60 seconds with… John Dunn

Since then, Liberty has grown from a capacity of £105 million to £910 million, set up operations in Germany, France, Spain and Brazil while facing the challenges of September 9/11, hurricanes, earthquakes and other both man-made and natural disasters. Previously, he was a Senior Manager with the Financial Markets Division of a major professional services firm. 

A father of four, John lives in Kent and enjoys studying for the professional wine exams – “an ideal excuse to sit down with glasses of various wines at the end of a long day in the market”.  He talks to lloyds.com about Liberty’s financial performance, the outlook for 2010, and the syndicate’s overseas operations.

Liberty reported a profit of £146.9 million for 2009, a robust result given the state of the financial markets.  What’s the story behind these figures?
Since 2006 Liberty has focused on developing a broad range of profitable but volatile “non-correlating” underwriting classes balanced by a set of consistently performing low volatile classes.  Against this background, 2009 was a moderate claims event year for Liberty, because although the incidence of US natural events was low, there were a number of individual account large losses such as Air France, Winter Storm Klaus and Contingent Lines losses. That said, we were pleased with the underwriting result given the events of the year and have continued to ensure that our reserves are robust as we face declining investment yields and a softening in premium rates. The result was also supported by strong investment gains as market yields and spreads decreased, though this caused underlying investment income to reduce. 

Liberty expanded into the Latin American market last year with offices in Rio de Janeiro and São Paulo.  What specific opportunities do you see there? 
Liberty recognises the importance of distributing its specialist insurance and reinsurance products in local markets in addition to the traditional London trading platform. The opening of the Brazilian reinsurance market in 2009 and Lloyd’s subsequently being granted admitted reinsurer status by the local regulator was the catalyst for the syndicate’s development of local offices in Brazil. The rapid economic development of Brazil will drive significant opportunities for reinsurers, through growth in the number of risks as well as increased insured values and greater insurance penetration will also contribute. Brazilians really are waking up to the importance of insurance which of course leads to opportunities for reinsurers like us.

Massive infrastructure projects are underway financed through both governmental funding and direct foreign investment. There are, and will be, significant underwriting opportunities relating to the World Cup in 2014 and 2016 Olympic Games through both our traditional reinsurance area of property and other, more niche areas, such as marine cargo or event cancellation. As such Brazil is too big a market to ignore and moving quickly to put in place a highly skilled risk production team was vital to our global growth strategy.

Brazil also serves as an excellent hub from which to access business from other Latin American territories. We have already successfully underwritten marine, terrorism and satellite risks in the region.  Of course, having local expertise provides Liberty with a competitive advantage, particularly when responding to changes in the market, such as provision of cover following the Chilean earthquake.

Where next?
We have recently signed an exclusive deal with a leading Australian producer to facilitate growth into a market in which we have been traditionally underweight. Our chosen partner provides an excellent channel through which to access the local reinsurance market.

Our overarching objective is to identify markets in which we can leverage existing underwriting expertise to drive profitable growth, particularly where potential is not necessarily tapped by Lloyd’s.  Our existing platforms in Cologne, Paris, Madrid and Brazil will form the springboard to this growth. 

Looking forward, what’s your outlook for the market’s performance in 2010? 
Performance this year will be tempered by the softening trading conditions and low investment yields that continue to abound in a market that has already suffered a high number of both natural and man-made catastrophic events this year. You just need to look at the Q1 financials of our publicly traded peers to see a trend emerging. The Atlantic windstorm season has just commenced and the forecasters are predicting a higher than average incidence of category 3 and above hurricanes making landfall this year. So I wouldn’t like to speculate on full year performance for the market or for Liberty at this time although I am confident that the balance achieved in our underwriting portfolio combined with our risk appetite will result in a satisfactory outcome.

You’ve been at Lloyd’s 11 years, long enough to experience the financial impact of some of the world’s most significant catastrophes, from September 11th to a number of heavy hurricane seasons, and even losses from the Madoff scandal. As a Finance Director of one of Lloyd’s largest syndicates, are these the kinds of things that keep you up at night?  

I would be lying if significant events did not focus my mind upon the job in hand, but we invest significant time and resource in managing our exposure to these events and this feeds into our profit and capital modelling which forms the basis of our business plans going forward.

What concerns me more at the moment is the need for premium rates to increase in longer tail classes as investment yields reduce. We estimate that for each 1% reduction in investment yields our longer tail classes need a 5% increase in rates. Persuading clients that we need to increase rates for this reason is made more challenging by the fact that the reduction in yields over the last year has brought significant unrealised investment gains into our reported profits, however it is important to remember that these gains are illusory and will unwind as the investments return to par value as they mature.

Liberty Syndicates considers itself a ‘Must See Market’.  What does that mean in practice? 

Liberty’s clients and brokers are at the heart of our business model which has a primary focus on offering a first class underwriting service.  We underwrite a broad spectrum of specialist insurance and reinsurance risks, often tailoring packaged products to offer our clients practical and convenient risk management solutions.  Considering our size, global reach and underwriting expertise, we believe that Liberty Syndicates is too significant a market to ignore.