Catlin warns industry is failing to acknowledge scale of losses in TV interview

Stephen Catlin has played down the impact of new capital on reinsurance renewal rate momentum, warning that the market is still only “at the beginning of a state of change”.

Stephen Catlin – Convex
  • New capital “unlikely to move the dial”
  • Substantial Covid-19 and casualty losses yet to be recognised
  • Convex “in no hurry to grow” but will take opportunities as they emerge
  • Convex GWP topped $1bn by end of 2020

The Convex chairman and CEO told The Insurer TV that new capital was unlikely to “move the dial” on market momentum when considered against the context of the broader industry capital base.

In a wide-ranging interview, which touched on the UK government’s stance on pandemic insurance and his relief that Convex decided to start life outside of Lloyd’s, Catlin also warned that substantial losses, particularly those related to Covid-19, had yet to be recognised.

“The magnitude and enormity of the economic loss that is going to be experienced by the industry is well understated at the moment,” he said. “And as that changes, which it will have to over time, so pricing will have to reflect that.”

Catlin estimated total capital to have entered the market over the past year at “somewhere around $20bn”, around half of which was traditional capital inflow with roughly half of that deployed in new and recent ventures.

“That $5bn, as a proportion of the total industry market cap, which is in excess of $900bn, won’t actually move the dial, particularly when there are losses out there which are upwards of $250bn to $500bn.

“The concept that this $5bn of new capital in new ventures can have a pronounced effect on the market lacks rationale,” he said.

Confirmed London post-Covid capital raises

Convex “in no hurry to grow”

Convex is a relatively new venture itself, having only launched in 2019 with an initial $1.7bn of capital. The firm – like a number of its peers – undertook further capital raises last year as market hardening accelerated. In Convex’s case, it led to the Bermuda-headquartered firm taking its total equity including preferred shares to $3.2bn.

Convex’s initial roll-out has been swift. Catlin explained the group has expanded from an initial 16 staff to over 350 and had written more than $1bn of gross premium by the end of 2020.

“That’s a pretty good starting point. Of that $1bn, around 65 percent was direct business rather than reinsurance.”

One of the differences between the current market turn and other previous hard markets was that it had been led by the direct rather than reinsurance market.

“In all the years I’ve been involved in insurance and reinsurance, I can’t recall that ever happening previously.”

But Catlin said the group’s plans this year will be in part dependent on how quickly the market reacts to the changing circumstances it is facing.

“We are in no hurry to grow like billyo. We don’t need to do that – we have got long-term money, 10-year money and we’ve got a lot of capital.

“We’ve got time on our hands, but at the same time, why wouldn’t we take the opportunity if we saw it, and when we do see it, we must certainly take it.”

Convex leadership team

Pandemic response

Alongside his role as Convex chairman and CEO, Catlin has also taken a leadership position over the past year in the industry’s efforts to address future pandemic risk.

He said progress had been made with these initiatives but that the ultimate delivery timeline would depend on the engagement of the UK government.

“The UK government, like any other government around the world, has got a lot on its plate at the moment. Its day job is dealing with the here and now,” Catlin said.

“I think everybody in the UK is hopeful that the vaccinations are going to work and that they can be delivered on a timely basis. It seems like there’s good news on that front at the moment but there is a long way to go.

“And hopefully once things settle down again, then the government can look out prospectively rather than being retrospective.

“There’s a bit of water that has to go under the bridge before we can start really finding medium- and long-term future solutions,” Catlin added. “I hope we’re getting there, we’re certainly closer to getting there than we were six months ago, but we’re not there yet.”

As the debate over the industry’s pandemic response continues in the aftermath of the recent Supreme Court ruling, Catlin said the most critical step for the industry is to remove ambiguity from wordings.

“I think what has been highlighted in the last year, and the Supreme Court opined on it as we know, is that it’s extremely important that there is a lack of ambiguity in wordings whether they’re standardised or not.

“And if there is any form of ambiguity, it will tend to be ruled in favour of the policyholder and that has always been the case. The Supreme Court has upheld that concept in principle.”


“Kicking the can down the road”

Catlin said there was “a lot of exposure out there where there is loss which hasn’t yet fully been recognised” for both casualty classes as well as Covid-19, where he said some people had “kicked the can down the road”.

“One of my colleagues said to me, ‘well Stephen, when people start kicking the can down the road, there’s a tendency for them to carry on doing it for as long as they possibly can’. So I said ‘fine, but the trouble is every time you kick the can, it gets bigger and heavier’.”

For casualty classes, Catlin said the pricing correction on some product lines still had a “way to go” on what potentially could be a “one-, two- or three-year journey”.

Willis casualty rates


Click the link below to watch the full 15 minute interview with Stephen Catlin in the latest edition of The Insurer TV’s Leaders Voices series…


Stephen Catlin, Convex