Rising star

Stephen Catlin originally started as a tea boy back in 1973 with a kipper tie and no idea what insurance - let alone Lloyd's - was all about. Since then (some 34 years later), he has certainly learned a thing or two. His Bermuda-based company has just swallowed up Wellington, and will use it for a springboard for further growth.

Like most people in the world of insurance, Mr Catlin got involved almost by accident. His father was a doctor and wanted him to go into medicine. He was from a family that was keen on academia, but he was not academically inclined. So he and his father found a middle ground: he would train to be a dentist. However, he "didn't make the grade ... perhaps I didn't work as hard as I could at school," he said.

Nevertheless, he managed to find his way to insurance. A keen sailor, he met someone who worked in insurance while sailing. "He said he wanted a boy on his box at Lloyd's, and I went for it," said Catlin. "I didn't quite know what it meant, but I thought I would give it a try. So I had all my hair cut off, got a suit and a kipper tie, and I started as a tea boy. That was 1973. I moved up as the years passed, and after eight years, in 1982, I became deputy underwriter of the syndicate."

Meteoric rise

While he may not have made the grade to go to college to study dentistry, his meteoric rise from tea boy to trading superstar at BL Evens & Others on Syndicate 264 at Lloyd's was indicative of things to come. He was keen-minded enough to know that there was more potential - and money - in the market the higher up the ladder you went.

"A couple of years later, the new (at the time) Lloyd's Act mandated that a company could not own a broker and an underwriting agency at the same time," he said. "The firm that owned the agency was Anthony Gibbs originally, and they had become part of what is now HSBC after I joined. They owned a broking house."

Although the underwriting agency was making more profit than the brokerage, they decided they wanted to retain the broking unit and sell the agency.

"It was at this time that I thought, 'I am a pawn in a rich man's game'. Even though I was bringing in a lot of money, I had no influence on the direction of who the agency was going to get sold to," he added. "I realised that a lot of people were going to make money out of the transaction, but I wouldn't."

It was the 'Eureka!' moment for him, and shortly afterwards, in 1984, he was offered the opportunity to start a new business, sponsored by another Lloyd's agency. They called the business Catlin Underwriting Agencies Limited.

"I remember the first day," he said. "We sat down in the box in the afternoon. We had some A4 paper, an underwriting stamp and the silver inkwell that had been given to me when I left my old job. The guys on the next box let us use their photocopier. Those were our entire resources.

"It was scary. The business had paid-up capital of £25,000 and I borrowed £15,000 to finance my share. While that doesn't sound like much now, my salary was £20,000 and I had a £45,000 mortgage, and a wife and child to support. The extra £15,000 was quite a stretch. Looking back, it was a really big risk, but we managed to grow the business - slowly at times, but steadily."

Bermuda versus London

During the late 1980s and early 1990s, other syndicates had big losses, but Catlin didn't. They managed to make a profit each year. "I guess we just stuck to our knitting better than others," he said. "I have always been a disciplined underwriter, and it has always paid off. We're still disciplined underwriters today."

He said that at Catlin, they still try to do what they did years ago: grow during hard markets and hold the line during soft markets.

"Throughout my career, I have always thought the bottom-line profit was more important than top-line revenue, and we still teach that to our underwriters today," he said.

But as the company grew, they began to aspire to becoming a truly global business, and as a global business they needed to have more than one underwriting platform.

"So it wasn't that difficult a decision to say, 'OK, where should we go?', and Bermuda was the logical choice," said Mr Catlin, adding that there were obvious advantages to having a holding company in Bermuda - capital flexibility, fewer regulatory restrictions and tax advantages, to name a few.

"You can set up a business quickly, and the cost of entry is relatively low," he said. "So we were able to move the holding company to Bermuda in 1999. At the same time we got a license to establish an insurance company, but we did not activate that until 2002."

But despite having his holding company there, Catlin does not think Bermuda will take over from London."Bermuda provides certain things, and it provides them very well," he said. "However, there are some other things you have to consider about Bermuda. It has a creaking infrastructure. It is an island 22 miles long and a maximum of two miles wide, with a population of 60,000 people.

"When you compare that with London, where there are 40,000-45,000 people directly or indirectly involved in the insurance industry, you can see Bermuda has its limitations. While it is a great place to write property/catastrophe business, Fortune 500 business and some other classes, there are relatively few classes of business that are written in Bermuda."

He said one of the keys strengths of the Lloyd's and the London market is that you can get the same policy form from every insurer on the slip - and you can't get that in Bermuda or anywhere else.

He said Lloyd's also has a great concentration of both underwriting and claims skills, and nearly every class of business is written from London. He added that Lloyd's also has such a strong brand, which is recognised around the world. "The issue, in my opinion, is not competition between Lloyd's and Bermuda," he said.

"There is plenty of risk, especially catastrophe cover, to go around. This is not a time for petty rivalries within the industry. The market needs to work together to meet the challenge of offering the best possible products to our assureds, while at the same time controlling our downside risk to capital and producing an appropriate return for our shareholders."

Why Wellington?

When asked why Catlin wanted to buy Wellington, and what it added to his company, Mr Catlin's enthusiastic response was not dampened by recent resignations at Wellington. He said: "Wellington brings Catlin a lot. First and foremost, Wellington has brought Catlin many, many great people. You have heard it so many times - this is a people business, and it's true. People are our most valuable asset."

He said that in terms of business, Wellington was further along in building a US operation than Catlin, and the acquisition accelerated their US strategy by about two years. Whereas Catlin US had focused on primary business, Wellington in the US specialises in reinsurance, so he said this is a good fit.

"Wellington adds new classes of business that we did not underwrite before, such as accident and health," he said. "The Wellington acquisition has further diversified our business, and that is something that we always strive to do."

Mr Catlin said the acquisition of Wellington also strengthens their balance sheet, making them "now truly one of the leading specialty insurers and reinsurers in the world". "Wellington provides us with a springboard for future growth," he confirmed.

He believes the opportunity to acquire Wellington came at the right time and at the right price. Wellington needed to expand and was therefore a combination of the benefits of both companies and both companies' shareholders. "That's part of the reason we could complete the acquisition and integrate the two companies so quickly," he said.

When Mr Catlin was asked how he thought the Wellington acquisition had turned out so far, he replied, "better than I had expected". He added: "We have accomplished so much in such a short period of time. We made our offer to the Wellington board in early October. In less than four months, we announced the offer, completed the deal and integrated the underwriting operation on the day after we completed the acquisition."

He said they have re-financed the bridge debt they raised to buy Wellington, and will have moved everyone under one roof in London by the first week of February.

"That's a lot of work in less than four months," he said. "I am still amazed that we were able to move all the underwriters from both companies together onto one trading floor within 14 hours after we announced that our offer from Wellington went unconditional. A lot of people in the industry cannot believe that we were able to do that, and sometimes I cannot believe it, either.

"We were lucky ... the space came up for let in our building at exactly the right time. But, it was more than luck ... it was the result of a lot of planning and a lot more hard work, especially from our facilities, HR and IT staff."

Never say 'never'

Mr Catlin has said he has learned many things over the years, but what had surprised him was the capacity for things to change - and for him to change his mind.

"If I have learned one thing over the years, it is never to say 'never'," he said. "At one time I said I would never raise private-equity money, but we did that. I am sure I said once upon a time that we would never be a public company, but we had a successful IPO (initial public offering) in 2004. I know I said in the past that I was not interested in doing a large acquisition, and now we have acquired Wellington. So, I guess I have learned never to say 'never'."

He said he still believes that the best way a company can grow is organically, and he is persuaded that the benefit that the Wellington acquisition really brings them is that Wellington will help them grow organically in the future.

"As I said earlier, we view the Wellington acquisition as a springboard for future growth," he said. "Increasing the scale of the business will help stimulate organic growth. There are plenty of opportunities out there to grow. Adding critical mass, adding more classes of business, more diversification, will help us take advantage of those opportunities."

Mr Catlin said they had always operated the company on the basis that they were building a business for the future, and that over the past seven years they have opened offices in Asia, Europe, Australia and North America.

"Most of these operations began as very small businesses, and they take time to grow," he said. "However, some of these offices are now having a pretty significant impact on our business. This is the organic growth that I talk about, and we will continue to do this."

He said they were opening four offices in Europe (Paris, Barcelona, Zurich and Innsbruck) early this year as part of this growth plan. "I think we will be happy over the next five years just to grow organically. But if you ask me whether we would ever make another acquisition on the scale of the Wellington acquisition, I would have to remember never to say 'never'."

When he looks back at his career, he cannot believe how far he has come and how much the company has grown: "I frequently wake up and pinch myself. In many ways, I'm staggered by what we've achieved. But you cannot rest on your laurels - you have to keep on achieving.

"Take the Wellington acquisition, for example - I am amazed at what we have done and especially how quickly we have completed the acquisition, re-financed the debt, integrated the business and consolidated our offices. But there is no time to rest - every achievement opens up something else that you need to achieve."