nick Line
Reinsurance and by reinsurance as well, lots of fact probably as well and lots of reinsurance and those people would do their hiring as well. And normally in the same places they were doing the entertainment and the business development that has all changed. So the analogy I like to think of is it's all been deconstructed. So you go to a posh West End restaurant, you buy an. Or crumble for dessert, you'll get bit of stewed apple over here. You'll get a bit of crumble over there.
You'll get a bit of cream, bit of cinnamon and some ice cream if you're lucky as well. And it's all spread out, and that's how I think of the job. Now we've got experts at branding, marketing, communications. We run proper professional events, not a bacon sandwich. Inside. We've got pricing tools being coded up by Python expert. School. We've got engineers and cyber experts and energy experts advising underwriters.
You've got the magic moment we talked about. We've got some actuaries doing reserving sub class analysis and helping people understand where their book is going. And of course, we've got people doing professional hiring, which is why as an aside, I think the diversity of the market is improving because we're hiring better. And all those people are now experts in their field.
Now, where's the underwriter Come in?. Are they just in the middle doing the magic moment? No, I think they're sitting over the whole thing. They are now still, in a way, one person bans in that they know all this stuff, but they know enough to manage this group of people. They know enough to challenge, ask questions and bring the whole thing together.
And most importantly. Their name is on the risk their name is on the results and someone said to me the other day on it. ‘That's because you want to know who to blame!’
I said “no, I don't. I want to know where to send the bonus cheque when it all works out!”.
So absolutely crucial that under item is across the whole thing and. Think it's actually incredibly exciting learning all these different things and we have. Launched must be before COVID, so five years. Now a career structure we called underwriter of the future where we set out all the skills an underwriter needs to develop as they progress through their career. It's not just pricing, it's understanding the financials, understanding US, gap dealing with the actuaries, all the hard and soft skills as well. And Underwriters can use that. To get the training they need to then move forward through their career. So it's a brilliant job. I think it involves so much breadth and knowledge, working with different people, still a people business meet so many people in your day travel as well. I think the opportunities are tremendous.
Mark Geoghegan
Nick, we've just come to the end of our loss of time and luckily that concludes with me having run out of questions to ask you, although I think we could ask tonnes more, but I think to be fair, we've had a really good run. Thank you so much. And also if you're running a seminar on IFRS. 17 please sign me up because I it does throw me. I mean spending all that time on on different gap forms of accounting. But IFRS 17, I just couldn't take me a while to get used to it.
Nick Line
Well, thankfully I left the actual team just as that came in, so I've not had to worry about it myself either.
Mark Geoghegan
Well, yes, good. Well, we have a whole actual series of podcasts on that at some point in the future. Who knows? But Nick, thank you so much for coming on the show. Really enjoyed chatting.
Nick Line
Been absolutely pleasure to chat. Thank you, Mark.
NB: This is a transcript – check against the original audio
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