Aspen Emerges From London Roots

At the start, he said, Aspen received the right to offer renewals to a set of reinsurance clients previously with Wellington, paying Wellington a consideration for exiting the reinsurance business for a period of time. "We knew the history of those contracts not just who our clients were, but which dealswere good, which were very good, and which were not so good," he said.

In a nutshell, the situation offered the best of both the London and Bermuda worlds. Like other Bermuda start-ups, Aspen didn't have legacy liabilities, but unlike other start-ups, it also had the competitive advantages of an established company.

"We didn't have to build a book from scratch. We essentially had 10 years or more of history to draw on" and business relationships already in place, Mr. O'Kane said.

While Aspen had an agreement to exchange quota shares with Wellington in Aspen's first year, those have now lapsed, he said, adding that Aspen also buys information technology services from Wellington in a deal set to be phased out this year.

"When we started, it was a real advantage to have a ready-made IT system which we could immediately deploy as opposed to thinking about building one," Mr. O'Kane said. Aspen, however, has grown to be a more diverse international operation, demanding a system better designed for its needs going forward.

Aspen's business plan is centered on two key strategies geographic diversification that takes it beyond London and Bermuda, and an emphasis on specialty lines of insurance.

"We never tried to do mass-market business business where cheapness or efficiency of the delivery process was the key to success. We tried to do the sort of thing where intelligence and creativity add value where clients have complex issues," Mr. O'Kane said, describing a specialty bent that originated in London at Wellington.

"Wellington is a very successful underwriting business. If it had a disadvantage, however, it was that all of the underwriting was done at Lloyd's," he continued.

"We took the view that we had the right skills, talent and underwriting strategy, but we didn't necessarily have our capital and our people in the right places," he said, moving on to describe the importance of proximity in writing U.S. excess and surplus lines business one of Aspen's specialties.

"You can make some reasonable returns [writing it from London], but the best U.S. E&S business stays in the United States. It doesn't go to Bermuda, and it doesn't go to London," he said. "To access it, you need to be doing it from a U.S. platform to have U.S. citizens on U.S. soil, talking to other U.S. citizens on U.S. soil."

Aspen writes E&S business, such as small non-admitted property risks including vacant properties (with a typical limit of $5 million) and what Mr. O'Kane terms "the lighter end of casualty" from Aspen Specialty in Boston.

After setting up in Boston and expanding to open two additional specialty insurance offices in Scottsdale, Ariz., and Atlanta, Ga., Aspen again followed its strategy of getting its capital and people in the right place by moving its property reinsurance team to Bermuda last year.

"Particularly for property-catastrophe, Bermuda is the primary location" for writing property reinsurance, Mr. O'Kane noted, reporting that 60 percent of Aspen's property reinsurance underwriting is now done from Bermuda. The biggest and most skilled writers in the property-catastrophe reinsurance arena are located in Bermuda, giving the island its number-one market share, he said. "It's like a virtuous circle. The more people who do it and do it well, the more others want to," he added, suggesting that Bermuda's reputation for skilled writers attracts even more of them.

Still, 20 percent of Aspen's property business is underwritten by a U.S. team based in Connecticut. "Some kinds of business require you to be very close to your clients to carry out audits," for example, he said, noting that this is particularly true for working covers as opposed to catastrophe covers, and for pro-rata treaties rather than excess.

What?s Next? Air, Sea And Managing Capital

With the Bermuda team now writing most of Aspen's U.S. property reinsurance business, the company has refocused its London-based operations on Europe and Canada, and toward new line-of-business initiatives in marine and aviation insurance that play to strengths of London?s distribution network.

Mr. O?Kane noted that, at Wellington, the book was 65 percent insurance and 35 percent reinsurance. But with reinsurance business coming to Aspen from Wellington initially, Aspen wound up with an "overdeveloped reinsurance side and an underdeveloped?or yet to be developed?insurance side." More than 75 percent of Aspen?s business is reinsurance today.

"The kind of insurance we want to develop is in this specialty arenaIt was always part of the plan that we would develop those lines," he said, referring to marine and aviation, "but not faster than we could find the right quality people."

"It took us time to attract the marine and aviation teams we wanted. As of today, we have only written one aviation policy," he said during an interview two weeks ago.

While Mr. O?Kane said Aspen?s aviation team was chosen because of its ability to distinguish profitable segments in a generally challenging business?and to build connections and expertise around those?he declined to identify the segments Aspen will target. "Let?s just say, avoiding the bigger airlines [is] a good thing to do."

Mr. O?Kane sees future opportunities for Aspen in marine liability and hull, and particularly in the related energy segment as a result of larger-than-expected losses that insurers and reinsurers experienced as a result of Hurricane Ivan last year.

"That has been a bit of a shock to the modelers," he said, referring to losses from offshore oil and gas platforms initially pegged at about $750 million and recently estimated to be as high as $2- or $3 billion by some experts.

While Aspen didn?t have insurance exposure to the event, the marine insurance team was being put in place that will now respond to the market opportunity that emerged. "Partly it was planning and partly it?s a little bit of luck," Mr. O?Kane said.

Turning from opportunities to challenges, Mr. O?Kane said the biggest challenge ahead for Aspen will be convincing investors that downsizing is the right thing to do as the market changes.

"So far we?ve been a growth story?[with] quite rapid growth. But as the industry moves to a phase when growth is challenging, Aspen will strive to manage capital downward appropriate to the size of the enterprise rather than artificially maintain the size of the enterprise appropriate to how much capital we happen to have," he said. "That?s our corporate ambition and strategy."

"We?ve yet to go into the public in detail on thatBut we shouldn?t take it for granted that investors will understand the strategies," he said.

Stepping Out From The Pack

Asked what characteristics set Aspen apart from the class of Bermuda players formed after Sept. 11, Mr. O?Kane highlighted two attributes?a stronger European presence and underwriting-led culture that distinguish the company from some but not all of them.

Aspen underwriters recognize the "need to be a little more technical [and] to know how to negotiate," he said, focusing on the cultural distinction.

"I think these days there?s a tendency in the marketplace to run a model and not exactly understand [it]?simply taking the results and saying, 'the price is X. Take it or leave it.'"

"Our underwriters understand what goes into the models, and a lot of them have built models themselves, which enables them to talk intelligently to customers," Mr. O?Kane said.

The underwriters can identify components of coverage a buyer might not really need and provide alternative lower quotes during a negotiation process. "Our endeavor is to work creatively and collaboratively with our producing brokers to sell the product that [clients] really need, rather than a cookie cutter approach out of the model."

Reproduced from National Underwriter Edition, March 4, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.