Meet the investment banker who gave insurance a whirl

Elizabeth Fournier
AFTER the chaos of last year, 2012 has so far been something of a relief to the insurance industry. A perfect storm of floods in Australia and Thailand, the Japanese tsunami and nuclear disaster and the earthquake in New Zealand made 2011 the second most expensive on record for the Lloyd’s of London market, and its members spent the year delivering gloomy updates to investors as claims piled up.

Amlin, the FTSE 250 group run by chief executive Charles Philipps, certainly didn’t emerge unscathed, but just a year after making an £192m pre-tax loss the firm turned in a profit of £185m for the first half of 2012. The recovery seems swift considering the scale of last year’s adversity.

“As well as a far more benign catastrophe environment, we’ve seen a strengthening of margins across the business,” says Philipps, relaxed and self-assured in his office in the heart of London’s insurance district.

Despite leading Amlin through the aviation and liability nightmare that followed 9/11, Philipps, who became chief executive of the group in 1999, says he’d never seen before anything close to the catastrophe activity last year – a series of events that Amlin’s risk model predicts should come around less than once every 30 years.

It has so far led to a slight reduction in Amlin’s appetite for risk in 2012 – catastrophe risk in particular – but Philipps sees the change as temporary, and is keen to get back on track with a growth plan that was thrown off course by the string of disasters.

Old City through and through, Philipps has the air of a slightly overgrown schoolboy (Eton, of course), but when it comes to talking strategy he’s pure business, with the company’s facts and figures on instant recall.

“We have a policy of steadily increasing the dividend over time, and while we were able to at least maintain last year’s dividend, a repeat of something similar to 2011 would have put a lot more pressure on the balance sheet,” he says. “Now we’re getting back to the position where our levels of spare capital are at the position where we would be able to pay an uncovered dividend if the circumstances demanded it. Depending on how the rest of this year pans out, I would expect us to look at increasing our appetite for catastrophe risk again next year.”

While facing the industry wide challenge of disaster claims and the wider economic downturn, Amlin has also been tested by an internal struggle to turn around ACI, the corporate insurance arm of defunct Dutch lender Fortis that it bought from the country’s government in 2009. Up until as recently as last year analysts were calling the acquisition a mistake, with ACI’s £44.7m of underwriting losses in the first half of 2011 adding a significant chunk to the company’s overall shortfall. It was a performance that could have threatened Amlin’s reputation as much as its balance sheet, but at a recent investor day analysts seem to have been convinced that the business is back on track.

Philipps is unfazed by the slower than expected progress, and says there is always a “natural delay” in seeing the fruits of your labour pay off.

“We felt intuitively that it should come through but until you can actually demonstrate it, it’s quite difficult,” he says. “Now we’ve got a far stronger management team than we had initially. We’ve cut out about €200m of business. We’ve introduced Amlin’s risk management processes, underwriting philosophy and standards.”

It seems to be paying off. For the first half of this year ACI reported a combined ratio (claims and operating expenses as a percentage of premium income) of 102 per cent, down from 119 per cent the previous year, and it is expected to break even in underwriting by the end of this year.

Combined with rate rises, which Philipps says can outgrow inflation “for now”, the future is looking a lot rosier for Amlin – with even the ongoing economic turmoil providing opportunities of a kind. “In an uncertain world people are more inclined to buy protection,” says Philipps. “So a company like Amlin can still find areas in which to grow.”

Despite his upbeat outlook, there are certain hazards still inevitably hovering over the head of the chief executive. The Eurozone crisis is one of those concerns, with Philipps admitting that the company has completed a risk management assessment of how a break up of the single currency would affect Amlin both in terms of how European insurance contracts would be affected, and on how best to manage its investment portfolio.

But, with the chances of that looking “a lot more remote than they were six to nine months ago,” Philipps has bigger European fish to fry – namely Solvency II, an EU review of the capital adequacy regime for the insurance industry. First proposed in early 2009, consultations have dragged on, with delay after delay as legislators struggle to agree on final terms.

The lack of certainty clearly frustrates Philipps. “I would hate to add up the management hours that have been devoted to reading, digesting, and completing regulatory submissions – it’s just extraordinary,” he says.

Implementation is currently pushed back to the beginning of 2014 but recent reports suggest it could be delayed even further. In the meantime, all the insurers can do is wait for clarity – and pray that the UK doesn’t goldplate the European standards.

It’s something that it’s been suggested could drive firms abroad, but for the moment Philipps is hedging his bets. However, his warning to the regulators is stark. “If the costs of compliance are so much greater than they are in other jurisdictions to satisfy the regulators’ needs, people will consider moving to another jurisdiction.”

It’s a rare moment of frustration from the affable Philipps who, despite his impeccable credentials, doesn’t quite fit the classic Lloyd’s mould. In fact, after qualifying as a chartered accountant, he spent the first years of his career as an investment banker.

His route into the insurance business came part by design and part through fate, when he helped form and spin off Angerstein Underwriting Trust while working in NatWest’s markets division in the early nineties. Five years later Angerstein merged with Murray Lawrence and rebranded itself as Amlin – a £260m business of which Philipps became finance director.

The venture was timed perfectly with Philipps’ personal plan for his career. “I’d promised myself in 1991 that by the year 2000 that I would quit investment banking,” he says. “By then I would have been doing it for 18 years and wanted a change in life – so I thought I’d give insurance a whirl.”

Luckily for him, and for Amlin, his venture paid off – staying at the top of a company for 13 years is rare these days, but Amlin now has a market capitalisation closing in on £2bn and in 2008 it even made a brief foray into the FTSE 100. “I was not expecting to become chief executive, and I own up to being extremely green when I first took it on,” Philipps admits. “I found it very different to investment banking but very enjoyable.”

And for the moment it seems like he’s still finding it enjoyable, with no nine-year plan in place to get out of the insurance industry. “Not this time,” he says. “I’m happy where I am.”

AGE: 53

EDUCATION: Eton College

WORK HISTORY: Joined NatWest Markets Corporate Finance in 1983 having qualified as a chartered accountant at Binder Hamlyn, and stayed until 1997 when he joined the newly formed Amlin as finance director. Became chief executive in 1999.

HOBBIES: Keen on sports and adventure; has been a trustee of Outward Bound since 2010, and recently abseiled down the Shard to raise money for the charity.