The rise and fall of Gable – where does this leave brokers?

For its first full year of operations in 2006, Liechtenstein-based start-up Gable made a loss of £240,000 and, while this is not unusual for a start-up, things have not looked much brighter since.

The company posted its 2015 results in July, revealing a £24.3m pre-tax loss for the year. Three months later, the company entered solvent administration.

The news was greeted with a general lack of surprise from the broking community: Gable’s struggle to meet its Solvency II requirements had been well publicised.

Now the dust has settled, the market will be forced to assess if they face any exposures and how best to respond.

“It was inevitable, it’s been lumbering on for years,” said Malcolm Lee, managing director of Ten Insurance.

“Most brokers that worked with it will have warned clients about this long ago. But it’s certainly destabilised the market and obviously this is going to cause some problems.”

Rough start
Gable launched with a focus on all aspects of construction industry risks in January 2006.

Initially concentrating on the UK and Ireland, the subsidiary of Alternative Investment Market-listed Gable Holding said it had £30m of capacity for year one. However, in a bold show of strength, the business outlined plans to increase this to £100m by year three.

However, by summer of 2009, Gable was reporting gross written premium of £5.9m (2007: £6m). A far cry from £30m, let alone £100m.

In a 2007 interview with Post, William Dewsall, CEO of Gable, conceded that a slump in pricing, which he partly attributed to the "suicidal pricing" of rivals, meant that the timing of Gable's entry wasn't ideal.

“Our targets have changed since we established. We thought there would be more premium around than there is. We hope to write between £15m and £20m in the year 2007 to 2008, but that will depend on the quality of the business out there,” he added.

He added: "You need to embrace the European Community."

Gable more than doubled its gross written premium to £8.63m (H1 2009: £4.0m) for the six months ended 30 June 2010, which it partly attributed to continued growth in France and a Norwegian product launch: opportunities it pursued to break its reliance on the "stagnant UK" market.

The split of business written by 2010 was approximately 45% in the UK and 55% in European markets.

Adding to France, Norway, Spain and the UK, Gable was licensed to write business in Belgium, Denmark, Germany, Ireland, Italy, Netherlands and Switzerland by 2011. Sweden followed in 2014.

As early as May 2011, Gable announced a "complete review" of its business in preparation for the implementation of Solvency II. In December 2012 Gable entered a five-year partnership with Towergate. Further deals followed with Aon, Arthur J Gallagher and Iprism.

Fast forward to 2013, and Dewsall reflected on the firm's launch: "Our timing was pretty good, although in some ways it was pretty horrific being at the start of the worst recession for 100 years."

Change in fortunes
Gable reached a turning point in April when stricter regulations started to bite and Dewsall announced to the market that raising sufficient additional capacity to meet Solvency II compliance was "not possible for the existing business".

It was clear the company was exploring various avenues of meeting its Solvency II requirements, at times appearing to be thinking out loud through stock market updates. A plan to provide £10m regulatory capital through Dewsall's FCA-regulated firm Hogarth Underwriting was later abandoned as "not appropriate".

Instead the company was said to be in "advanced discussions with a global carrier" to provide alternative capacity for the group's renewal book from 1 October.

Gable said it would "significantly reduce" its underwriting operations across the UK and Europe, and ordered its brokers to cease writing new business. Despite a temporary stock market delisting, the company saw its shares rise as a result of the plan.

Then in August, there was a wave of resignations from the board and the company delisted from the stock exchange for the second time. A market source explained: "As it didn't have a board it wasn't considered suitable for listing. It's a technical issue."

Despite making a profit of £1.4m in H1 of 2016, currency fluctuations in the wake of Brexit meant a non-cash foreign exchange charge of £3.4m, giving a reported loss of £2.3m for the period. Dewsall said Solvency II had rendered the company's historic business model as "obsolete".

Less than two weeks later, Gable had entered administration. Martin Bieniek, actuarial section head in the insurance division of the Financial Market Authority, confirmed that Gable had been ordered to enter administration by the regulator.

PWC Switzerland was appointed as special administrator. A spokeswoman for the company said: “The goal of PWC Switzerland is to protect the interests of Gable Insurance AG‘s policy holders. Currently we are assessing the situation. At this moment, we are not in the position to provide further information.”

Dewsall said Gable’s auditors had previously confirmed the company is solvent, adding: “Policyholders and counterparties can be assured that their interests are protected.”

The fallout
In the wake of the administration, many brokers have been left wondering how they are exposed. “A lot of brokers are sticking their heads in the sand, and waiting for renewal,” said one market source. “But if renewal is not until next March, they could have a claim in the meantime. There’s a risk there.”

At the time of going to press, Gable is in solvent run-off, so the company is able to pay claims. However, if the company is later found to be insolvent, there become wider concerns.

Under the Financial Services Compensation Scheme, policyholders are protected up to 100% of the value of their claim for certain compulsory lines, like motor and employer's liability, if an insurance company fails. For other lines, like public and product liability, the FSCS only overs 90% of the losses.

“If you had a big fire and you have £5m of liability cover, the client would be expected to stump up 10% of the claim, or half a million,” the source said. “The broker should be contacting the client and saying, this insurer might go bust in the future. It’s gone into administration, here’s the risk you’re now faced with, where you could be self-insuring for 10%.”

Another risk is that the FSCS only covers commercial policyholders if they have a turnover of less than £1m. Brokers with larger commercial clients may be contacting them to arrange alternative cover, said Steve White CEO of the British Insurance Brokers’ Association.

“Insurers don’t fall over very often, so it’s very difficult to know what is best practice,” he said. “The latest information is that it’s a solvent situation, so there’s still money to pay claims.

“But it depends what type of customers brokers have with Gable, if it’s more commercial customers, brokers need to know when the FSCS eligible claimant definition runs out. In cases like that, the customer wouldn’t be able to go to the compensation scheme.

“In those circumstances, the broker may very well move the cover. It’s up to each individual broker and their customer to decide what to do.”

If clients are forced to take out another insurance policy mid-term, there is the possibility brokers could face mis-selling claims.

“If you are a scaffolding company, insured by Gable, and you’ve been told you need to buy your insurance again, you’re going to be a bit hacked off,” said another market source.

“Some of them will vote with their feet, others could well try and bring a claim against the broker that recommended the product. Gable is saying it is going to be a solvent run-off.

If it remains a solvent run off, that’s going to mitigate some of that risk, because at least claims will be paid.”

One managing general agent, IIGL, is offering discounted rates to regional brokers who work with Gable. Mike Smith, CEO of IIGL said so far the company have received enquiries from around 36 brokers.

He said the MGA had the capacity to take on around £10m of business. “We’ve had a massive response, because a lot of brokers are very concerned about how this leaves them and how it leaves their customers. We have 14 different capacity providers, all of which are A-rated or above.”

A spokeswoman for Towergate said: “Gable represented about 0.5% of the group’s GWP. No renewals have been invited from Gable since July by our broking division and alternative facilities have been arranged for all product lines in underwriting.”

One of the issues that has been repeadedly raised is whether Gable underpriced its policies, and kept sufficient reserving for claims.

Gable did not respond to comment on this specific issue nor on any of the other issues raised in this story.

One of Gable’s most lucrative deals in recent years was with the Confederation of Norwegian Enterprise, known as the NHO, via its intermediary, Norwegian Broker.

The GWP value of the deal, which commenced in Q3 2014, was £15m per year in employers' liability. The NHO instructed its broker to change cover after learning of Gable's solvency status.

Insurance provided by Gable is not covered under Norway’s equivalent to the FCSC, the Garantiordningen for Skadeforsikring, which protects policyholders if an insurance company becomes insolvent.

Geir David Johannessen, senior advisor at the Financial Supervisory Authority of Norway, said: “Membership in the guarantee scheme is only for Norwegian insurance companies and Norwegian branches of foreign insurance companies.

“Gable has conducted its activities in Norway by way of freedom to provide services, not by establishment of a branch.”

The cover is now provided by Danish insurer Tryg. Ole Irgens, communications director for Tryg Norway, said the company was not picking up existing liabilities.

“Tryg’s arrangement does not include run-off,” he said. “Tryg will acquire parts of the workers’ compensation portfolio from 1 October. From there on out, we will acquire the risks successively with the individual customers’ annual renewal.”

A market source said the long-tail nature of EL meant it was a genuine concern. “If you’re selling a policy that has got public and EL you’re expecting that policy to pay claims in 20 years time. Insurance companies are now paying claims from the 1970s and 1980s.”

Unrated problem
Peter Blanc, CEO of Aston Scott, believed brokers should not use unrated carriers on principle. If there were cases where rates were only available through an unrated insurer, it was the duty of brokers to explain to clients the risks.

“The requirement on brokers to do due diligence has always been there. We’ve always had a principle of not doing business with unrated carriers. We’re living proof that it is possible to do that and be a success.

“Sometimes you have to explain to a client that the cheapest quote, might be cheap for a good reason. We compete regularly with unrated insurers. It’s a bane of our lives and when unrated insurers collapse it does reputational damage to our whole industry.”

White added Biba was preparing a tool for members to use that would enable brokers to better carry out due diligence on unrated insurers.

“It’s called the Biba litmus test report,” he said. “It will take the data from AM Best. It’s then going to be analysed by a firm called Litmus Analysis, and it will look at eight individual factors from the insurer’s report accounts. It will compare those factors with the UK’s top 50 average, and then grade it between one and five.

“It will not come with a Biba recommendation, on which insurer to use and which to avoid. But it’s going to give brokers enough information to make an informed decision.”

Ashwin Mistry, Brokerbility chairman, concluded: “This is a wake-up call about the dangers of using unrated. It shows cherry picking the market and offering ludicrously low rates is an entirely unsustainable way of doing business.

“The big issue now will be EL. It is very sad to see yet another unrated insurer go down in a very short space of time, but this is a warning about using unrated and this will not be the last we see from the effects of Solvency II.”