Kayzen Specialty's Boorman: Attracting business in a softening market

By Rebecca Delaney

June 4 - (The Insurer) - As the financial lines market observes rate reductions across both commercial and financial institutions (FI) business, Kayzen Specialty's Charles Boorman spoke to The Insurer about the challenges and opportunities of growing an MGA in a softening market.

Boorman, founder and CEO of the London and regional UK financial lines MGA, told this publication that signs of market softening have manifested in increased line sizes and broadened appetite, particularly in D&O.

"It's pretty standard soft market stuff to try and recoup lost premium, with insurers wanting to retain their business; possibly not at all costs, but if it's something that's in their appetite, then I think insurers are much more keen to defend it than they would have been two or three years ago," said Boorman.

"The dynamics of D&O are such that you can soften exclusionary coverage. You ask questions as an underwriter: do we really need this exclusion? Can we operate without that exclusion? Are we happy to underwrite this risk on the basis of a softer version of an absolute exclusion? It's a typical soft market situation where there's general loosening of exclusionary language in the D&O space."

Another significant signal of changing market conditions is rate reductions in FI business.

Boorman outlined that where previously the FI market did not experience significant fluctuations in inflows and outflows of capacity compared to the commercial space, an influx of capacity over the past two years has led to increased competition and rate movements.

"Where people have been slightly surprised is that we're now seeing reductions in FI business. It's not as much as on the commercial side, where the inflows of capacity in the last two or three years have been much greater than FI," he said.

"If your account is 50% commercial and 50% FI, historically you might expect commercial to be going down and spike but FI to be relatively flat, which means that your overall rate reduction is around half. But what we're seeing now is that both are going down."

Boorman continued: "It depends on what book you have as to the rate decreases that you're seeing, but I would say probably minus 5% to minus 15%, somewhere around there. I guess minus 10% as an average, but it depends on the make-up of your book."

He added that managing this transition of the market cycle can sometimes cause tension between senior management and D&O underwriting teams, with the former experiencing a time lag in underwriting results and therefore demanding continued growth even after the market may have turned.

"The person on the ground might be saying, 'We're going into the depths of a soft market, I don't think it's the right time to grow the book.' How that tension is managed is going to be really interesting as we continue down a similar trajectory," said Boorman.

This is exacerbated by the long-tail nature of D&O and other financial lines products, which further complicates the decision-making process around pruning or expanding a book in relation to market conditions.

"There's always a lag as a result of that internal tension and the long-tail nature of the market," Boorman continued.

"As the cycle goes down and rates reduce, underwriting teams directly should be thinking to themselves: to what extent do we need to tighten the reins? Are there any outliers? That is all part of the decision-making process in a softening market. The external forces, the tension, the long tail: all of that means it's very difficult to get it right."

In the middle of this, Kayzen Specialty is trying to "get it right," having launched in 2023 through Mission Underwriters' incubator platform and commenced full trading around a year ago after gaining its EEA licence.

The name is taken from the word "kaizen", referring to a Japanese business philosophy of "continuous improvement".

"We're in a specific situation in that we're relatively new. We're still quite small, but we still want to attract and write business. How do you acquire new business in a softening market? Cheaper price, broader coverage, better service," said Boorman.

He continued: "In my experience, if you look at the lifecycle of an insurer that writes financial lines, they're really successful then they plateau and, actually, most of them dip. You see the same names build a book, do it quite well and then, for some reason, things fall apart a bit and they lose that business to someone else.

"Part of it is you get to a point where you become a cash cow. A cash cow either becomes a star or a dog. The continuous improvement for me is to grow, but always come up with what's going to stop me from plateauing."

Boorman concluded that while the business is currently focused on growing its renewal book rather than product or geographic expansion plans, the pipeline for the next six to 12 months remains promising.

"We're called Kayzen Specialty for a reason, it's not Kayzen Financial Lines. The idea was to start off with financial lines and then potentially move on to classes business and build a specialty business. That hasn't happened yet, but we're really early stages in the lifecycle," he said.

"There's a high chance that in six months time, or certainly a year's time, that we would have added to what we're doing at the moment. I think that in five years' time, we could well be quite a different beast."