Specialty: Insights for the specialty insurance and ... - Ernst & Young

3Floating on AIM in1995“We were an agentbeing handsomelyrewarded with nocapital … then we did sixcapital raisings”“At the moment of signing to raiseour first capital to become principals,after nearly 100 years of being anagent with no real risk in the business,we had a considerable wobble. Therewas a hesitation when we thought toourselves, “Why are we doing this?”We were an agent being handsomelyrewarded with no capital in thebusiness. Then we did six rights issues,which did seem brave at the time.We were the first company to form acorporate vehicle to support a spread ofsyndicates, and then the only companyin 1993 to raise a corporate vehicle tosupport solely our own syndicates. Andour final rights issue was the last toraise money at a modest 10% discountto the share price when all others bythen were going at deep discounts ofaround 45%. I dislike deep discountsas they make it dead easy for theinvestment bankers and penalize thesmall investor.”I have found being a public companyrelatively easy, as we have to explainour business to professional, intelligentinvestors who have actually put moneyinto the company, whereas under theold system of Names, we were dealingwith emotional individuals and theiragents (of differing quality!) who hadonly pledged their capital, which theycould withdraw at any time.”“The investmentbanker advised againstand thought we werebetting the bank”4Purchasing EconomicInsurance in 1996“I decided that we had to have aninsurance company to underwriteoutside the Lloyd’s market. Lloyd’s hasa limit of 15% for any business insideLloyd’s, so I had known since I arrivedin the market that we would have togo outside. Prior to the introductionof corporate capital, no one in Lloyd’swas allowed to underwrite outside theLloyd’s umbrella, but I managed tochange that rule in the restructuringof the market. We bid to buy EconomicInsurance for £30 million in 1996against the advice of the investmentbanker, who said we were betting thebank. Considering it had £24 millioncapital, it seems amazing that that wassuch a brave move such a short timeago. Mind you, it was making losses atthe time but we just wanted the shell,so we got rid of 80% of the business.Under the ridiculous Department ofTrade and Industry rules of the time,we had to keep the management inplace for a year as Bronek Masojadadidn’t qualify to run the company ashe was South African, and I didn’t as Ihad only Lloyd’s experience. A difficultyear for us and them.”“Peoplecongratulate you if youbuy a business, but notif you start one up”5Serious expansion inthe United States in2006Hiscox, in tandem with most of theLloyd’s market, has sold insurance toUS businesses through its Lloyd’s ofLondon syndicates forever. In 2006,however, it took the bold decision toestablish offices across the countryand is now licensed to operate in allUS states and the District of Columbia.“We have grown organically at a prettyrapid rate. We did pay a lot of moneyto attract a very good underwriter, butwe would rather do that than buy asmall company with all the problemsthat go with it. We have also startedthe first business to business internetbusiness in the US, which is frighteningas we usually don’t pioneer, we shootpioneers in the back. Let the firstguy in make all the mistakes. (EvenRockefeller said ‘pioneering don’t pay’.)But we have the knowledge and skill, aswe had a successful similar business inthe UK, so it seemed logical, if brave. Iam delighted to say that it is going verywell indeed.”Issue 1 — December 2012 Specialty 15