CFC’s chief underwriting officer says ‘cyber is perhaps at the cutting edge of where insurance more generally should go, if it is to remain relevant going forward’

For those starting out in the insurance industry during the 90s, the rules around business “were not to be questioned,” just “like the 11th commandment”.

However, for the sector to maintain its relevance “in the wider public consciousness” today means “trying to break those two tablets of stone around insurance,” while acknowledging that “just because something’s always been done a certain way, [it] doesn’t mean that’s always the best way” to move forward.

That was according to CFC’s chief underwriting officer Andy Holmes, who recently spoke exclusively to Insurance Times about the development of the firm’s Syndicate 1988 and its plans – particularly in cyber.

MGA CFC launched its Lloyd’s of London syndicate in June 2021.

Unlike other traditional syndicates, Syndicate 1988 does not have a box at Lloyd’s and instead operates via 4,000 small broking businesses around the world – the syndicate is a tracker of the firm’s portfolio, doesn’t make use of London market brokers and was specifically designed to operate at a lower level of resource by leveraging technology.

It was also the first MGA-to-syndicate business to secure risk capital from a pension fund.

“We almost don’t have an expense base, we don’t have any staff, the only charges we pay are for our managing agency and Lloyd’s charges,” says Holmes.

Holmes clarifies that the initiative’s founder and active underwriter Matt Taylor is “seconded from the MGA to the syndicate for the necessary duties that have to be fulfilled, but given the syndicate is only actually active for one day a year, he’s the least active active underwriter in Lloyd’s history”.

Syndicate 1988 is active on 1 July each year, which is the MGA’s binder renewal date.

‘Significant growth’

Holmes says that the syndicate’s operating model means that its costs are “amongst the lowest in Lloyd’s” and its expense ratio sits in the “low to mid-single digits”, which is a circa “10% differential” compared to other traditional syndicates, depending on size and composition.

According to Lloyd’s participating options, published on its website, the expense ratio for both a syndicate in a box and a captive syndicate sits at  less than 35% by year three.

It also states a syndicate and special purpose arrangement are expected to be “lower than market average” by their third year.

“Typical syndicate results normally trade in around a 20% range, [so a] 10% expense base advantage is massive,” says Holmes.

”It’s really a 50% advantage in a typical trading range.” 

At the time of its launch, as a tracker of 20% of CFC’s portfolio, the syndicate’s gross premium goal sat at £100m.

Reflecting on the syndicate’s financial achievements, Holmes shares that the firm has now “exceeded the target” and currently underwrites 27% of CFC’s portfolio, which represents “significant growth” in pound sterling premium written from 2022 to 2023.

“Our three years comes up at the end of this year, but for a startup syndicate it’s really quite rare for them to make a profit in year one,” said Holmes, adding that the syndicate is on track to achieve £270m gross premium next year and £332m gross premium in 2024.

Maintaining relevance

Considering the future of cyber – CFC’s and Syndicate 1988’s specialism – and technology, Holmes highlights that the firm is “hoping to change the sense that insurance is a one and done annual exercise”. 

“Cyber is perhaps at the cutting edge of where insurance more generally should go if it is to remain relevant going forward,” says Holmes.

“You’re not just buying a promise to pay, you’re buying a suite of services.”

Holmes highlights that the “insurance as a service concept” includes elements such as threat analysis and incident response services around the clock, because customers’ “risk on day one may be very different to their risk by day 60”.

“The promise to pay only really becomes relevant if all those services don’t stop the crime happening or get rid of the criminal before a ransom is due to be paid,” he adds.

”So almost the promise to pay becomes the last resort, not the only component.”

In terms of applying for insurance, Holmes said “if we all think about the way we buy insurance at home, it’s the most least interesting thing we’ll do that day”.

Instead, he suggests that customers could provide an insurer with a “unique identifier” for their business, such as a web address, for example. The insurer could then find “all that information for themselves – because they can – and, as the insurer, we can find out way more about the customer than they know about themselves,” he added.

“We can [therefore] price them more fairly [considering] product value [and] we can address any vulnerabilities they may have,” he explains.

”So that painful experience from a customer angle is gone. You just give the insurer that one bit of data and they do the rest for you.”