View from the Rock

London D&F guru Les Rock has been out of the market for eleven years before his surprise return last month. Will he be just as successful this time round or has the fac market immeasurably changed over the past decade? The Insurer finds out…

It takes a lot to persuade an underwriter eleven years into retirement to return to his former life. Even more so when he has made enough money – despite the inconvenience of a brace of divorces – to be very comfortable without ever losing a moments’ sleep again over aggregate exposures and under priced competitors.

However, this is indeed what has just happened with Les Rock, once feted as one of the most successful D&F property traders in the London and Bermuda markets until he put down his pen in 2008 aged a mere 53.

His premature exit was much mourned by brokers – not because he was a soft touch, in fact the opposite – but because he would be willing to put down lines when rivals were fleeing, licking their wounds after losses. Brokers need permanent capacity and Rock was always as solid as his name suggests.

After a series of Lloyd’s underwriting roles (Amlin, Faraday and his own Syndicate at Heritage, now Argo), he was recruited by the late – great – Bob Clements to head the post-Katrina $1bn Bermuda (re)insurer Ironshore in 2006.

It was an inspired decision. Based in Bermuda he wrote over $300mn of D&F property business in the first year (2007). The loss ratio was modest and Ironshore gained momentum. He left less than three years in. Job done.

Rock – like other celebrated Lloyd’s underwriters from the recent past such as the John Charman & Richard Brindle double act in the early nineties, Beazley’s marine trader Clive Washbourn and the Amlin Welsh wizard Tony Holt (the latter, sadly, both retired) – would not run away from risk. It was simply whether the price was right. Did it reflect the underlying peril or can it be traded through canny arbitrage? If so, he would write it.

And like the above individuals and many other great underwriters, he thinks and acts unconventionally; he is no sufferer of fools and not easy to manage. Anecdotes are legion about his disagreements with former CEOs, who would find his independence frustrating and his underwriting profits alluring, in equal measure.

He was missed by many when he slipped away in 2008. Typically, he did it without ceremony.

So, there was great interest when last month, The Insurer revealed that on the eve of the 1.4 renewals, Rock had returned to active underwriting through the relatively new London MGA Rokstone after 11 years out (it was the most popular article viewed on our website that week – quite an achievement considering Lloyd’s published its results in the same week).

Much has changed, of course, since 2008. Brokers are even more powerful, capital is cheap and ILS competition is fierce. Models are more sophisticated and the regulators far more intrusive. Can he still work his trading risk magic in this changed environment?

Time will tell but what is indisputable is that his return coincides with whole swathes of the Lloyd’s market running away from risk – or having been told to – and its being felt in Rock’s heartland: the international and US D&F property markets.

Over a dozen Lloyd’s syndicates are thought to have withdrawn from either US or international D&F property in 2018, including Markel, Barbican, StarStone and Advent. Others that retrenched include Vibe and Apollo, which withdrew from writing Mexican/Caribbean business. Travelers’ Syndicate 5000 also stopped writing open market business. Others have retrenched. 

So, does Rock’s return echo Warren Buffett’s famous maxim that the time to invest is when others are fearful, and its time to be fearful when others are greedy?

Has he timed his return perfectly or have the property fac markets evolved to make sole traders like Rock a relic from a prior age? After all, treaty capacity is plentiful – do insurers still need to buy fac at the same levels when the ILS and traditional reinsurance markets are so willing to assume risk?

Rock has never been an enthusiastic embracer of the media. But The Insurer – after revealing his return – tracked him and the head of Rokstone, James Potter down to find out more…

Q. How were you tempted back, Les?LR: You can blame David and James!

JP: Last year, shortly after David Bearman [Rokstone CEO] and I launched Rokstone, we wanted to ensure underwriting excellence was in its DNA. I used to broke to Les and I always thought it was a complete waste that his knowledge and passion for measuring and underwriting risk was lost to the market.

David and I went down to Poole [the affluent, coastal town on England’s south coast where Rock has a home] to see Les. It was a long lunch, the sun shone and rose flowed but by the time we left, Les was sold – but only as a non-executive. He was adamant there would be no underwriting but he liked the idea of helping a new MGA focussed on technical underwriting.

Q. So, how were you persuaded to pick up the pen again, Les?LR: I was determined not to go back to underwriting and anyone who knows me, knows I can be stubborn.

However, I enjoyed working with Rokstone as an adviser last year and then I watched with increasing bemusement what was happening in London late last year [the sudden withdrawal of many established markets, partly encouraged by the Lloyd’s performance review].

It’s madness, really. Insurers have spent years making losses and then they all pack up shop at the same time just because they had another year of cats.

I have never understood that mentality but it happens in our industry. However, in saying that, I don’t think I’ve seen such a concentrated withdrawal of capacity from the wholesale fac markets as I saw late last year. This is leading to a real opportunity, right now, and I’m thrilled to be back!

Q. So, what is happening on rates?LR: I started underwriting international D&F last month on Rokstone’s existing facilities. In my view, there are parallels to the mid-nineties. What happened then was the global reinsurers suddenly tightened terms on their international treaties which had the consequence of forcing local insurers – many of them thinly capitalised and dependent on reinsurance – into the wholesale fac markets.

Rates leapt and there was frenzy for scarce capacity. 

There was a similar feeling at the recent renewals. I saw a variety of risks – from India and other Asian markets and also LatAm – and rates were sharply up. 70 percent, even 100 percent and beyond. 

These are rapidly firming markets. The window might not be open for long – perhaps only two years – but it’s the first hard market for over a decade.

Importantly, it’s not just rates. I’m a big believer in deductibles and sharing the risk. Deductibles are rising and limits are falling. These are now attractive markets because we are getting rate. We need it but fac pricing is very sensitive to capacity. Always has been and we’re seeing it now

Q. I thought the US was your heartland, Les. Are we experiencing the same phenomenon after the 2017-18 losses?

LR: Rates are certainly up – not necessarily to the same extent but typically US prop fac has better loss ratios anyway so it shouldn’t experience quite the same uplift.

Despite that, London brokers tell me that US capacity is scarce and the worst scenario is a real possibility. Namely, London fails in its duty to provide capacity in distressed conditions. This would be a real shame because the business won’t come back if we’re not there for buyers when they need us. 

JP: Les makes a really good point. London underwriters have left the market – or been forced to – at exactly the wrong time. There is a payback opportunity and clients realise that but they can only buy if the capacity is available.

Q. So what is Rokstone doing about it?JP: We are talking to potential capacity providers! We need the right partners and hope we will have a North American property facility in place in the second half of this year and perhaps also expanded capacity on our existing international binders.

Many carriers simply do not have the expertise or indeed the desire to play in the short tail property arena. Our belief is we have the right underwriter(s) to take advantage of this opportunity.

LR: It makes absolute sense for the right capacity provider. By supporting Rokstone they can time their entrance – and exit. The difficulty of building out your own underwriting team and writing direct is that it is difficult to later stop underwriting despite rates plummeting in a soft market. Shutting offices, laying people off is painful and expensive – as we are seeing right now. We take that pain away and we get the blame if we stop underwriting; not the insurer.

Q What’s the plan for the remainder of the year?JP: Our plan is that by later this year, Rokstone will have $5mn maximum line for critical cat and $10mn excluding cat with a new US D&F facility.

We would like this to expand in time for 1.1 2020 and also to differentiate between primary and excess.

Les Rock in brief…

Rock, aged 64, started his 25 year underwriting career at the Harvey Bowring – RJ Keeling Syndicate (now known as Amlin). As a young man, his results got him noticed. Over a ten year period, he wrote circa $350mn of premium income running at circa 50 percent loss ratio. He became their worldwide head of property before leaving in 1992.

In late 1992, Rock joined DP Mann Syndicate 435 (now part of the Faraday/Berkshire Hathaway group). He wrote the commercial lines account from start-up and built a successful book of business from 1992 to 2001. Over nine years, he wrote $836mn of GWP, cannily bought reinsurance to bring net premiums to $570mn (a hallmark of his career) and made $243mn of underwriting profit.

After leaving Faraday in May 2001 (avoiding the 9/11 losses on the way), Rock formed the Heritage Syndicate 1200 in 2002 (now part of the Argo Group) with stamp capacity provided by Everest Re, Berkshire Hathaway and Hannover Re. It became a profitable syndicate in each year until he left in 2006.

In 2006, Rock teamed up with the late Bob Clements to form a new $1bn insurer, Ironshore after Hurricane Katrina. He took the role of chief underwriting officer and wrote a global property account out of Bermuda, writing more than $300mn GWP in the first year and giving Ironshore its initial momentum.

Rock retired, aged 53, in late 2008 and returned to London.