Brokers and insurers are hunting for talent in anticipation of a hard market, says Tom Gifford
The transfer window may have closed on the Football League last month, but movements between rivals in the UK insurance market have continued at a staggering pace.
Recent weeks have seen both brokers and insurers hiring staff, diversifying into new lines and bolstering existing teams, seemingly in anticipation of the market turning.
Novae, Chaucer and THB are among those who have taken the view that investing now will pay dividends when rates harden. But in a softening market, how much sense does it really make to invest when market conditions remain so tough?
According to critics, dipping into new markets when the end of the soft cycle remains on the distant horizon represents a dangerous strategy. Gary Head, director of professions and specialty commercial division at Hiscox, believes the barriers to entry for established markets are simply too low which can encourage hasty decision-makers to branch into areas where they have little understanding of the market or how to price risks accurately.
Chaucer's decision to enter a general liability market on the assumption that it will improve in two years' time, for example, is a "huge gamble", according to Head, and will only serve to further destabilise the market.
But this notion of waiting for a hard market is viewed by others as a wasted opportunity. According to THB group chief executive Vic Thompson, the decision to poach teams and venture into new lines should depend on a host of factors beyond simply what stage the insurance cycle is in.
Moving into new fields is often part of a more long-term strategy and if a talented team becomes available, it can be the best decision to move quickly when the opportunity presents itself rather than hoping the team is still available when the market turns.
"It is unusual that underwriting teams are unhappy in a hard market, so it is often the case you need to move for who you want when things are tough," says Thompson.
Thompson is certainly one of those who sees no need to wait for conditions to improve before making key decisions. THB Group earlier this month poached two directors from Heath Lambert following a failed bid to buy Heath's UK wholesale division.
Thompson said: "We appreciate that the UK market is soft and will get softer before it turns, but this is the correct time to be investing for the future. There are two different strategies in terms of investing to consider - teams and wholesale corporate acquisitions.
"In terms of teams it is important to consider that different cycles are at different places, and to make decisions accordingly. We have added to our UK non-marine team, for example. If you wait until the market turns it is too late."
He adds: "You need to get people in place ready for when the market hardens, and obviously that varies in different lines. Teams are much less likely to look to move when the market is hard than in a soft market, which is why we are seeing so much movement now."
One burgeoning Lloyd's broker, which opted to remain unnamed, takes a similar view. On the question of whether or not it's wise to acquire teams in a soft market the chairman said: "It's exactly the time to do it. If you have a book of business that's under pressure because rates are softening, every business is under that same pressure. Bolstering teams and making acquisitions is the only way to grow in a softening market.
"We have 10 divisions each with its own chief executive whose job is to make his division grow.
"Acquiring teams is an important way of doing this. In most markets we're definitely still in a soft insurance cycle, and rates remain under pressure to go down."
He concludes: "As a result, there are lots of areas we're looking to get into. There are lots of good people out there who would make us stronger. We're looking to acquire teams to drive organic growth, which means there are always four or five teams we're in discussion with."
Expansion and diversification has not just been confined to the broking market. Chaucer, for example, has announced it is to enter the UK commercial market for the first time, although at the moment the insurer seems content to dip its toes in the water and test the temperature rather than dive straight in at the deep end.
"Despite appointing specialist underwriter Stuart Dickinson to develop a range of UK commercial products, the insurer has said it is to keep a low profile until rates pick up.
Ewen Gilmour, chief executive of Chaucer, said: "[The UK commercial market] is soft at the moment and, like everybody else, our whole
philosophy is price driven. In the past two years, rates in the general liability market, in particular, have fallen by between 10% and 30%, with the market not expected to turn until the end of 2008, early 2009."
According to one insurance analyst: "Organic growth in a soft market can come through buying teams, although a cautious approach is often the best option. Sometimes the best buys come from the fall-out from corporate acquisitions, as was seen when Catlin and Wellington merged earlier this year and lost some of their key staff."
Wellington's group head of risk David Gittings and the head and deputy head of its aviation team Robert Swinton and Noel Holloway left the combined company soon after the deal was completed.
Essentially, a softening market can herald real opportunities for companies to take advantage of undue caution among their competitors.
As Vic Thomson says: "Cycle is just one of a number of factors you need to consider when considering expanding teams or indeed making acquisitions.
"If you get too caught up on rates you can lose sight of the broader picture. You have to plan strategically and look at the long view." IT