Ep318 Jack Kuhn Westfield Specialty: Taking the long-term view

0:02Jack Kuhn: I'm Mark Gagan and you're listening to The Voice of Insurance podcast, produced in association with Advantage Go, now part of Sapiens. Release your underwriters to underwrite with the Sapiens Advantage Go underwriting workbench. Today's guest is an insurance professional who's just completed 40 years in the market. Over that time he's built a reputation as the consummate underwriter's underwriter. But by some strange coincidence, our paths hadn't crossed, until now. We can complain about Monte Carlo all we want, but it never fails to throw out wonderful opportunities to meet the most senior and prestigious figures in the global insurance and reinsurance industry.

0:40Jack Kuhn: So it was that I finally met Jack Kuhn, president of Westfield Specialty, at a meeting table in a conference hall in the bowels of the Fairmont Hotel. At Monte Carlo, everyone's in talking mode and what follows is the classic fast-paced kind of conversation you have 10 times a day when down at the rendezvous. But listening back in the cold light of day, it's Jack's underwriting leadership qualities that really stand out, even in such a frenetic environment. He's calm and focused and has a clear idea of what he wants to achieve. Like all the best underwriters, he's never dismissive of new ideas, but weighs them carefully and leaves you in no doubt where he stands.

1:15Jack Kuhn: Now writing about$2.4 billion of gross premium as part of a mutual group with a 178-year pedigree, Westfield's specialty can evaluate and navigate the market on its merits, without pressure to grow. And that's where this conversation shines. It's liberating to talk to an underwriter with such a long and successful career being given the chance to design an underwriting shop that is applying the full benefit of all that experience. Jack is clearly in his element and really enjoying this latest chapter in his career. And this conversation encompasses all the big themes. The challenges of a highly competitive insurance and reinsurance market, emerging automatic digital underwriting and AI as an emerging casualty peril all have strong showings, among many other themes.

1:59Jack Kuhn: It's always great to finally meet someone you've heard a lot about, but it can sometimes be a little anticlimactic. I'm pleased to report that this meeting exceeded all expectations and my only regret is not having met Jack 20 years earlier. Enjoy the podcast. Jack, it's really nice to meet you. We're sitting down in Monte Carlo. I'm sure anyone listening at home can hear the hubbub, and it's great to be here. It's lovely. I always enjoy this. We're not going to complain about the noise because it's what it's all about. So anyone out there who doesn't know you, for the benefit of them, I'm sure a lot of people do know you.

2:34Jack Kuhn: Why don't you introduce yourself, run us through your career today, and maybe we'll start with the question we often ask each other when we're meeting people for the first time in the insurance industry, we ask them how they got into the industry. Sure.

2:46The Voice of Insurance Host: Thanks, Mark. And I appreciate you having me on the podcast. I ended up as being one of those falling into the industry, so to speak. I was at university, was thinking I was going to really focus on the financial services side. I had a fraternity brother of mine come back to the campus, said they were looking to fill out interview slots. I was like, nah, I'm not really that interested in the insurance thing. I think I really want to get into the investment banking.

3:11Jack Kuhn: What were you majoring in?

3:13The Voice of Insurance Host: History and a minor in English.

3:14Jack Kuhn: Oh, wow. I guess it wasn't economics or mathematics.

3:18The Voice of Insurance Host: My father was in banking, so that was sort of my role model. He then gave me this proposition of we would go play a game of racquetball, best out of five. If he won, I interview, he takes me out for dinner and drinks. If I win, he takes me out for dinner and drinks. So to me, it was a no-lose situation. I'm getting dinner and drinks one way or the other. Needless to say, I lost. I went for the interview and just really was very interested in insurance after spending some time. And that's how I started my career at Chubb back in 1986. So over 40 years now in the industry. So it's been a great run.

3:56The Voice of Insurance Host: Spent my first 13 years there. And what were you underwriting? Mainly D &O.

4:01Jack Kuhn: And so that was a good time to be a D &O underwriter. You were kind of catching a tiger by the tail there with the growth that you were having.

4:06The Voice of Insurance Host: It was unbelievable when I go back and think about the stuff that was going on in the marketplace and only having three carriers really being viable on offering capacity in the 85-86 time period. It was a very fun market to be a part of.

4:23Jack Kuhn: Yeah, that must have been amazing. You're alluding to the great liability crisis of 85-86. Somebody who spoke at a conference recently was saying, was there a front cover of Time magazine that said, USA, your insurance has expired? Exactly.

4:35The Voice of Insurance Host: And that's kind of what you went through, that you had a limited amount of capacity you're willing to deploy. And you're trying to rationalize how you're going to deploy that and where you're going to get the best sort of returns on that. Wow. And then where do you go after that? We did the executive risk acquisition, and that led to a number of different groups spinning out of that and setting up new facilities. So I went with a group that we set up at Kemper Insurance, which was a mutual company and lasted there for about two and a half years. We then were in the position that we were looking at being sold through a renewal rights deal.

5:11The Voice of Insurance Host: And that was where I had my first introduction to John Charman and Bob Newhouse. So I ended up going to Axis on a renewal rights deal and really had a fun time on the build out of Axis and also building out the U.S. platform with John and company. And so how did you get to Westfield Specialty? I ended up taking a sabbatical with Sampo. So I was excited about always hearing about the British on their guarding leave. So my guarding leave seemed to sort of coincide with COVID. So all the trips were cancelled and it was more or less of just hunkering down in the house. Re-entered for a brief period with Vantage and then made the decision to go to Westfield Specialty, which was five years ago this past July.

5:55Jack Kuhn: So run us through Westfield Specialty because still for many people it's still not as well known. Obviously they would know what you acquired to become Westfield Specialty, but they might not know the Westfield Group. So tell us about first Westfield Specialty, the scale, the platform that you've got, and then how that fits in with wider Westfield Group.

6:17The Voice of Insurance Host: It was interesting having the conversations with the Westfield Group, which is a Midwestern focused mutual on personal lines and small commercial, that they had an abundance of excess capital that they were looking to deploy in this attractive market. So ended up setting up Westfield specialty in July of 2021 with five business units starting. Within 12 months, we started looking at a potential acquisition, which was Syndicate 1200. I think a lot of people were a little concerned about the timing because we just launched in the U.S. And now I wanted to pivot and look at this acquisition because it really was a unique opportunity for us to accelerate our international growth probably by four or five years.

7:00The Voice of Insurance Host: So it was pretty excited about having that sort of opportunity. As we look at this year, Mark, we'll probably be close to$2.4 billion in gross written premium. We'll have over 600 employees and we'll be out of seven offices around the globe.

7:15Jack Kuhn: So in terms of the platform, you've got the Lloyds platform. Do you have a company elsewhere?

7:20The Voice of Insurance Host: So we just set up a company market platform in Luxembourg with a UK branch as part of that. And we'll look to see with some additional geographies whether or not we have other branches that we would set up as well. Are you on the ground in the States or do you use that through the Lloyds platform? No. States, we have admitted, non-admitted shells. So that's also been beneficial for the syndicate when they need U.S. admitted paper. We have the ability to step in there for them as well.

7:46Jack Kuhn: Tell us more about that Westfield Group and how they had some express capital. But obviously, tell me what the strategy was. Presumably, they wanted to have a diversifying, commercial, non-mutual arm.

7:58The Voice of Insurance Host: Yeah, I think they were seeing some of the challenges that they had a very limited footprint in the U.S. with their traditional standard lines, property cashly. They had been intrigued with the specialty area, but never really pulled the trigger. Now they felt was maybe the right time to do that. So it just happened that I had some interactions with Ed Largent as the CEO, probably had six months worth of conversations about what could happen, views on the marketplace, opportunities. So that led to them looking at this as a pure way for them to diversify into probably a very unique but very different segment than really where the company had been for the last 178 years.

8:41Jack Kuhn: And it's a model that you have peers within this situation within Lloyd's as well of Lloyd's syndicate being and the specialty business being part of a wider mutual owner. Correct. It's a model that seems to work pretty well.

8:56The Voice of Insurance Host: I think as long as you have the right sort of understanding and guardrails as to what you're looking to do, what's the strategy, when you are going to pivot, how are you going to pivot? Because you can have the best well-made plans, but they don't always turn out that way because other things pop up. And that's kind of what we saw with Syndicate 1200. I would have normally have thought we would do a company market first just to give us that sort of flexibility, but the unique opportunity, you have to pivot.

9:22Jack Kuhn: There aren't that many Lloyd Syndicates of a reasonable scale that are available to purchase. And I suppose you just have to do it when it's available.

9:29The Voice of Insurance Host: Exactly. And you have to be comfortable with the portfolio you're getting and also what you think you're going to be able to mold and shape that into.

9:38Jack Kuhn: What about the market now, the benefit of your 40 years of experience? We've probably been here before, haven't we? But how is it?

9:44The Voice of Insurance Host: So I would say it's different. It's evolved. Because if you go back to what we just discussed, the 85-86 casualty crisis, that was what I would refer to as the big bang, like really hard market for everyone, all lines. I think now what I would say you would see is that every product area has its own journey through that market cycle. They're not 100 % linked. So you have to make sure you're understanding where you are with certain product areas and when you want to be leaning into the product and when you want to be leaning out of the product.

10:14Jack Kuhn: So where are you leaning?

10:16The Voice of Insurance Host: So I would say one that's been a very pleasant surprise leaning in has been A &H with the hard market that's developed there over a sheer period of time, really coming out of some of the softness that they had with COVID. You're now seeing the market sort of respond back to that on stronger pricing and stronger terms and conditions on the reinsurance side and also on the direct side.

10:39Jack Kuhn: Overall, obviously, the market in the aggregate, the market's been softening now for a while. we've had very good profitability. How far away are we from rate adequacy really not being there?

10:51The Voice of Insurance Host: So to me, it comes down to really having the right focus about not it being about growth, but really always being focused on the profitability of it. So if you're profitable through an entire market cycle, it takes care of a lot of issues. It's when you start pushing for growth for growth's sake, you run into problems in the sense of now you're writing business that probably is not the right price or the right terms conditions because of how competitive it's really turned into because people are focused about the top line growth.

11:21Jack Kuhn: That's going to be one of the advantages of your ownership. Again, I presume the growth for growth sake is never going to be on the agenda that there's never going to be that pressure to growth that a stock company with quarterly results looking to try and post higher top line every time.

11:36The Voice of Insurance Host: So that was the attraction of going to Westfield was having that mutual aspect to it. I had that a little bit at Kemper for the short time that I was there. But having worked for companies that were PE backed or stock companies that were publicly traded, very different dynamic than what you get at a mutual company because they can take the long term view. And that's the thing that was compelling for me that I was going to be able to build it the right way and not rushed and hitting numbers just to hit numbers, but building the portfolios the right way where we would have a broad set of products, greater diversification to it, and a focus on profitability and not losing that underwriting-centric DNA.

12:16Jack Kuhn: I suppose you have the parents looking more to see that contribution that they're getting from your profits.

12:22The Voice of Insurance Host: Yeah, I think they've been surprised at the growth, but also how quickly we became profitable because we were profitable in our second full year. We weren't really supposed to do that until our fourth year. But, you know, it's been a unique opportunity for us on certain product lines that we've been able to take advantage of and kind of build up scale in a number of different products.

12:42Jack Kuhn: You've already mentioned NH being a good place to be at the moment. Any other other nice spots where you're happy?

12:49The Voice of Insurance Host: I think we're seeing the financial lines is coming back. So it had gotten soft very quickly after we first launched. We sort of pulled back. Same thing on the cyber. We've been able to build up a nice portfolio there. But again, it got soft, but it seems like that's now getting back to a more positive rate environment. Probably the one that's more challenging is the property side. Great market after Ian. I think we probably have given back almost all of the rate that we initially got from that through last year and this year. So it'll be interesting to see how next year plays into that if this turns out to be another benign cat season.

13:26The Voice of Insurance Host: So it sounds like it's looking marginal. Yes. And I would say we are probably going to write less than we wrote last year. And we are significantly off our plan number for the property. But I'm okay with that. I just don't want us chasing business for the sake of business on the top line that it's more of a focus on what should our portfolio look like that is going to give us the best opportunity of having a good profit.

13:52Jack Kuhn: What's your gut feeling about the speed of that decline in the rate that some people would say to me, it's because everything, you know, we know where the technical rate is. So when the market becomes competitive, we get down there pretty quick. Because we also know where it is. We know that we can bounce off that pretty quickly. As soon as we hit it, then the market should behave rationally. Or you've been around 40 years, so you know, it doesn't always behave rationally.

14:14The Voice of Insurance Host: No, people are banking on that sort of approach. I wouldn't really take that bet. I think it's going to be a continuation because the brokers and the clients are still going to have these expectations about continued softening if there hasn't been cat activity or the loss ratios.

14:32Jack Kuhn: Because the combined ratios could still look very, very good. Exactly. But it's not telling the right story that that was mostly rate inadequate business.

14:39The Voice of Insurance Host: And then you're going to find out how deficient you are when you start to see the normalization of the cats coming back the way that we had seen before.

14:47Jack Kuhn: Given we're here at Monte Carlo and this is a reinsurance conference, and I presume you're here to meet a lot of your reinsurers and renew those long-term relationships that you've had or build new ones. With the benefit of your experience, when reinsurance becomes more economically valuable to the buyer, is it perfectly logical to be buying more reinsurance and therefore by seeding more of your own book at a time like this? And is that a sensible way of navigating a softer market on the inward side?

15:15The Voice of Insurance Host: Some would say yes. I would say it just depends. I think if when you look at the softening at some point in time, it's going to turn. And if you're that heavy on the reinsurance side, it really puts you in a precarious position of now having to pivot, maybe when you're not ready to pivot on increasing your net positions. I've always taken a very balanced approach on that, but it's one of those that a softening reinsurance market is good in one sense, and it's problematic on the other in the sense of how competitive it will make things because people feel that they don't have the net exposure, that they can be more aggressive on pricing in terms and conditions.

15:54Jack Kuhn: If you just, yeah, you just, I'm just a conduit. It's not my risk anymore. I'm packaging it. I'm just distributing it. Exactly. I'm not retaining much of it. Then I suppose it's bound to affect your own underwriting discipline, isn't it? Exactly. If it's not your baby anymore.

16:07The Voice of Insurance Host: Yeah. So, I mean, I really want to make sure our underwriters are really looking at our risk selections and pricing on a gross basis, not on a net basis.

16:15Jack Kuhn: It sounds like you're an ideal buyer then. So the reinsurers like you. Some do. Because you don't squeeze the pips too hard. No. Because you know there's no point because it's going to come back.

16:24The Voice of Insurance Host: And it'll come back and then some in the sense when they have an opportunity of sort of bringing it back to you.

16:29Jack Kuhn: No, everyone's got very long memories. That's the thing. No one forgets when they've had their pipsqueeds. Exactly. Particularly with hindsight, it was unnecessary. You know, I was having a discussion with someone earlier and they said it was about the difference between what you want and what you really need. And with reinsurance, you should probably focus on what you really need because that's what really matters. because that's what you're really going to need when you really need it. Don't spend too much time arguing over stuff that you just want. This would be a nice adornment, but you know it won't be there.

16:57The Voice of Insurance Host: And you really damage the relationship because it's then viewed as a transaction than it is about a relationship. And that's the one thing I've always prided myself is having relationships and viewing our reinsurers as key partners. And we'll have tough conversations, but hopefully they feel in the sense that we're good traders.

17:16Jack Kuhn: You've got a big diversified portfolio. Obviously, property short tail line is less attractive. What is your view of the balance between the relative attractiveness of longer and shorter tail lines within your portfolio at the moment? And obviously, we're in an environment where, of course, bond yields, we're talking about bond yields are hitting some quite historic highs. They're not as high as they used to be back in the 80s, but when they're more inflationary times, But yeah, they're quite healthy. And is that going to affect relative attractiveness of casualty as well, longer tail lines?

17:48The Voice of Insurance Host: I think you have an interesting dynamic going on. So the short tail lines are definitely under more pressure. I think you want to have some balance there. But I think there are some subsets of the short tail area that you can sort of lean into. A &H is one. I think that on the casualty side, there still is a lot of concern about how long the tail really is. Are we seeing this shift in claims being settled quicker than what they had been before COVID? So I think there are a lot of moving parts. I also want to make sure that when people are talking about different loss trends, that we don't use casualty as a total because there's so many different pieces to that.

18:29The Voice of Insurance Host: But talk about the individual lines that are making up your portfolio and what the loss trends are for those versus trying to impose a larger loss trend because it's covering so many other different coverages that are not part of your portfolio.

18:43Jack Kuhn: Should we view the Westfield Specialty Platform as being now largely built and constructed? Do you have other ambitions and other lines you'd like to add?

18:52The Voice of Insurance Host: So I think there'd be other areas that we would like to expand into. And I think some of them might just be offshoots of some of the areas that we're in. So I think we could do and have a deeper representation on energy in the U.S. but leaning into the energy expertise that we have sitting in London to drive that. Same thing with trade credit, same thing with terrorism. So I think there's some low hanging fruit for us that we can sort of be able to better utilize some of the talent that we've been able to bring in the organization and build up even more scale in those respective areas.

19:31Jack Kuhn: Of course, when you're at this scale and diversification, adding a couple of new lines, you don't need a whole ton of new capital to do that, do you? Exactly. What you really need is to find the right talent.

19:40The Voice of Insurance Host: And that's the key is talent is really what's going to win the day. It's not about putting a flag in.

19:46Jack Kuhn: Again, presumably, it's about when the opportunity arises, when maybe you know a lot of the talent, you've known that talent over many years, and then at some points it's not available, and at other points it is, and I suppose you have to act when it's available.

20:00The Voice of Insurance Host: That's been sort of the secret sauce for us. We will not go into a line of coverage if we're not able to attract the right talent. to it. So it's all about getting the right people that are really going to appreciate the underwriting centric DNA that we have here. And that's really what they want to be a part of.

20:19Jack Kuhn: Obviously, in specialty lines, the conflict in the Arabian Gulf affecting many of the Gulf states put quite a big loss into the market. And it's still ongoing. It's an ongoing event. Are you pleased at least with the reaction from the market to that? Obviously, it's part of the game, losses will happen.

20:37The Voice of Insurance Host: So I think it's been somewhat of a mixed response. And I'll take a comment from John Sharman back in the day that when you have these events, there are people that lean into it. And there are others that quickly want to lean out because they're overly concerned.

20:53Jack Kuhn: And certainly John leant right into it.

20:55The Voice of Insurance Host: Yeah. And I always took that to heart and really appreciated that when there were these sort of opportunities, he was always very thoughtful about what the opportunity would be for us and what the margins would be. So another one I would use an example that was similar is if you go back to the financial crisis, I mean, a lot of people were pulling out of certain lines. And John's view would be - Particularly financial lines. Yep. And John's view is like, let's double down. If you think that we're going to be able to build a better portfolio, greater scale, and it's going to have more profit margins, then that's what we should do.

21:31Jack Kuhn: So do you think that has provided a kind of opportunity you can lean into or given the softness of the wider market is it something that's just a sin that is being forgiven or ignored?

21:42The Voice of Insurance Host: I think that the brokers and the clients are appreciating in the sense the markets that are trying to find solutions to the problem and the issue that we're going to have is that I don't know what the final conclusion of the problem is going to be because it changes daily and weekly as to the activity and the rhetoric that you're hearing from both parties coming out of that particular area.

22:07Jack Kuhn: We're here to buy reinsurance, sitting in Montecourt, starting that process here. Within the Lloyd's market itself, there's been a lot of innovation and some new structures. I think we're starting to call it reshare syndicates. I don't know who came up with that name, but anyway, it does what it says on the tin, I suppose. Again, that's a new structure. That's another way of diversifying your capital support and your reinsurance support? Is that something you think could be of interest?

22:31The Voice of Insurance Host: I don't think it would be for us on providing the reinsurance through that sort of vehicle. I think it's something that we would look at as a client on whether or not that would make sense for us to have some of those structures that might give us better economics or better long-term security, just in the sense of...

22:50Jack Kuhn: It's different optionality, isn't it, as well? And it's genuine diversification of the capital. Exactly. So it's not something you would rule out completely, but I suppose it's something in its infancy at the moment. Yes. So again, when it becomes more established, you might, you don't want to be a pioneer.

23:04The Voice of Insurance Host: Yeah. I mean, I don't think we would be a frontline news with the size that we are, that it's just one of those that we're keenly interested in listening as this really develops. I mean, I made this comment to someone yesterday that when you look at the alternative capital markets five years ago, as property only had to be short tail. And think about how much it's evolved.

23:27Jack Kuhn: Yeah, and now there's cyber bonds and casualty sidecars and all sorts of things. Exactly.

23:31The Voice of Insurance Host: So I think it's going to continue to evolve. And we're very keenly interested to see what the opportunities might be and what it might mean for us.

23:38Jack Kuhn: But I suppose strategically, it sounds like, and also it feels like you don't actually have to be in a hurry to be the first, do you necessarily?

23:46The Voice of Insurance Host: Sometimes it's not the best to be the first. A fast follower might be a better position to be in.

23:52Jack Kuhn: Well, that's a good segue into what I'm going to ask you next. Sitting in the London market, it's been fascinating the speed at which the digitization of some of the underwriting. It's been an amazing feather in the cap of London, which over a long period, people have said it was inefficient and wedded to inefficient practices and pen and paper and ink and all sorts of stuff. and that's certainly not the case today with electronic trading so many different structures broker facilities smart follow almost instant consortia some of the big brokers coming up with almost middle market facilities where your appetite can be downloaded into their machine for some of that smaller commercial business and so again so even the middle market the follow part of the order might be filled so we might be in a situation where effectively the market might become leader only.

24:44Jack Kuhn: Anyway, what's your strategic reaction to this, given your long experience and how long it this has been a thing that's a long time coming, but now it's coming, it's coming fast.

24:53The Voice of Insurance Host: I take it that the brokers are going to miss the long queue standing in line at the box. No broker will ever miss that, Jack, I was one of those. I think it's been a long time in coming to really deal with the process that has been there for a number of years. I think when you look at this smart follower component, I've made the point to people that was already being done, if you think about 30 years ago, but it was done by individual names. So if you're on the Marine side, you know, it might be John Charming, or it could be Mark Brockbank back in the day, or Robert Hiscox, or Stephen Catlin. It was interesting just in the sense that the comfort that people took with having those as the lead on the slip to then put additional capacity behind it.

25:38The Voice of Insurance Host: So you think about these sort of things that are now being discussed, it's not much different than we had done in the past, but it's just bringing much more efficiency behind it.

25:48Jack Kuhn: But do you have to react to this strategy if that traditional manual follow market is shrinking, that market opportunity therefore is shrinking? Or do you, well, for one, do you think it is? Because of course, the counter side to the argument could be that actually the market can now grow much faster become more productive and that will still mean there's still plenty of old-fashioned bespoke opportunities that do not fit into any kind of model that therefore do need humans in the loop to really scratch their heads and come to proper solutions and that might be more than just a leader it would be a leader and a couple of followers really getting together with the broker to come to some compromise that is going to solve a particular problem and of course the world's getting more complicated but anyway in the long run, do you see it?

26:33Jack Kuhn: Is it a threat to follow underwriting? And therefore, I mean, some people say what we're doing in reaction to this is we're going to make sure we really are the lead that the broker really needs. We're going to be the absolute experts. We're going to have the absolute best service. We're really going for the high quality. So therefore, we will always be the lead and we can build consortium behind us, etc. Or are you going in a different way?

26:56The Voice of Insurance Host: I think we want to be perceived as being an underwriting shop and that we are leaders in most of the lines that we are trading in. And I think it's one of those that we feel we bring a very strong brand, even though it's only been around five years. But it's one that you want to make sure you're adding value to the process and that it's not just rubber stamping stuff. And I would even say even on the claim side, you want to make sure that you have the proper and fit individuals that are going to add value to that versus causing delays or slowing the process down because they're not well versed and haven't seen some of the things that might be popping up.

27:37The Voice of Insurance Host: But I think that lower end absolutely, I think, is ripe for that sort of approach. And I think also comes into it is your digital exchange in the sense of how quick are you able to provide whatever your underwriting decision is going to be on your appetite as quickly as possible for certain pieces of the market.

27:55Jack Kuhn: So are you ruling out getting involved in the kind of smart follow world? Will you have a smart follow team? Of course, it is underwriting. It's more delegated and more analytical.

28:06The Voice of Insurance Host: I think it's bringing in the right skill sets on being able to do more data analytics on it. But obviously, it's very efficient.

28:14Jack Kuhn: I've interviewed some of the people involved in this, and we're talking about eight or nine people riding one and a half billion, and that that's the kind of opportunity there is. And so the expense ratio on that is going to be pretty nice. And the amount of management time you need to spend is going to be quite nice as well. Is it something then, do you think it's a sensible part of any portfolio maze?

28:33The Voice of Insurance Host: I think you're always going to have a part of that as part of your portfolio. It's just figuring out how large it would be and really what directionally do you want your portfolio to look like? Do you want that to be 10 %? Do you want to be 50 %? Do you want to be 70 %? The problem when it becomes a very sizable component, in my view, is that you're then susceptible when you lose one of those facilities, it's pretty painful. Now, the expense structure is different. Absolutely. I mean, it's not dealing with the issue that everyone's always had about being in Lloyd's or heavy, heavy on the expense.

29:08The Voice of Insurance Host: But I think there's a happy medium between the two of those that I think companies are going to want to have some of their portfolio in this space.

29:16Jack Kuhn: But you're not worried per se, it's an underwritable class of business. Yeah, you know, obviously, it's wonderfully diversified. But also, one presumes, of course, there are dangers there, you really have to be in control of what's going on.

29:28The Voice of Insurance Host: And you have to stay extremely tight with your underwriting guidelines and appetite. Because if you're going to start what we just talked about chasing the growth because someone else is now willing to come into the facility at a different price point or broader coverage, you're going to need to quickly make some sort of decisions on what impact that's going to have to the portfolio. And are you still able to get to your targeted returns?

29:54Jack Kuhn: And also, I suppose the other thing about this kind of underwriting is, of course, it's pushing the responsibility far. Because before you could say, oh, it was all a rogue underwriter's fault and the broker took him out to lunch and something funny happened there. and, you know, whatever, it was a slip of the pen. Because now you've got quite a lot of responsibility for, if it really is about moving dials, you're going to have to authorize it, aren't you? Correct. You know, if you turn the dial down to six when it was at eight before, because ultimately it's going to be partly your decision. So again, you're going to be really, really accountable for it, aren't you?

30:27The Voice of Insurance Host: And I think we've seen some lessons from the past on some of these early ones from five, 10 years ago, didn't perform the way that people thought they were. and you had markets that pulled out because they weren't able to hit their targets. So again, it's just making sure that everybody is very clear in the sense of expectations, because I don't think the brokers are going to want to be replacing capacity in a tough market. And at the same time, I don't think the carriers are going to want to continue to have this sort of dance of understanding how much pricing considerations that they need to be reviewing every single year.

31:04Jack Kuhn: When I talk to brokers, I would say, well, the history of broker facilities particularly is checkered, to say the least. And, you know, most of them have failed through the cycle. They've never been able to survive a soft market, shall we say. Why would it be different this time? And their answer to that is the reason why it's different this time, because it's now become a fundamental pillar to my own business model. So I can't afford for this facility to go by the wayside. I can't afford it to be burnt because it is freeing up my brokers to be more productive. If I know that 20, 30 % of my business is already being placed in this way and a bit more in the middle coming soon, then I know my brokers can do the high value stuff or the new business they can go and get.

31:49Jack Kuhn: And so therefore, it would be as painful for me to lose that as it would be for you. So therefore, our interests are far more reliant than they were. Do you buy that?

31:58The Voice of Insurance Host: I'm not sure I do. I think at the end that if we get into a soft market and the pricing keeps going down when the data is saying it shouldn't go down, but other people are willing to step in. That's really, I think, when you see these facilities running into problems is that there isn't that sort of balance of knowing when to agree and hit the brakes. I think when you look at this long term, it's going to be interesting to see as we're getting in the soft market. This is always where we start to see this sort of separation because sometimes the interests are not aligned.

32:32Jack Kuhn: And brokers are really competitive with each other.

32:34The Voice of Insurance Host: And their biggest challenge is making sure that they hold on to their clients and that the clients are happy. Less so about the carriers being happy if they're able to get a similar product at a lower price.

32:46Jack Kuhn: And the point is, we shall see. the story will be told and we'll find out soon enough.

32:51The Voice of Insurance Host: I think we're in the early chapters. We'll have to wait to see how the next few chapters go.

32:56Jack Kuhn: Exactly. Another thing, obviously, it's always been a very big part of the Lloyd's market, delegated authority business, a large percentage of business. But the delegated authority story, particularly in the US and the specialty lines, excess and surplus lines, taking a bigger share of the US commercial insurance pie has been a secular story, I would say now. I mean, one, would you agree it's permanent change in some of the way that insurance is being distributed? Some of it's always going to be cyclical as well. It comes and goes. But it looks like this has become a permanent feature that some of this change is a change that's not going to go back.

33:33The Voice of Insurance Host: I think there's a hope that is going to be the case as long as we get into the softer side of the market that there still is that communication and alignment and that we don't follow what we've done in the past about just following it all the way down until it goes off the rails.

33:51Jack Kuhn: And in terms of your own strategy around that, is it a segment of your portfolio that you're happy with? Would you like to grow it? Would you like to shrink it?

33:58The Voice of Insurance Host: Sure. So I would describe it this way, as I've said to my staff on my 40 years, I break distribution into like four quadrants. And the upper left would be your large multinational retailers. Your upper right quadrant would be your large global wholesalers. Your lower left quadrant would probably be your regional or independent agents, whether they're in Europe or whether they're in the regions in the UK or in the US. And then this other bucket that has always been nebulous has been this alternative distribution. And there, old days, you just have some MGAs maybe would fit into that, some captives, maybe you do stuff on a direct basis.

34:38The Voice of Insurance Host: That's the side of the quadrant I think we're going to see the most change in over the next five years because that's really evolving. And I think people are now starting to realize that the distribution is really going to be a key aspect on that. Now, what comes with that typically with delegated MGAs is you're having a much higher acquisition cost. So you have to make sure you're able to bring down your own internal costs and feel comfortable that loss ratio plus a much higher acquisition cost still gets you to your targeted returns. Yeah.

35:14Jack Kuhn: And in terms of that philosophy, have you already said you want to be seen as an underwriting shop? Is your first reaction as an underwriter to think, oh, why couldn't we have done this ourselves? Or is it acknowledgement that you're buying into some of that underwriting skill that you wish you had, but you haven't got, or again, that expertise in a particular niche that you're not in. And also the distribution sometimes is a product you know pretty well about, but actually, you know, you can't get into that particular market. It's hard to get in.

35:41The Voice of Insurance Host: All the above. Yeah. And we've had conversations and examples of each one of those is a good reason why you need to really lean into someone else providing that sort of expertise.

35:53Jack Kuhn: And do you think it's going to be a growing segment of your portfolio?

35:56The Voice of Insurance Host: I think so. I think it's going to be a growing segment for almost every carrier with how we're seeing it evolve.

36:02Jack Kuhn: What you said about you have to prepare yourself to be a leaner. So presumably you do a lot of due diligence at the beginning and then you really give them that autonomy. And you don't want to be seeing everything they're doing because you're only adding cost by invigilating everything they do by looking over the shoulder all the time.

36:17The Voice of Insurance Host: And what you're going to have is probably people that are more akin to being data scientists, looking at the data, looking at what the trends are, and just highlighting in the sense when there's some sort of aberration on trends that we're not expected to see.

36:32Jack Kuhn: And the strategy there is to be a capacity provider of choice, a paper provider of choice, because you add a bit of value. You say, have you noticed this trend? Actually, you know we've backed quite a lot of MJs in that space. Exactly. I don't know if you noticed that we've seen a trend. Have you picked up on this yet? And you have those added value conversations, almost like a reinsurer with a seed.

36:52The Voice of Insurance Host: And it's also having those conversations, Mark, of identifying really new trends or new exposures that you're able to address while you're on your front foot, not waiting until you're on the back foot and having to have a knee-jerk reaction because you're not happy with the results.

37:07Jack Kuhn: And hopefully the technology is there again in 1986. We all know what it was like. Like it was just a big pile of border roads and you sort of wading through and saying, what the hell is this half the time? What have actually these people underwritten on our behalf? And we'll only find out when there's a big claim and it turns out we're doing things that we weren't aware we were doing. These days, everything's so much different. You're pleased with the way you can look through into almost in real time what an MGA is doing if you want to. There's so much more transparency with having access to the data versus in.

37:39The Voice of Insurance Host: And of course, aggregation. You don't have to worry about aggregates building up that you weren't aware of. Yep. And that's where I think is very beneficial is having access to that data and being able to do that very quickly, not waiting to the house is already on fire. And now you realize you got a problem.

37:55Jack Kuhn: Absolutely. We couldn't be talking in 2026 and not talk about AI and what you've been using it for. So what have you found the best use cases?

38:03The Voice of Insurance Host: So we're using it and leaning in quite a bit on the claim side and also on the submission intake. side of really helping to source and put things together for the underwriters. Go back to 85, 86, my first couple of weeks at Chubb that the utopia was supposed to be an underwriter only underwriting, not chasing down information, looking for paper for the file or whatever it might be. I think we've made strides and I think we're getting there in the sense of with AI being able to help on some of that stuff. But I'm also concerned about the flip side on the underwriting side, there's so much more exposure that we're now taking on and will be taking on that I don't think we're necessarily as prepared for and understand the pricing mechanics that might need to be adjusted because of the additional exposures with AI.

38:55Jack Kuhn: Yeah, AI as a new emerging casualty exposure is really interesting as a liability exposure. Can we exclude it? People are trying. It seems now AI is becoming embedded in everything everyone's doing. do you think that's going to be practicable? Particularly, even if you do exclude it, and then you write it affirmatively as a class, do you think that's the way it's going to go? But one, do you think that's actually possible? I don't know, like there's a lawyer and that you're on the professional indemnity for a lawyer, E &O type claim, when the point of claim, how are we going to know whether it was the human or the AI?

39:30And actually, does it really matter

39:32Jack Kuhn: because there has been an error or an omission and it has caused damage in some way, financial damage or something. And therefore, there still is a claim and there is that need to be met. But can we say, I'm not covering it because it was AI? And also, if you're on the AI affirmative only, I say, I'm not covering it because it was a human. And you have a big argument with yourself.

39:52The Voice of Insurance Host: And I think that's really where the market is at the moment.

39:55Jack Kuhn: We'll find out whether it's too embedded to exclude. And then in which case, then we'll find out how to price it. Now, people thought the same thing with cyber.

40:03The Voice of Insurance Host: and it ended up pivoting to being a standalone product. Now that originated out of Y2K and people being concerned and thinking it was only going to be a technology company issue than it would be the masses. But we've seen sort of how that has played out. But I think until the industry and clients and brokers start understanding what the exposures are and they're very different by each industry that you're dealing with.

40:29Jack Kuhn: Do you think it might be a net good? But ultimately, you know, going back to that law firm, the classic E &O for a law firm would be forgetting to file something in time for the statute of limitations to kick in. With AI, I presume that thing would have been filed way before the deadline.

40:45The Voice of Insurance Host: Would have been filed way before the deadline, but I'm not necessarily sure. Did the human really go back and fact check what's there? Because AI is not 100 % correct.

40:55Jack Kuhn: And of course, yeah, we've seen examples, you know, citing case law that doesn't exist, which is going to be problematic when it gets in front of a judge.

41:03The Voice of Insurance Host: And that's where I think you have this sort of push-pull of where is it going to be pulled into its own standalone policy? Or is it really going to get pushed into existing products that people haven't really priced for?

41:16Jack Kuhn: It sounds like your strategy there is wait and see. So we're spending time, believe it or not. I suppose you spend time actually really thinking about it.

41:23The Voice of Insurance Host: Yes. and about a standalone product just to be ready because I've seen too many times over the 40 years that as an industry, we're very slow to react to some of these evolving. And of course, there are

41:34Jack Kuhn: some initiatives as MGAs out there being supported by the Lloyds market. So again, it looks like there are opportunities to test the water there. Exactly.

41:42The Voice of Insurance Host: And that's kind of what we're trying to get ready for and making sure we understand the implications product by product on how we should be thinking about and understanding the pricing for.

41:52Jack Kuhn: Does it really keep you up at night though? the AI? Is there systemic risk in there as well? Of course, I suppose if everyone's using the same model.

41:58The Voice of Insurance Host: Yeah, I mean, you get unintended consequences from some of this. So I'll go back, if you go back to the financial institutions area, the redlining on credit scores and the unbiased that it had on certain classes. I can see that happening with AI because I mean, the numbers are the numbers, they will look at everything. And that's what it comes down to. So I think there are things that we can sort of anticipate happening that we think we've moved away from that could creep back as being additional exposures back to certain lines of coverages. And most importantly is, I don't know if AI, what we have today, is really going to be able to anticipate the evolution of exposures that clients are now taking on.

42:40The Voice of Insurance Host: Looking in the past and looking at the data from the past is one thing, but you still need that human interaction of anticipating changes that might be coming that we can see that we're heading towards, but we're not there yet.

42:53Jack Kuhn: You're not going to be experimenting with agentic underwriting? Correct. Do you want to keep a human in the loop there?

42:59The Voice of Insurance Host: I think you have to until you are at a point where AI is everything that you possibly think it could be. But I think my view is you still have to have that human interaction on the underwriting side of really looking and understanding the underwriting strategies, what the guidelines and what the pricing dynamics are.

43:19Jack Kuhn: Jack, I think I've come to the end of my list of questions. Is there anything that we haven't spoken about that you'd like to talk about?

43:27The Voice of Insurance Host: No, I think I really have enjoyed the conversation. I think it's been pretty exciting to sit there and reminisce about really where the industry has been and where it is now and hopefully where it might be going in the future.

43:37Jack Kuhn: You've got a big smile on your face. It's really good to see that. It's a bit noisy here, but actually it all comes with the territory. We're used to it.

43:44The Voice of Insurance Host: Absolutely, especially me in Monte Carlo.

43:46Jack Kuhn: Yeah, next time we get you on the show, we'll do it in a nice quiet studio room or somewhere nice. Look forward to it. Thanks a lot, Jack. Thank you. Well, I hope you enjoyed today's episode. If you did, don't forget to subscribe or leave a like or a review or recommendation on whatever podcast platform you used to access this program. These really help get the word out. Before we go, just a quick reminder that advertising slots are available here and in other places in the Voice of Insurance podcasts. podcasts. Podcasting is the fastest growing medium and attracts a high quality audience of key decision makers.

44:18Jack Kuhn: It's also an intimate medium where you, the listener, are right in the room with me and the interview subjects. Needless to say, that means it's a great way of getting your message out directly to an audience because you know you've got their full attention. It's also very cost effective. So get in touch with Mark at thevoiceofinsurance.com to find out how you could be speaking directly to the industry. The Voice of Insurance is produced in association with Advantage Go. Release your underwriters to underwrite with Advantage Go's underwriting platform.

44:54Jack Kuhn: Voice of Insurance is produced by me, Mark Gagan. Music was written by Anna Gagan and produced by Carlos Gagan. Check out more podcasts and written comment pieces

45:09Jack Kuhn: you