Most of us associate red cards with football send-offs or other negative experiences, but Charles Philipps, the chief of Amlin, has chosen to write his positive vision for the newly merged firm on one. Adrian Leonard hears his plans....
Mergers can create unwieldy beasts. Their success or failure largely depends on whether divergent units can be formed into a cohesive, focused and profitable whole that retains the characteristics that made the constituent companies attractive in the first place. It is never an easy task.
Charles Philipps faced such a challenge when he took over as chief executive of Lloyd's insurer Amlin in 1999. He came in to tame a multi-headed, post-merger monster that included the spread vehicle Angerstein Underwriting Trust (AUT), the managing agencies Murray Lawrence, Mumford, and Coffey, the Stace Barr Wellington and Murray Lawrence members agencies, as well as the sprawling Lloyd's service company the Whittington Group, (which itself included Lloyd's run-off and captive management subsidiaries). Each business had its strengths and specialised skills, but also its own management agenda, history and self-image, and, most challenging of all to the post-merger manager, its own set of values.
“The major change has been building a management team that is heading in the same direction,” Philips says. “Without that you haven't got a start.”
Amlin's new executive focus follows from the development of a corporate vision outlining what and where Amlin wants to be, how it is seen, and where it looks for opportunity. The vision is more than marketing-speak: it defines the combining identity for Amlin's component businesses. Everyone from managers to front line staff are expected to buy into it, and to let it guide their day-to-day decisions. It may already be bearing fruit, as Amlin's results relative to the Lloyd's Market are improving every year.
“We will reassume our position as a top quartile performer in 2001,” Philipps predicts.
An enormous task
But his simple summary belies the enormity of inventing Amlin. Philipps had been involved in AUT since its inception, through his position at Natwest Markets Corporate Finance, which sponsored AUT's launch in 1993. AUT's July 1998 merger with Murray Lawrence Group took place before Philipps became chief executive, but he believes it was “a good concept”, as it matched capital with underwriting capacity.
The execution has required a deft hand, however. “Lloyd's structures and regulation make it very difficult to put businesses together in short order,” he notes.
The latest – and late – development was the merger of Amlin's multiple syndicates into one, finally achieved for 2001.
Philipps got the disposals out of the way first. “The business was big, with a disparate management team and a lot of confusion,” he recalls. “We needed to focus on our core business, and wanted to punch our weight and become one of the leading, if not the leading, London Market underwriter,” he says.
Whittingon was sold, along with the members' agency businesses. Philipps also beefed up the central management team with the recruitment of a new financial director, two actuaries and a new head of IT, among others. “In terms of administration and management, we then had a much stronger base.”
The beginning of the end of the merger process was in sight. All that remained was the most difficult part – defining and combining the remaining parts of Amlin, and giving the new company a solid direction and unified sense of purpose.
“We had to know absolutely where we were heading as an underwriting business,” says Philipps. “For the first half of last year, our top team spent hours discussing what it is we want to be, and how to get there. We knew that if we were to get clear on the where, we could begin to work at doing what we needed to do to get there. It sounds simple, but I am not sure how many businesses do it.”
Creating a vision
The former banker refers to a folding red card containing the Amlin creed. There is more to say about “Our vision for Amlin for 2005” than is in the brochure itself, he says. “In our chosen fields of expertise we are recognised as the most astute leader of risks,” it declares. Philipps adds: “We want to be an astute leader of risks not driven by volume. Through expertise and service we want customers wanting us to lead their business. We can then be selective.”
Selectivity, he says, allows price integrity. “Philosophically, we want to underwrite for profit. We are simply not prepared to put our balance sheet at risk when we know that the pricing environment is wrong. Cheap capacity comes in from time to time, and tends to burn itself. We will be there when clients need us – we are building a Goldman Sachs of the insurance industry.”
He is not there yet, however. “There are a number of areas where we have got to sharpen up, and invest in to achieve our goal.”
Capital allocation is the key. “Capacity optimisation will drive the group and we have return-on-capital expectations for each business unit. We will allocate capital to achieve optimal risk-based return for Amlin at any given time.” The group is putting the skills in place to reach those targets, he says. “What will make us really successful is our ability to read the insurance cycle. We have that at an underwriter level, but at a group level, we have to focus on really trying to beat the market in terms of where it is headed on a class-by-class basis.”
Achieving that optimisation will be helped by Amlin's October 2000 reorganisation of its disparate underwriting operations into four divisions. These combine a plethora of pre-merger, syndicate- and sub-syndicate-based business units that often found themselves competing with each other.
The four divisions are Amlin Insurance Services, a £150m business focused on UK motor, casualty, and property; Harvey Bowring, a comprehensive reinsurance and non-marine commercial insurer with projected 2001 income of £227m; KJ Coles, Amlin's marine business that has been shrunk to £60m as marine market conditions continue to languish; and Amlin Aviation, a £75m business unit that combines three successor aviation underwriting pens to offer one much larger line.
“We are already seeing some benefits,” Philipps says. “We have a far better ability to offer a decent line size. It is a lot easier to control and manage risk. We have one outwards catastrophe reinsurance programme, instead of three.” He claims that this has allowed Amlin to achieve better protection at a lower comparative cost, notwithstanding the hardening of rates. More mundane elements of the restructuring are also important. “The old Murray Lawrence structure had five IT systems. We are at the last stages of converting to one… it is probably among the largest migrations of data in the London Market.”
The major structural change required some high-profile personnel changes, and well known underwriters have left the company. It was a question of too many chiefs, but underwriting weaknesses and divergence of strategy also played a role in Amlin's decision to ask some people to go, and in the decisions of others to leave. However, “of all of the people we wanted to keep, we have not lost one,” Philipps claims. “People are now asking me why we didn't reorganise earlier. It is a no-brainer, but it was critical to do it in the context of strategy.”
Philipps goes back to the visionary red card. “This part – investment in market research – is valuable for underwriting decisions. I want our underwriters to have information at their fingertips that makes them best-placed to make an underwriting decision.” Getting there includes the creation of an internal IT system dubbed The Source, which is packed with market and risk data. The research approach will assist not only in pricing, but also in group-wide capital allocation, as Amlin moves its capacity from line to line to maximise utilisation.
Training is vital
The red card also mentions investment in people. “We need to be ahead of where most Lloyd's businesses have hitherto been in terms of employment practices,” Philipps says. “We want to take young, smart people on and give them a career, so we are taking training and development pretty seriously, which I think is rare in the industry.”
The “Amlin Academy” has set curricula for each area of the business, and staff at all levels are encouraged to study and develop.
“Behind all those changes, the trick is to go at a measured pace.” He slows, as if the act of saying the words has temporarily slowed his racing enthusiasm for the Amlin. “There's an awful lot of change that we have put through this business, including a massive culture change. We have asked people to adopt shared values, and we need to continue to win their hearts and minds.
“There has been some short-term pain in a number of areas, and a lot of hard work by our people, but we are sure there will be some medium and long-term gain.”