William Stovin - Through thick and thin

Being at the helm of a large US insurer's UK division in early 2009 inevitably carries its challenges. However, for William Stovin, appointed president and chief operating officer of Markel International in August last year, having a clear strategy in place has arguably made his job easier than that of his competitor counterparts.

Mr Stovin seemed to emerge overnight from being part of the company's 'nuts and bolts' to its front man. Although perhaps not well known in the wider market, within Markel he is a long-standing company man, having joined in 2000 when it bought Terra Nova, the Bermudian-owned Lloyd's operation he worked for - Markel's first non-US acquisition. Mr Stovin has since stuck with the insurer through a period of painful transition and his career reflects the changes at Markel.

After studying law at university, he briefly joined a brokerage before moving into underwriting to work for Sturge - the genesis of the Ace Group. When this went into run-off and was swallowed up by Equitas, which had recently been formed, Mr Stovin and a colleague came up with an idea to reinsure open orphan syndicates. They took this to Lloyd's agency Octavian and formed a specialist syndicate.

He describes the operation as "highly successful" adding that "the Names were happy to pay for it and we were happy to make the money".

Octavian later merged with Bermuda-based Terra Nova, originally part of Bowring, which Mr Stovin says was a poorly run company, bogged down with "old Lloyd's silo mentality". He explains it had the "old fiefdom mentality. There were vested interests and internal competition between syndicates, despite being part of the same company".

In 1999, Markel Corporation - based in Richmond, Virginia - made an offer to buy Terra Nova and completed this in 2000, notching up its first overseas acquisition of a company that Mr Stovin estimates was more than half of Markel's existing size. "This was a huge scale acquisition. Markel's track record from its first initial public offering in the early 1990s was fantastic and the share price rose steadily. It was a company we'd all heard of, as it did business in the London market, but we didn't know it culturally."

He explains: "For me, it was amazing going from a company where you didn't speak to the person next to you and where the management was very distant. Yet, on day one at Markel, in walked Tony Markel and his team and started talking to us about the business straight away."

A brutal restructure

Jeremy Cooke was installed as the head of the newly acquired company and became Mr Stovin's boss after the reinsurance-to-close syndicate ceased to write business. Mr Cooke set about restructuring - initially the company employed 750 people and wrote $1bn gross premium until two or three years down the line when he took this down to 450 people and about $550m, as part of what Mr Stovin describes as a "brutal but necessary restructure".

Terra Nova included two motor operations in Chelmsford, a French reinsurance company, a Hong Kong marine company and branches in Australia and Toronto.

"The Lloyd's part of the Octavian acquisition was not that different to other Lloyd's operations in that it didn't understand what a profit was," comments Mr Stovin.

"We had to introduce three golden rules: matching reinsurance, no delegation and a combined ratio of less than 100%. We also published the three principles in a handbook, because the Lloyd's people didn't have a clue what we were talking about. They previously used a Lloyd's loss ratio and a theory that if this was less than 100 then everything would be okay because they would rely on investment income to cover expenses."

Active liability attack

The new management completely restructured the Lloyd's operation, got rid of all the syndicates and introduced one corporate syndicate, which it wholly owned within a few years. "We introduced rigour and were not interested in the ego that goes with the active underwriter position. Then we went in and restructured the back office."

Mr Stovin explains they also decided to "actively attack" the issues and liabilities in the 'old years' on the Terra Nova side, as those on the Lloyd's side had gone into Equitas.

He continues: "Most London companies are passive in the way they manage 'old year' but we decided to manage those very aggressively and set up a special unit to deal with them, which I was responsible for. I hired a manager for that unit and, on the first day, he expected to introduce himself to the team but in fact spent the whole day introducing them to each other - despite these people having worked together for 10 years."

He adds: "We have done a fantastic job in clearing out those back years. Early on, we spent a lot of time dealing with explosions in these years - unknown issues that were buried deep down. We've slowly got through them and introduced stability. We now understand what's in them and deal with them in an active commutation strategy. It's not quite 'job done' but we're close to it."

Mr Stovin says that relations between the now combined former company and Lloyd's staff have improved but he maintains cultural differences still exist. "I loathe the phrase 'capital provider' - this is not what Markel is. It's the employer that you work for, it doesn't just turn up to give you some cash. Explaining that was a real cultural difference for a lot of them."

Markel was granted permission from Lloyd's that enabled its underwriters to write both company and Lloyd's business.

He adds: "We're a culturally disciplined company, obsessed with profitability and we won't tolerate unacceptable combined ratios in excess of 100%."

Markel International's UK retail business has branches in Leeds, Reigate, Manchester, Edinburgh, Bristol and Cambridge. Mr Stovin explains that it operates through high street brokers writing classic SME business and is run by Steve Carroll, who is based in Leeds and has sat on the Markel International board since Mr Stovin's appointment.

"UK retail has huge potential. We live and die off the back of service and we've been investing a lot of time and money in technology to enhance that service," he says, adding that 90% of its existing book is now transacted via the company's own online broker system, which was launched a year ago.

"Centralising the back office services has allowed our branches to be completely sales focused. The majority of our renewal activity and processing is done in Leeds." The insurer also recently launched a social welfare product that it claims is selling well and continues to look for niche areas to break into.

Outside of the UK, the international offices comprise Toronto, Stockholm, Madrid and Singapore - although the company is considering expanding into new regions. And Mr Stovin confirms it will look at opportunities to acquire new teams as and when they arise.

He explains that the same principle applies internationally as it does within the regions - to centralise as much of the processing as possible - this time in London.

The London operation itself is split into four divisions: professional risk, property, marine and specialty, all of which have their own managing director and profit and loss control.

Mr Stovin says the company's priority is to be at the forefront of driving through Lloyd's and London market reform and explains it is taking a keen interest in the Lloyd's initiative of claims segmentation. "Segmentation will recognise claims for what they are and treat them as a process. Simple claims need to be done quickly, while complex claims require a different approach, which Lloyd's experience allows it to excel in. We have to remain focused on providing more efficient claims, servicing and interaction with the Lloyd's Exchange platform."

In fact, he describes the Lloyd's Exchange as: "The first market initiative, in terms of electronic data transfer, that has ever made any sense."

He continues: "You're never going to get a market to do everything the same; we all have our own systems costing many millions of pounds and we are not going to throw those away. But it's a superb concept that we're very keen to push forward.

"The company and the Lloyd's markets should act as much as they can together and it would be a great shame if, in moving into this new technical age of improved process, we manage to recreate history with modern technology where there are two distinct ways of doing things."

Competitive advantage

Mr Stovin claims that, from processing premium to paying claims, the London company and Lloyd's markets are now starting to act more in unison. "That will give London such a competitive advantage as a global market," he says. "Never mind what costs are saved, there's a selfish and completely altruistic motive in implementing the Exchange. We have two platforms and would clearly love to do business the same way and not have to support two different processes."

A firm supporter of the Lloyd's reform agenda, he comments: "Although we will disagree at times, the general strategy is spot on. Be it operational issues or underwriting control, the reason why Lloyd's is sitting strong amid this current turmoil is because of those disciplines and efficiencies that have been brought into the market."

He adds: "Clearly for anyone who has a balance sheet, the turmoil in the financial markets has had an impact. For some it's greater than for others."

Markel is far from immune to this turmoil in the wider financial markets but Mr Stovin claims that, from an underwriting perspective, it is relatively protected. "From an underwriting perspective we are not (directly) involved, although we do write banks' business, directors' and officers' liability and professional indemnity. We will also see increased claims activity from various areas on straightforward property business because recessions, unfortunately, always prompt an upturn in deliberately set fires and fraud becomes more prevalent. That goes with the territory.

"We will just have to price for that and be ready from an underwriting and claims perspective."

Firming up rates

Mr Stovin adds that rates in loss-impacted and catastrophe-exposed business are firming up quicker than other lines but says that, as the balance sheet impact of the financial turmoil gets felt, "boards of directors in the UK and across the world are preparing to give up volume for the sake of price".

He comments: "Even in the fiercely competitive UK casualty lines, we're seeing small increases. And when you consider there has been a continual decrease in price for the last three or four years, it's a great step forward that these are holding their own.

"We will give up volume if we don't get what we know is the right price. For example, D&O prices are moving and we're constantly re-underwriting the book. The penny has dropped on why you buy this product."

In the next 12 months, his priority will be on getting the right price for each of the products Markel International underwrites and expanding the business.

"We're going to be following through on the initiatives in the UK and growing the overseas business. We'll be looking out for new talent and teams across the board but especially in London, where there is always a degree of fluidity."