The co-founders of London-based Rising Edge aimed to create something different when they decided to launch a managing general agent in 2021, which focuses solely on directors and officers liability insurance.
CEO Philippe Gouraud and Managing Director Yoel Brightman wanted to build a long-lasting, resilient business for all the market cycles—by creating an operating model that would have risk management at its core both for Rising Edge’s capacity providers and for insureds. It uses cutting-edge data and analytics that support its empowered underwriters to make quick decisions while always aiming to maintain profits.
By creating a company with the vision they wanted, “we could actually stop moaning about the market and implement the changes we wanted to achieve,” said Gouraud. (He previously held distribution leadership and client management roles at AXA XL, XL Catlin and AIG.)
“From the onset, we have been very clear that our No. 1 fiduciary duty is toward our capacity provider,” he said, describing this as a very strong differentiator for the company. Bermuda-based reinsurer Vantage Risk is its capacity provider, while Malta-based Accredited Insurance (Europe) Ltd., the fronting subsidiary of Randall & Quilter Group, provides the insurance licenses to underwrite business in the UK market, the EU and the European Economic Area.
In other words, Rising Edge is all about writing profitable business for the long term, which benefits the company, its capacity providers and, of course, insurance buyers who are seeking stable markets. Gouraud said it’s important to find the right balance between the needs of capacity providers and customers.
“It’s also about our behavior in the market and the kind of company we operate. If Yoel and I were not delivering the service that the brokers are expecting… If we are not delivering insightful or valued insight for our clients, then brokers and clients would not want to work with us.”
And so far, so good for Rising Edge, which launched in May 2021 and expects to surpass its annual targets. “We do have plans, obviously, to be a significant player in the D&O market,” said Brightman. “If we achieve our plan for year one, Rising Edge will be a serious player in the D&O space in London.”
Rising Edge offers the full range of D&O coverage—providing primary and low attachment covers for companies with U.S.-listed securities, international exposures or private businesses. The MGA currently offers per-line capacity of $5 million, which could be in pounds sterling, euros or dollars. It prefers to write lower levels in the first $25 million of D&O cover, either as quota share or excess layers. The company also writes Side A coverage.
Brightman said the company favors the lower layers where it can exemplify its value proposition and be more meaningful to insureds, helping them to understand their risks and mitigate exposures with a high level of engagement and discourse.
“High excess layers are far away from where the action is. We don’t want to be just a risk transfer mechanism. We add more value to clients when we’re in those meaningful lower positions,” he added.
Data and Analytics
In addition to capacity, Rising Edge shares risk management knowledge with the help of its bespoke data and analytics system that tracks litigation trends, legislation and rates in the D&O space, Brightman confirmed.
“We’re constantly refining, updating and continuing to augment our models. We’re also constantly speaking to our legal partners in the U.S. and the top attorneys on the securities side,” he added.
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By keeping this up-to-date view, Rising Edge is very conscious of where the concentration of exposure is and D&O hotspots, Brightman said.
In addition, Brightman said the company has built a strong management information system, which helps maintain corporate governance. “We were able to build a completely bespoke system from Day 1, and it captures a huge amount of data that we’re able to look at and review,” he added. “We also have our underwriting committee review our risks on a monthly basis.”
Cautious About SPACs
Gouraud and Brightman both emphasized that a D&O insurer can continue to make money in both hard markets and soft markets by managing its portfolio well.
Brightman said the trick to writing in any market is to understand how to “segment a portfolio and identify pockets where you think there’s rate adequacy…”
“Where you find segments that are no longer rate sufficient, you reduce those in the mix, reduce your exposure, and you grow the areas where you’re confident you’re still making an underwriting return,” he said.
By managing the portfolio mix, “you’re able to navigate some of the market cycle while still maintaining a strong underwriting margin,” Brightman said.
Rising Edge also avoids—or is very cautious about—underwriting areas where there is extreme concentration of litigation. He described U.S. special purpose acquisition companies (SPACs) and de-SPACs (which is a merger of the SPAC, the buying entity, and a target private business) as being areas where litigation rates can run more than 20 percent in the first year of a SPAC’s floatation.
“We’ve been very cautious on U.S. IPOs and U.S. SPACs, and we’ve only just now started to review some very cautiously,” added Brightman. (As of this writing in February, the company has not yet written any SPACs or de-SPACs, although it has looked at several risks).
“We have a healthy level of respect for these extreme classes, these extreme segments, and just avoid them to begin with,” said Brightman, noting that other risk management tools for company underwriters are managing line size, attachments and terms and conditions. “That’s really helped mitigate some concentration risk.”
Nevertheless, he said that customers with U.S. securities exposures are a part of the company’s plan, given the fact that the MGA has significant underwriting expertise in this area, but U.S. securities do not represent the majority of the business.
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Even in the current hard market, Gouraud admitted that Rising Edge’s rates may sometimes be “a bit or even much more expensive than market alternatives.” But brokers and clients still choose to do business with the company because of ease of transactions and the valued insights it provides.
“For a client to be willing to pay more, or for a broker to recommend a market versus another, that market needs to do something different. And that’s what we keep aspiring to and working really hard to develop—new and better ways to differentiate ourselves,” he said.
In such long-tail insurance classes as D&O, it’s important for insureds and their brokers to be able to engage with capacity providers about those claims—and relationship longevity is more important than saving a few dollars here and there on premium, according to Brightman.
Relationship Longevity
Although Rising Edge is a new company, Gouraud noted that it still has longevity of relationships via its team of four underwriters who have been operating in the London market cumulatively for more than 50 years. (The company has eight employees and two non-executive directors in total).
With this depth of expertise from empowered underwriters, “brokers who talk to any of our underwriters can get a decision right there and then.” This is different from other insurers where brokers often have to wait for several weeks to get a quote.
“We already have a long-established track record of trust with a number of brokers and clients. That’s why we are where we are today. We’ve had a fantastic start because of the existing relationships we have in the marketplace,” he added.
“We have been extremely selective, but there is a way of being extremely selective. We are very clear about our risk appetite with brokers and when we have to say ‘no’, we say ‘no’ quick, so they can move on to find a solution.” Speed is important, Gouraud emphasized.
He said there is an increasing awareness in the industry “that we need to do more for our clients.” For example, Rising Edge has a lot of conversations with brokers and clients about the importance of ESG and cyber to their D&O exposure. “What’s really important in risk assessment is the governance of the business,” Gouraud noted. “We want to tell clients what they should be focusing on in terms of risk mitigation.”
In fact, the company aims to “walk the talk” with a series of D&O podcasts, which provide clients with information on good risk mitigation techniques.
Rather than just acting as a risk transfer mechanism, Rising Edge educates clients to look at these risks from a D&O perspective, said Brightman. “What do the claims look like? Why do they go after you?” For example, he said, the company is introducing clients to litigators who have defended D&O claims successfully—either via podcasts or directly. “We try to introduce ideas that show clients how to avoid D&O claims in the first place, not just to win in court or to settle a claim.”
“We help them understand the factors that will help that risk improve over time,” said Gouraud, who explained that this is the same as property insurers that regularly send out risk engineers to advise clients on where to install fire sprinklers and how to mitigate their large property exposures. Insurers should be the “sprinklers of D&O,” which is a message that the industry generally is starting to embrace, he noted.
“For us, it’s about adding value. Our principal value proposition is to try to help clients mitigate their risks. Once you’re doing that, you are showing your value, and hopefully clients will pay for that, possibly even above market rates,” Brightman said.
While there is a lot of talk about how expensive D&O has become in terms of litigation and the costs of defense, too often people forget how destructive D&O claims can be to a business with regards to public relations, reputation, and the operational distraction from the subpoenaing of documents and offices, Brightman continued.
“This is extremely damaging to an ongoing operation. So, anything a company can do to reduce the chance of D&O claims and the connected PR fallout is really advisable. And if we can help in any way to do that, then that really ought to be the biggest tenet of our business.”
Lower Operating Costs
When the D&O market inevitably starts to soften, Gouraud said that Rising Edge will have an advantage over legacy carriers with legacy balance sheets, legacy IT and operating systems, and higher connected costs.
“The transactional costs in our industry are notoriously high, so any structure that actually enables a lower transactional base has a competitive advantage, and we believe that we have that,” he affirmed. As a result, when the market sees more competition, manylegacy carriers are likely “to feel the pinch sooner than we do, because of their higher operating costs.”
In addition, the company’s lack of legacy systems provides speedy execution and decision-making. “When we have to change something in our system, it gets changed really quickly. We don’t have to convene a committee that looks like the United Nations to make changes.”
Gouraud said he and Brightman are bringing a fresh set of eyes and a readiness to do things differently, “which also helps reduce overall operating costs.”
While D&O has synergies with other professional liability products, Rising Edge is determined to walk before it runs. “We have made a number of commitments to our brokers and our clients to deliver a certain level of service, to provide certain insights and position ourselves as a D&O risk specialist,” Gouraud said. “So, we don’t want to dilute that commitment by being distracted and looking at other lines, however tempting that is. We first want to deliver on our promises before considering expansion.”
Disciplined D&O Market Continues
Brightman described the current D&O market as generally more disciplined in 2021 and 2022 than it has been in years past, with rate adequacy across the board.
He said that Rising Edge collects a lot of data on litigation rates per industry, right down to the product level. “What we’re noticing is that there is similarity with rates coming out on quotes, which suggests that other insurers are using the same datasets.”
“This is really pleasing because it means there is strong underwriting discipline” among the D&O underwriters, even though some legacy D&O writers have re-entered the space with a broader appetite, he said.
Gouraud said rate reductions have only been seen for accounts that deserve such reductions. “When you’re a highly exposed business at the height of the COVID crisis and you’re asking for D&O cover, of course, it was very risky. As the market gains a better understanding of the COVID environment, rates will be adjusted. It doesn’t mean there has been a loosening of underwriting principles.”
Brightman said it is encouraging to see that D&O insurers have a strong understanding of the exposures and quoting rates that are in line with these exposures. “We recognize the data that people are using in quoting risks, which suggests to me that there’s probably going to be more underwriting discipline going forward,” he said.
“In certain pockets like SPACs and de-SPACS, you’ll see very high rates, which reflects the very serious exposures. But in other segments, you’ll see lower rates. We have seen thousands of submissions, and I can pick maybe a handful of submissions where the rate hasn’t looked adequate,” Brightman confirmed.
This stability is good for the credibility of the London market “because it doesn’t look great when you have incongruous placements with high excess carriers earning three times as much as the layer below,” he said.
London market D&O is predominantly a quota-share subscription market, and often layers of insurance are placed with various carriers, with different proportions of risk. Brightman noted that Rising Edge is happy to either lead or follow known carriers on that basis.
“We added a diversity in terms of underwriting capital to London, rather than it being completely reliant on Lloyd’s syndicates, for instance. And being an MGA actually is a differentiator, in that we’re able to harness capacity from outside of the London market, in this case Bermuda, and offer capacity on a direct basis rather than via treaty,” Brightman said. “So, we’ve added to the variety and diversity of the capital base in the London market, and I think that makes it a healthier market.”
This article first was published in Insurance Journal’s sister publication, Carrier Management.
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