One year into the newly created role of head of North America, Axis' Mike McKenna joins the Leader’s Edge podcast to discuss how he plans to execute on opportunities in the market as Axis dives deeper into specialty lines.
McKenna drills down into where the opportunities are in the difficult casualty market, discusses the company’s new Lloyd’s syndicate focused on the energy transition, and talks about serving the lower middle market effectively.
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Mike McKenna
I would start out by saying I believe that the core principles and qualities of a good, strong underwriter haven’t changed over the years. The evolution of technology is enhancing outcomes in areas like predictive analytics and really what all of these techniques do create more risk-related information available for the underwriters.
Sandy
Welcome to the Leader’s Edge Podcast. I’m Sandy Laycox, Editor in Chief of Leader’s Edge. In this podcast sponsored by Axis, I talk with their Head of North America, Mike McKenna, who is focused on both the retail and wholesale businesses. A year into this newly created role, Mike discusses the company’s pivot into specialty products on a broader basis and how he plans to execute on the opportunities Axis sees in the market.
Mike McKenna
In North America specifically, we’ve had a realization that there are market opportunities, there are market segments that we haven’t gone into deep enough as well as we have some additional capabilities that we want to bring to the market. So as such, that was the impetus for the role and my remit really is to build on this footprint of underwriting excellence, execute on a strategy that’s both in force and one that I’m creating, and then look for profitable growth opportunities with our highly strategic distribution partners. And how are we going to do that? We’re going to lean into and cycle manage through our legacy product base.
We’re going to look at new and additional markets as well as new products like our LMM (Lower Middle Market) offering as well as some other specialty lines and really as a way for us to kind of penetrate some of these areas with the distribution partners that I mentioned earlier and create profitable opportunities for us and our shareholders.
Sandy
Next, we get into the specifics of particular markets in which Axis is focused, including taking a closer look at where they see opportunity and casualty amid the environment of social inflation.
Mike McKenna
Some of the things I’m focused on and I could probably work in three different dimensions. So I mentioned deepening our strategic trading partner relationships with our brokers as one, expanding our product capabilities and then also looking at our segmentation strategy. So specific to product capabilities, we’ve seen, studied and identified areas where we think we can add value. As a specialist, we’ve hired teams of people in various specialties like ocean marine in the U.S. Construction in the U.S. Inland marine in the U.S. And we’ve also added additional leadership across our environmental businesses and our casualty businesses. And the reason we’re doing that is because we see opportunity for us to bring more specialist underwriting talent to those areas and really commit to a proper offering for our distribution partners. We see the opportunity there.
The strategic brokers are telling us they would like us to look at these spaces and when we have that marriage of sort of want and need, that’s why we’re in those spaces.
Sandy
Let’s talk a little bit more about casualty for a second. I’m just curious because lately we’re hearing questions about the market being too soft? And I’d just love to hear your thoughts of getting into that line and where you think it’ll go.
Mike
Yeah. So at Axis, we have a long and storied history in the casualty space, we write the predominant portion of our book in the wholesale space, in our primary and excess casualty books. At the moment, there is a market sentiment around casualty and looking at the overall cost of goods sold against the price and then also overlaying the trend factors and we’re looking at that as well. But we do see some opportunities specifically in the excess casualty space. We have an underwriting strategy where we’re reducing our limits. We’re looking at our geographic footprint offering as well as we’re in a marketplace that we can still achieve rate. And there’s quite a lot of market phenomenons that are happening that are driving that. We have business flowing from the retail sector into the wholesale sector around the phenomenon of social inflation.
As an example, cost of goods sold is rising. Companies are realizing maybe that some of the loss picks from prior underwriting years are not where they need to be. And that’s fueling sort of this impact in the E&S casualty space in particular, on the construction side for us, we’ve committed a team of folks to look at construction on the infrastructure side in relation to what’s happening in the infrastructure spending. Bill, as an example, larger projects, we can bring expertise on the primary side, on the excess side, in a lead position and in a follow position. And again, it’s when. When business and as well as infrastructure is being put together and being built and we feel like we can bring that expertise to the table. We’ve employed loss control folks to help us on that end and we’re committed to that market space.
And we do have a sizable presence on the construction side out of our London operation. So it’s a natural progression of some of the talent that’s in the organization.
Sandy
The conversation takes a more operational turn when we discuss serving the lower middle market customer segment, Mike discusses what it has taken operationally for the company to best serve these clients.
Mike
It’s a customer segment that we’ve traditionally not focused in on and some of the items that we have implemented to go and look at this market space have been we’ve actually separated our teams. We’ve added a team of lower middle market specific specialists. The wholesale sector as an example. They will be looking at property primary casualty and excess casualty, focusing on accounts with revenues in the $100 million range, which is on the lower end of what ends up into the wholesale channel. And we have dedicated teams to handle that business. And we’re also looking at servicing capabilities to speed up the process through technology data ingestion, quick to quote and usually in that space first to quote can end up being first to bind.
Sandy
That was going to be my next question on is it, are they a more tech driven service group versus you know, a large clients?
Mike
I would say that the industry is moving toward more tech-driven results in the space we’re targeting, between $10,000 and $100,000. Technology is increasingly supporting that industry. Digitalization, especially in submission and data transmission, is coming to the forefront, and we’re employing technologies to streamline that process. So we’re a little bit above the contract binding space where you would see more API driven and more straight through processing. But we’re trying to implement these strategies to sort of soften the cycle between complex underwriting and more risk adjusted sort of underwriting techniques.
Sandy
As we move into new tools and technology, I ask Mike his thoughts on the evolution of underwriting given his background as a chief underwriting officer. And then we get into climate change and the new Lloyd’s Syndicate.
Mike
I would start out by saying I believe that the core principles and qualities of a good strong underwriter haven’t changed over the years. I believe that the evolution of technology is enhancing outcomes in areas like predictive analytics, like sophistication, in deterministic as well as stochastic and probabilistic modeling on both the property and liability side as well as the emergence of AI. And really, what all of these techniques do is create more risk available information for the underwriters to really augment their empirical experiences and the empirical loss data that we have to impact the pricing in a positive way based on better, stronger and more predictive information.
Sandy
Do you feel like the industry has that in the natcat space currently enough of that kind of data?
Mike
I feel it continues to be an evolving science. I believe from a Nat Cat (Natural Catastrophe) perspective, the modeling agencies have done a really good job at expanding their capabilities, adding new regions, adding new perils, taking the substantial amount of lost data that’s available and applying it to those models, creating different outcomes specifically to these perils. And in the United States alone, we can see the impact of severe convective storm as an example used to be a secondary peril. And in my opinion it’s a primary peril now based on the amount of damage that is being done from the SCS activity in the US in the industry, as well as to the individuals affected.
Sandy
Yeah, you see that a lot. The convective storms are really driving a lot of loss in Europe.
Mike
And, as well, it is definitely an impact of global warming. We see it, we see it in the results. There are a lot of other factors that impact it as well. More coastal sort of building which is creating it. But we think climate change is definitely real and here to stay. We think the modeling agencies are doing a nice job at helping us understand that risk factor and also being careful on how we look at aggregations as an industry as well as at Axis.
Sandy
Well, you did a great job transitioning that for me. I was going to ask you a little bit in the climate change area. Axis is committed to supporting the clients transitioning to low carbon and I’d just like to hear a little bit about the work going on in that space. And I know you all have a new Lloyd Syndicate in that as well.
Mike
Yeah, we’ve long been an insurer of renewable energies and the team globally works on offshore wind, solar as well as newer technologies. To support a greener economy such as energy storage, floating wind energy infrastructure, our team of underwriters, engineers and claim specialists are globally covering these risks. And more recently our team in London has launched a new proposition which is Syndicate 2050 as you referenced, and that is a syndicate that is a recognition of ours. You know, one of our biggest challenges is to ensure the risks as companies transition from fossil fuel based technology into newer, cleaner, greener technologies. And we’re going to commit many products to this across our ocean, marine business and cargo. For instance, some of our property risk associated with green technology, construction and builders risk as well as operational risks as well.
We’re very excited about the opportunity for 2050 and we think it’s a long term viable opportunity for a specialist to really bring value to the market. I would just like to say, you know, Axis is committed to the specialty marketplace. We see tremendous opportunity for us to continue to grow our business. We are open for business, we are looking for talented individuals to join the firm and we will continue to see opportunities for both the organization, the shareholders as well as talented individuals. We place a high value on the employees, and we really look to cultivate and to build the individual development of those individuals that work for us. And we’re excited about the opportunities for the group going forward. So thank you for the opportunity today.
Sandy
That was Mike McKenna, head of North America for Axis. I hope you enjoyed our conversation. You can find more Leaders Edge podcasts, including several others with axis leadership at leadersedge.com.
