Charting Lockton Re’s journey into full spectrum broker

Four years ago, Lockton Re was a relatively small reinsurance broker, with fewer than 40 staff, a London market focus and a niche for international casualty business. All this changed, Keith Harrison, international CEO, Lockton Re, explains, once the wave of mega reinsurance broking mergers and acquisitions (M&A) began to unfold. At the time, he was reinsurance broker JLT Re’s CEO for the UK and Europe. 

“There’s been a lot of disruption in the reinsurance broking world, largely through M&A, but also a lot of movement in people,” he says. “There’s also been a distinct dumbing down of investment in things like contract wordings. It’s also a lot trickier to manoeuvre from a technology perspective, when you’ve got multiple large and established platforms.”

Harrison lists some of the biggest deals in recent years, such as Gallagher Re’ mergers with Willis Re and Capsicum, and Howden Tiger, which completed at the start of this year. The acquisition of JLT by Marsh, and JLT Re by Guy Carpenter, completed in 2019, represented a punctuation mark in the consolidation of reinsurance intermediaries, he emphasised, as well as his own career path. JLT Re, although significantly smaller than Aon, Guy Carpenter or Willis Re was “a clear number four” behind the big three.

“It created a vacuum in the reinsurance broking market; a big part of the puzzle was missing. For Lockton, this was a clear opportunity. The company wanted to invest heavily in the reinsurance business, and that’s when I moved across to be part of that. Lockton Re was one of the first out of the blocks of the so-called challenger brokers. Our journey since then has been to be a stable and established reinsurance broker,” Harrison says.

“We’ve started with blank canvas and been able to build out our digital analytics, offering as well as our processing side. I think that has that enabled us to move very nimbly, be very efficient, and bring the service back into the business. It’s been a big plus, when clients are in need of fresh ideas and fresh solutions, and need people to be heavily focused on them. I think we’ve been able to do that,” he continues.

He thinks there has been big gap in the market for a “highly analytical and high-service broker”, suggesting the biggest firms have failed on at least one of these counts.

“The aim was to go out and recruit the best people in the market; to build a business around technology and analytics; and to broker in an entrepreneurial, high-service type environment, unencumbered by titles or multiple P&L centres. As a private company, there’s been no big time pressure to grow each quarter, like some of our rivals, but rather to build something in the long-term,” Harrison adds.

Across the spectrum

Lockton Re has about 320 headcount as of Summer 2023. “Those are all people who’ve chosen to come to us, not through M&A,” he is quick to note.

A majority of those brokers sit in London. The remainder are across 17 offices worldwide, primarily in North America and Europe, with reinsurance hubs such as Bermuda and Zurich.

“We’re not just there to serve as one element of the market, but across the spectrum,” he says. “We’ve been engaged by large global clients, specialty clients and Lloyd’s syndicates, as well as regional and mutual companies. So it’s right across the spectrum.”

“We’re in that top challenger tier. We’re primarily a treaty broker. We do some we do some MGAs, but where others have concentrated heavily on the MGA market or on the facultative market, our primary focus has been on the treaty market.”

Built on the international casualty division that was the “old core” of the business, has been a focus on organic capability building to cater to complex and global insurance clients. In London, this has meant building marine and energy, aviation, and a specialty division for terrorism, cyber, political violence, credit and political risk.

In the US and Bermuda, it has meant catering to the largest P&C insurers with a North American treaty division that goes beyond just property catastrophe business, to serve regional and mutual US insurers, while the broker has also built out its retrocessional business.

“If you look at the reinsurance cycle, virtually all of those lines of business have moved fairly substantially in terms of market hardening. The Russia-Ukraine war was a big catalyst on the specialty side, there have been big changes in cyber, and climate change and loss activity has hardened the property side, and retro was driving a lot of that, too.”

In the past year new teams have also been created in the US to serve both the Americas, adding a capital markets team based in New York, and a Latin America treaty team, based in Miami.

2023’s hard market

Now that Lockton Re has grown organically into all of these new areas, Harrison is well-placed to observe the changing market dynamics across many classes it now places that it didn’t previously.

“It’s not just the property side, but for marine and energy, and on the specialty side, we’ve seen hardening there,” he says. “If you segment treaty reinsurance into three buckets, property, casualty and specialty, none of them are capacity constrained right now, I would say, but all three have significant challenges.”

Casualty and specialty lines have also suffered several years of poor performance for many underwriters, even if not catastrophe-exposed, as well as facing broader macro, socio-economic and geopolitical headwinds.

“We’ve seen some impact of inflation coming through, not just on property, but obviously inflation has affected casualty lines of business. There has been economic inflation, of course, but also social inflation, with large compensation awards from US litigation,” says Harrison.

Like most commentators, Harrison’s first response to the mid-year reinsurance renewals, is relief that they were more less late or chaotic than was the case in January. However, he challenges the notion that there was not capacity for sale at 1/1.

“Renewals were a lot more orderly come July than in January,” he says. “There was capacity in January, but it took a lot of work looking to fill holes in programmes. There were people that chose not to buy, for sure, and not everyone bought the amount that they would ordinarily want to, but there was capacity out there – at a price.”

While the first half of 2023 has seen significant catastrophe activity before the hurricane season ramps up, the effects of 1/1 will have led to a greater share of recent cat losses being kept by the primary market, not reaching reinsurers, thus far.

“A lot of it has been taken net by insurance carriers,” Harrison says. “We’ve seen retentions moving up, you’ve seen certain products fall out of favour, particularly lower down, in the more active aggregate type cover.”

Will fresh external capital be flowing into reinsurance? Reinsurers will need to show at least one year of strong results and hold the line on pricing, while the peak weeks for hurricane generation lie ahead, Harrison suggests.

“We’re not seeing capital flowing into the market, at least not yet. New capital is sitting on the sidelines and wants to see returns this year before deploying,” he says.

“Returns over the last five years just haven’t been adequate, and investors want to see some history of solid returns first – at least one year. There’s a hurricane season still ahead of us. We’ll see what happens at 1/1 first.”