When RSA Insurance Group withdrew its support for fixed premium protection and indemnity provider Lodestar Marine late last year, few observers gave the company a chance of survival in a moribund market that was chronically overloaded with capacity.
The consensus was that Lodestar would struggle to find a new backer. RSA had cited poor profitability as the reason it removed $500m of capacity support from Lodestar — part of Ryan Specialty Group — and there were few signs the market was improving.
Lodestar managing director John Hearn said RSA’s withdrawal should not be taken as a sign that Lodestar was struggling. He said it had come as a surprise because both companies had been successfully re-underwriting the Lodestar insurance portfolio.
However, within three months Lodestar had struck a deal with Aspen Insurance to replace RSA’s backing just ahead of the 20 February renewal.
Taking stock
Today, Hearn believes RSA's decision had more to do its own wider financial reforms rather than dissatisfaction with the way the restructuring of Lodestar was progressing.
Hearn said: “It came as a surprise because RSA was engaged and our opinion was that they were in for the long run, particularly as the re-underwriting had been introduced and everyone was happy with the way things were going.
"It’s only now we look at what is happening with RSA on a more general basis [and] we think the decision was not so much about Lodestar.”
Cleaning up Lodestar’s book involved reducing exposure to traditional general cargo and small dry bulk markets, where the collapse in premiums was most severe, and replacing it with more specialised business, where the claims record was better.
“We’ve seen the prices driven down year-on-year and it got to the point where we said, 'look, this is no longer sustainable'.
Risk versus reward
"The risk was outweighing the reward, so we had one or two choices. We either scale back or look to impose increases and carry on writing it,” he said.
Hearn concedes Lodestar’s book has shrunk with Aspen’s backing coming just too late for the renewal. But some of the business it has had to let go was unprofitable anyway, said Hearn.
Now, Hearn suggests, owners are more willing to accept an increase in premiums because of hardening rates in the Lloyd’s market and in the reinsurance market.
“Compared to 2018, when we started to increase premiums and there was a lot of resistance in the last quarter, we have seen retention levels increase significantly because more people are starting to sense there is a shift in pricing.
"Lloyd’s [is] starting to undergo a huge transformation and people are getting more used to paying increases again.”
Despite the troubles of the fixed premium market, Hearn believes there is plenty of opportunity in future to develop the managing general agency (MGA) platform, through which Lodestar operates. The longer-term ambition of the company is to use the Lodestar P&I platform to branch out into marine insurance.
Diversification drive
“Let’s say, for the sake of argument, we insure 2,000 vessels. We could potentially cross-sell other types of business to these existing owners and operators and enhance the profitability of the agency, rather than just focus solely on P&I and write as much as that as possible. The MGA platform allows us to do it.
"The focus at the moment is on P&I and getting things up and running with Aspen but the longer-term view is on diversification,” Hearn said.
