Adapt and thrive
Miller’s Michael Papworth remains a fac broker at heart and is bullish about the future of fac in today’s reinsurance market
Mike Papworth - head of P&C and head of Asia, Miller
You joined Miller in 2009 to lead the nascent facultative division and have since risen to become head of P&C and Asia at the company. How closely involved with the fac division have you remained and what, for you, is the enduring appeal of fac?
Indeed, it’s been 11 great years at Miller with many challenges and opportunities but you are right in that, at my core, I am basically a fac broker.
I remain very closely involved with the fac business, especially with certain clients where the relationships go back more than 20 years, so I feel very fortunate that at Miller I can handle both my management responsibilities alongside the fun aspect of helping find solutions for our clients.
Of course, this would not be possible without the support of a great team who, in all honesty, do most of the hard work!
I started my career as a treaty broker and at that time I found lots of empty time outside the busy fortnights at 1 January, 1 April and 1 July – I used this free time to help the fac team and quickly discovered a never-ending source of challenges.
At the time I was told my life as a fac broker would be over in five years as treaties would eventually completely take over all reinsurance requirements. More than 30 years later the need for fac is as alive as ever!
Miller’s fac team currently numbers around 120 brokers. Where are they located and what is their geographical focus for existing and prospective business?
The bulk of the team are located in London but we also have teams operating in Brussels, Paris and Singapore. We operate on a global basis with the important distinction that we are not London brokers, we are London-based brokers.
Our clients do not really care where we are located as long as they can contact us at any time, in their own language and, very importantly, with a clear cultural understanding and affinity. Understanding this latter point has underpinned every single business plan I have delivered in the last 20 years.
Finally, our platform can, and does, access both clients and markets pretty much anywhere in the world under a single P&L. Unlike some of our competitors, we do not squabble over which team gets to place a deal – we do the best deal for our client regardless of geography.
The fac operation covers a fairly traditional gamut of property covers, from energy and heavy industry to manufacturing, construction and mining. What is the approximate breakdown of your book by class of business?
We actually do fac for most lines of business with the exception of aviation (which, in retrospect, was extremely wise).
This would include traditional property (both commercial and some homeowners), manufacturing, heavy industry, mining, power, energy (up and downstream), construction and terrorism. This makes up 70 percent of our portfolio.
The remaining 30 percent is made up by a very strong casualty team and other specialty lines such as recall, accident and health, cyber, marine, etc.
Our team will handle approximately $500mn of premium in 2020.
Where do you see the greatest potential for growth in your existing book, what other property risks are you interested in moving into and do you have any plans to expand the casualty fac book?
Fac is all about being alive to constant changes to risk and adapting accordingly with strong client relationship management – this requires an entrepreneurial approach with a highly creative team that is encouraged to be bold.
This, of course, has significant management challenges as we both encourage disruption and risk taking, but, to answer your question, given that we already handle most lines of business, as long as the big brokers continue to become united, and consequently commoditise the product, our business plan is secure.
In terms of casualty fac, we actually already have a very strong team and they are a significant contributor to our business. We are very strong in general liability but we also handle some of the specialist professional lines such as professional indemnity, financial institutions, directors’ and officers’ etc.
What emerging property and casualty risks do you see as having the greatest potential for the fac market?
The fac market will best serve our clients as long as we are able to solve the volatility aspect of their portfolios. Therefore, in today’s lockdown world, our job will be to help our clients manage the inherent volatility that will arise through these unusual circumstances. This includes, for example, managing uncertainty around business interruption and sales values as well potential cash-flow issues. Difficult-to-place business is our specialty.
Importantly, losses have not gone away and these continue to affect our clients, especially at the bottom end of their programmes, so we will continue to help secure reinsurance to smooth out their exposure as well as building out reinsurance capacity that will help them retain and win business.
How does the fac team at Miller work with the other areas of the business and what solutions do you offer besides traditional single risk/spot fac?
We are very aligned with the rest of Miller and operating to a single P&L is a huge benefit to our clients so, in this respect, we have access to many subject matter experts in order to help find solutions across a large number of classes, not just traditional P&C.
We have, in fact, moved a long way from the single risk and spot fac days as we have evolved with our clients. Today a significant amount of what we do now is full quota share as well as facilities, net retention portfolio solutions, probable maximum loss/maximum foreseeable loss covers, reinstatement protections, cat portfolio optimisation as well as more specific deals such as deductible buy-backs, standalone business interruption and contingent business interruption covers.
The single greatest advantage of fac is that it is very risk specific and far more granular than a treaty. I am always frustrated when there is an attempt to control fac buying at a group reinsurance level. Fac works at its best when the buying decision is taken by underwriters under the governance of the CUO, of course with oversight from Group Re for contractual and counter-party risk management only.
How did the fac business fare at recent renewals, and what is your outlook for upcoming renewals to the end of the year – in terms of appetite, rates, capacity etc?
So far, the business has been remarkably resilient and the vast majority of our renewals have been secured. Of course, there is an overall rate hardening tendency, though this does vary significantly with certain mature and established accounts renewing with as little as 2 percent or 3 percent increases whereas other more challenging territories and/or classes are seeing multiple increases in rate and premium.
Both our clients and the markets have responded extremely well to e-trading with Zoom decisions now being normal. In fact, I did a virtual trip to Tokyo last month and my European colleagues have just finished a tour of several countries delivering over 30 virtual presentations.
We remain confident about the year-end business, especially for renewals, and we have put significant amounts of work into helping our clients understand the changing market and likewise doing all we can to provide our partner reinsurers with good quality underwriting information so they can do the work with real professionalism.
Like all good fac brokers, we have adapted and thrive under change and challenge.
How would you describe the challenge of building a book of new business during the coronavirus lockdown?
I think this is a bit more of a challenge. Whilst our renewal ratios are at a record high, we have certainly seen reduced activity in terms of tenders (except in Mexico, where they are tender crazy).
Additionally, whilst in fac managing relationships is crucial, it must be done within a strict regulatory framework. All global cedants now have strict contractual and procedural processes in place so, for example, all brokers need to go through a formal approval process. Being a mate of someone no longer guarantees you will get a piece of business.
The entry bar to being a fac broker is much higher today and I am certainly glad that my own start-up at Miller was 11 years ago and not during a pandemic in 2020.
Willis Towers Watson has publicly announced its intention to divest itself of its stake in Miller ahead of the proposed merger with Aon. Where does this put Miller in terms of the independent fac broking market, and what advantages or disadvantages do you see in Miller becoming an independent company once again?
I will not comment on any of the specifics of Miller, Willis Towers Watson and Aon but I will say that I am very confident about the future of fac at Miller.
At the core of any fac business plan under my watch, be it 20 years ago, 10 years and, of course, today, is that we are the broker that puts the insurance company first. We work hard to understand their risk profile and provide solutions for them exclusively.
We do not feed off a retail book of business or indeed leverage an inwards book of business, we also do not take any form of volume commission and we certainly do not “double-dip” the commission pot.
We know who our client is, therefore do not need to manage a conflict of interest