International Initiative of the Year: Sunderland Marine

Fisherman's friend

It's one thing to know you are a very big fish in a small pond, but what happens when you come to realise that the pond you are in is shrinking fast? You need to diversify pronto - but how do you do that without getting holed below the waterline?

It's a tough task; the insurance world is littered with the shipwrecked crafts that have set sail on a global mission to seek diversity, only to founder on the rocks of commercial reality once uncharted waters are encountered.

New lines of business or geographical expansion can make enormous commercial sense when jotted down on a humble piece of paper. But execution is very often the precursor to much gnashing of teeth - not to mention torrents of red ink. The insurance industry has learnt time and again that being an expert in one line or territory is no guarantee of success outside that comfort zone.

"Back in February 1882, a group of shipowners based in Sunderland formed a mutual insurance company to insure against the risks of their trade. Would their vision have been to create an internationally renowned insurer, which is now embarking on a second century of service and support to its membership?", asks the Sunderland Marine website. Well, who would have countenanced such a thought back then?

And jolly successful this small mutual was, too. Therein lay the problem. By the company's centenary year in 1982, Sunderland was a giant in the UK fishing vessel insurance market, with a dominating 70% market share. Sunderland thought this market share was pretty much maxed out because almost all of the remaining 30% was business that it had probably already seen and declined due to its underwriting selection criteria.

Wind in their sails

The overall size of the UK market was in decline. According to Sunderland: "The century had been characterised by increasing sophistication in vessel design, catching capacity and a decline in vessel number, and their number was destined to fall further. Coupled with this, species and stocks were increasingly coming under severe pressure. With the outlook this presented, the company was not attractive."

The company's response was to go for diversification into the non-fishing sector and further territorial diversification by expanding overseas.

These days, apart form its standard business line of the hull and protection and indemnity insurance of commercial fishing boats, Sunderland Marine is now known as a leader in the insurance of small passenger craft, tugs, barges and harbour craft, the uneducated and even the insurance of aquaculture risks - fish and shellfish farms.

So, how did the firm do it? 'Slowly and carefully' is the answer. Much more the evolutionary approach, as opposed to the revolutionary change favoured by more aggressive - and almost always less successful - practitioners.

First was an inwards reinsurance book of Dutch business followed by direct acceptances from the Australian and New Zealand markets. Sunderland eventually opened full branch offices in the two Antipodean territories in 1985 and 1989, respectively. US and Canadian operations came following similar models, and in 2006 a new operating subsidiary was opened in South Africa. The firm now employs just under a third of its staff outside the UK.

Sunderland cites one of the most significant moves as a Canadian west coast joint venture in 2001 with the Calgary-based Sovereign General Insurance company. The idea was to turn around a failing Vancouver managing general agent by combining Sovereign's good name in the Canadian market with Sunderland's underwriting flair.

For this job, two UK executives travelled to Vancouver to ensure the transition, and six years later the turnaround has been duly achieved. The company now boasts a position it describes as one of sustained profitability.

Sunderland currently insures 35,000 vessels from 55 countries. Overseas income has grown from precisely zero to account for 83% of business, and that figure has swelled by almost 30 percentage points in the five years.

Over the same period, the solvency margin has almost doubled from 45.8% to 89%, and capital has been boosted to £30m. Sunderland explains that 90% of this performance is down to its overseas operations.

But has the group had to sacrifice some of its underwriting standards at the altar of this expansion? The answer is a resounding 'no'; its 2006 combined ratio was 90.42%, which helped power the group to a fourth consecutive set of record results.

A quarter of a century ago, Sunderland Marine set off to circumnavigate the globe. Far from being marooned on a Pacific isle or foundering on razor-sharp Caribbean reefs, the company returned as a conquering hero, laden with booty from far-off lands.

Sunderland's success is a lesson to the market - take the time and stick to what you know, and organic global expansion really is possible.

FINALISTS 2007
- QBE European Operations
- Sunderland Marine Mutual Insurance Co Ltd
- DUAL International