Returning Mullen aims to keep Artex growing
Insurance industry veteran David McManus knows a thing or two about risk.
But when the Belfast-born president and chief executive officer of Bermudian-based insurance manager Artex considered who should succeed him in the top job, well, let's just say he knows a sure thing when he sees it as well.
Mr McManus, 65, has assumed the role of non-executive chairman of Artex to facilitate the return to the fold of Peter Mullen, who began his term as CEO on March 21.
Now 58, Dublin-born Mr Mullen cofounded Artex as a wholly owned subsidiary of brokers Arthur J Gallagher and Co in 1997 with Mr McManus and Jennifer Gallagher, now the president of Artex North America.
He left in 2011 when Aon Captive Insurance and Management offered him their CEO position.
“The timing was right,” Mr Mullen recalled. “David was not going anywhere, and I had to decide, at my age, if I should go and test myself and see if I could run my own shop.
“I got the usual good offer, the challenge was there, so I bit the bullet and jumped.”
In 2016, Mr Mullen topped
“There couldn't be a better successor for Artex than Peter,” said Mr McManus, who met Mr Mullen when they worked together at AIG in the 1980s.
“He has all the knowledge of Gallagher and Artex from the founding, and taking into account the expertise you get when you run a global insurance manager like Aon, it was a bit of a no-brainer for us.
“You don't bring a guy like Peter in and ask him to be number two.
“Now that he is on board, the transition feels good to me. A bond exists between Jennifer, Peter and I.
“Peter is running things now. I am excited to see what leadership he brings on the way to the next $100 million.”
Mr Mullen said: “Coming back to work with friends was attractive to me. Gallagher's and Artex have been terrific in terms of the welcome. It's almost like the prodigal son coming back.”
“Our internal headline when we made the announcement was 'Peter's coming home',” Mr McManus said.
Mr McManus will be an adviser, providing what he calls the “three Cs”.
“Compass, the strategic perspective, to be clear where we are going,” he said. “Context, there is background to this and I can fill it in. Combinations, that's how we refer to mergers. I have expertise with acquisitions.
“The decisions will be Peter's but I can help him out.”
Mr Mullen returns to a company with an annual growth rate of 17 per cent over the last seven years, tripling in size over that term.
Artex serves some 1,500 customers with captive management and alternative risk management solutions through more than 1,000 risk-bearing entities. Licensed in 32 jurisdictions, it has more than 400 staff in 15 offices worldwide.
Globally, the company's clients are approximately 60 per cent commercial insurers and 40 per cent captives. The split in Bermuda, Mr McManus said, is 50-50.
“We are the fastest growing insurance manager in the world, so it's very attractive to come back, get inside Artex, and keep growing,” Mr Mullen said.
“The challenge is to make the transition, keep the momentum going, and not clog up the works. I am pretty busy already.”
While the number of captives registered in Bermuda, and their cumulative gross written premium, has declined recently, Mr Mullen said Artex is a net grower of captives.
A dedicated, full-time sales force of ten people in Chicago supports the Artex programme, they said, adding that they are seeing growth in the upper middle market.
Still, there are challenges, Mr Mullen said. “Bermuda is a mature market, so it suffers at the end of the day. There have been a lot of combinations over the last ten years. When a new captive comes in these days, there's more than likely a matching exit.
“There is a lot of competition from US domiciles — 40 states now have captive regulations. At Artex, we see more coming in than going out. And Bermuda remains in top spot globally with Vermont, Cayman and Guernsey following.”
“If a company stayed exclusively in captives, apart from stealing someone else's chips, you're not growing more than 2 or 3 per cent annually,” Mr McManus said.
“Captive management is stable and low growth. The way to see revenues increase is through the broadening of services so you bring greater value and grow revenue from existing sources.”
As in other jurisdictions, the OECD's base erosion and profit shifting, or BEPS, project has caused a stir in Bermuda.
“Substance presents both a challenge and an opportunity to provide greater turnkey services for capital looking to operate in any jurisdiction,” Mr McManus said.
“The good thing about the directives of the OECD and EU is that they are a level playing field. All jurisdictions have got to show substance, so there is an opportunity in every domicile to seamlessly provide it.
“That will be a challenge for some of the smaller managers because capital now needs more than just regulatory compliance and accounting services.
“There is an opportunity to provide underwriting expertise, recruitment, serviced offices, and IT. If you can be a manager turnkeying those services, it could be very attractive.”
“Not everybody will survive,” Mr Mullen said. “There will be companies that decide that they don't see the value proposition any more.
“But at a firm like ours, we might also see clients double down if they see value in the structure we're managing and decide that we need to turnkey more to establish substance in the jurisdiction.”
Latin America, Asia and Canada have been mooted by some as the next captive industry frontiers.
“Latin America has been the next frontier for the last ten years, hasn't it?” Mr Mullen said.
“Latin America is growing for us,” Mr McManus added.
As for Asia: “We'll probably talk about it for the next ten years as the next frontier,” Mr Mullen said.
Adds Mr McManus: “In Asia, if capital enters ILS, they'll be comfortable in Singapore.”
“Canada ... I just don't think it's that big an economy,” Mr McManus said.
Terrorism, cybersecurity, and the shared economy are often identified as emerging issues.
“Those three, plus political risk, you've got to keep an eye on them,” Mr Mullen said, “but the business in the upper middle market is more traditional lines: mortgage compensation, general liability and auto liability.
“While you keep an eye on cyber, it's written by only 2 or 3 per cent of captives globally.”
The “shared economy” perplexes the market, Mr Mullen said. “The traditional insurance market can't get their heads around Uber and Uber Eats,” he said.
“The owners must take significant skin to get the market to come along for the ride. It's not easily written. It's best understood by the companies themselves, so a captive is the ideal solution.”
Some 22 years on from their cofounding of Artex, Mr McManus said the company “is the best of both worlds”.
“We are owned by Gallagher, are supported by them, but have an independent brand,” he said, still marvelling that Artex got the go-ahead to set up.
“It was ground-breaking for Gallagher's,” Mr McManus said. “Brokers don't take risk.
“'Uncle Bob' Gallagher wore a T-shirt that read 'death before risk'.
“I mentioned that once to his nephew, Pat, who said: 'T-shirt? No, it was tattooed on his chest'.”