Patrick Snowball: Bankers and regulators are ruining the GI market

Long time Certus client Patrick Snowball gave this interview to Post Magazine's content director Jonathan Swift in February 2016

Patrick Snowball: bankers and regulators are ruining the GI market​

Many of the UK’s major general insurance companies are suffering because their boards have turned the businesses into pseudo-banks, and manage them accordingly to pacify the authorities.

That is the view of former Aviva group executive director Patrick Snowball, who laments the lack of "general insurance people" currently running these organisations, and the fact systemic risk now exists where it did not previously because regulators have driven out diversity.

Speaking five months after leaving his role as CEO of Australian financial services group Suncorp, he told Post: "It has something to do with the path that regulation has gone, and the fact insurers have been treated as - and thus constructed - as banks. As a result boards have become more convinced that those with banking experience can run general insurers.

"If you do an analysis of these boards - whether supervisory or management - there are very few people with extensive GI experience on them. But these businesses are very complicated, and people don't understand that."

He added: "They think because they are regulated like banks, you run them like a banks. That is just not the case. Especially as bankers involvement in insurance companies is quite chequered."

Asked about whether there were any firms that bucked this trend, Snowball - who stepped down from Aviva in 2007 - pointed to the likes of XL Catlin and Beazley as firms that had "absolute clarity" about their strategies: "My sense is that there is not enough technical understanding of GI in the place that there needs to be, either at executive or non-executive level, in the major conglomerates."

Reflecting on how times have changed since he entered the GI space with then Norwich Union subsidiary Ajax he noted there were "many more companies of medium size", therefore, "there was a broader range of people "who faced slightly less complex challenges".

"Go back to 1999, and sitting around the table [at the Association of British Insurers] would have been four people representing [his business] London & Edinburgh, Norwich Union, General Accident and Commercial Union. Within 18 months I was sitting there with £6bn of premium in this monster machine [CGNU, after all four consolidated]. And that jump is very big," Snowball continued.

"The mergers have caused considerable consolidation, which has required a change in skills mix [at the top], and perhaps it has been difficult to find that [within the GI space] because of the smaller number of individuals from whom you can now choose."

One of Snowball's biggest concerns over the fact GI "has been forced into a banking framework," is the fact the space is now regulated as if there is systemic risk, when historically he believes there has been none.

"If there is systemic risk, then it has been created by regulators. If you force every insurer to have the same investment profile and the same type of instruments in their technical reserves; if you penalise diversity in your shareholder returns and you force people into a very rigid model of reinsurance, then you end up with everybody in the same place, which is not healthy.

"As a result we have got the law of unintended consequences where we have systemic risk where there wasn't any previously."

Looking at the make-up of the ABI board today - which covers life, health and GI - it is notable that there are only three who are listed as either Chartered Insurers or Fellows of the Chartered Insurance Institute: Allianz CEO Jon Dye, Swiss Re's Russell Higginbotham and Standard Life's Paul Matthews.

By contrast, eight have actuarial, accountancy or banking backgrounds. Albeit the likes of Aviva's Maurice Tulloch and Hiscox's Bronek Masojada have spent almost a quarter of century working in GI for one firm.

CII director of financial services and insurance markets Steve Jenkins said that in his experience GI operational boards did demonstrate a more rounded make-up than might be evidenced by picking out individuals in isolation: "There is no black or white here; you need a blend of skills at the top of these firms; and that includes not only people from other sectors, but from other countries too, which is something we have seen an increasing amount off because insurance is a global industry, and that is very positive.

"If you look at the work that we are doing which is focused at those under the executive boards - in middle management and below - we have some significant momentum, which will come to the fore in future years when I expect there will be a higher proportion of people with what might be considered core insurance skills in senior positions."

Snowball on his future

"There is definitely a next challenge," says Snowball. "The way I describe it is that I am looking for somewhere where I can make a meaningful contribution. That is potentially working with private equity, it perhaps chairing a non-public company; it could be an invitation to join an interesting board where I can contribute as a non-executive.

"And I don't restrict myself to just general insurance. I am one of the few people who as a senior executive has overseen regulated banking, life insurance and wealth management companies. I also bought the RAC, so I understand the whole service sector as well. So I am throwing the net very wide, but making sure I don't jump on the first bus that arrives at the bus stop."

As to where he would prefer to be based, he concludes: "It is most likely to be European-based, but I have not ruled out basically anywhere that is one flight away from London. Australia is just too far away. I had a wonderful six years there, but it is not something I would repeat."