Torus signals German intent with war risk cover for shipowners

This was remarkable in several ways. While market leader Allianz offers such policies, but only through international offices in New York and London, other companies refrain from this line. The reticence is due to a mixture of fear of becoming the victim of a political debate in the country and the fact that most companies do not have the underwriting experience for such business.

There have been other attempts in recent months to set up a war risk facility—but Torus was first. While the capacity of €50m will not particularly excite the market, it is the strategic thinking behind the move that made risk managers listen to what Torus had to say, even if they have no need for marine hull insurance.

hide

The country’s shipowners need war cover to insure their ships against loss or damage caused by war, terrorism and piracy. Normal ship insurance usually excludes war risks. That is why shipowners and operators usually shop in London for supplementary cover for ships that have to sail through areas of conflict. “By contrast, we want to operate actively from Germany, ” said Clive Tobin, chief executive officer at Torus. “We want to decide here in Germany about the insurance risks we take and also settle any losses that incur from Germany.”

Thus, Mr Tobin made it clear that the company is set to become a force in the contested German market. “We do not want to run Germany from London,” he added, and thus differentiated Torus’ entry into Europe’s largest insurance market from many earlier attempts by other international players.

The Torus head office is located in Bermuda; its administration is in London. The company was founded as recently as 2008. Clive Tobin, who was head of XL Insurance until the beginning of 2008, believes that Torus came through the crisis better than many rivals.

“Our financial backers actually wanted to concentrate on insuring the energy sector,” he said. That is not surprising given that more than $800m (€607m) of its $991m equity capital comes from US investor First Reserve in Greenwich, Connecticut. First Reserve has around $12.5bn under management, mainly in the energy sector.

“When Torus was established at the beginning of 2008, the crisis caused a huge number of good insurance people to be thrown onto the market, ” said Mr Tobin. This gave him a chance to build a much more diversified operation.

Torus is currently still a specialised insurer but not all of its 400 staff work in the energy sector.

“We have hired a lot of energy specialists,” said Mr Tobin. “Many people from organisations that are recognised as industry leaders, and from both underwriters and engineering.”

“We are one of the few companies with engineers who are experts in off-shore rigs, for example…So when the Deepwater Horizon situation happened, we were approached to look at a product which would provide additional coverage.”

Both Torus and First Reserve are aware of the conflicts of interest that could arise. “Thus, we are very cautious. We typically do not insure First Reserve’s investments because they don’t want to have to pay it from another investment if one of their investments has a loss and they are insured.”

The company grew rapidly in 2010, not least due to mergers and acquisitions. In 2009, it earned premium income of $265m. “In 2010, the figure is $750m,” said Mr Tobin, with the company predicted to at least break even.

This is not all organic growth. First Reserve merged its Syndicate 2243, which is active in the London insurance market Lloyd’s, into Torus. That added some $80m. The new company also took over renewal rights from insurers controlled by hedge fund Citadel, which is set to bring $175m in premiums for 2011.

And, of course, the key step with a view to developing the German market was the takeover of Liechtenstein and Cologne-based Glacier Insurance with around $250m premium income. Glacier Insurance was the primary company set up by Glacier Re, the Swiss-based reinsurer now in runoff. The German Torus team under Tim Hofmeister now works from the offices in Cologne’s Spichernstrasse.

Torus’ approach to technical underwriting could well prove attractive to the German market. “I always had the vision of building a company in a very different way,” Mr Tobin said. “Value for your client is first of all technical knowledge, so we try to hire the best people.” Many accounts come to Torus due to the fact that it hired certain specialists. “We had a client in London the other week who came in and said, look, we put you on a programme because we think you have the best engineering in mining, because we have worked with this engineer for five years, and you hired him.”

A second issue that Mr Tobin wants to tackle is contract safety. “Everybody talks about contract certainty and getting the policy out on time, but to me the most important thing is clarity about what happens when you get a loss,” he explained.

Torus is currently in a joint project with a major broker looking at all large losses that have led to claims disputes. “We will be sitting down with them and trying to understand why they had those disputes,” Mr Tobin explained. “We want to see what we can do to really improve the level of certainty when an event happens.”

Business interruption is a classic example, Mr Tobin said. “When there is a loss, it often takes one year or 18 months to settle the claim.” This is frustrating for both client and insurer. “In the end many people change carriers because they are very frustrated with the process,” Mr Tobin said. “The last thing you want when you write a big cheque is for somebody to say, I want to go somewhere else.”

Mr Tobin admitted that currently the company could not lead programmes for German clients. “That is true at this stage,” he said. “We have the technical capability to lead, though. But we do not have the network.” But Torus could certainly lead a programme in Europe and the US and although they would have difficulties servicing clients with operations in Asia and Latin America Mr Tobin is set to change that.

Torus also plans to give clients more transparency on large risks. “We spent a huge amount of time on catastrophe modelling, so if clients in Europe want help with catastrophe modelling we can give them a lot of insight into that,” said its CEO.

But why would a client use Torus and not one of the established cat modellers? “Because we can give them a blend of both catastrophe modelling and how the underwriters look at catastrophe modelling,” said Mr Tobin.

“We also intend to insure risks in our special segments,” he said. Torus plans to offer D&O policies on the European market in 2011—helped by a new high-tech tool. “We spent six months with a company in India developing an internet portal which writes liability business for small companies,” he said. “We have just launched that net in the US and we want to bring that to Europe in late 2011.” It will be used to write D&O and general liability. “The goal is to become very fast. If the risk is accepted, the policy gets issued online, the whole thing takes 15 to 20 minutes.” Torus is currently looking for brokers in Germany working in that market segment, he said.

“We have an incredible potential for fast growth with our team, ” said Mr Tobin. However, that could be risky given the continuing low level of prices. “Our biggest challenge right now is to remain disciplined…I would not have expected the casualty market to stay as weak as it has for so long,” he added.

On the other hand, the current market situation offers potential for takeovers. “If we find suitable objects, First Reserve will give us the capital. ” This was also true for the German market, he added.