Insurance Day interview: Carl Boulton, Head of Insurance, Barclays Corporate
In 2008, a year when the business units of most banks reported significant falls in their income, the global insurance banking team within the corporate banking division of Barclays celebrated their strongest period of growth in 20 years.
Carl Boulton, Head of Insurance at Barclays Corporate (formerly known as Barclays Commercial Bank), acknowledges that his unit’s performance in 2008 owed something to the dislocation in the market. Barclays was one of the very few major banking groups not to require capital support or an asset protection guarantee from the government to survive the financial crisis. The bank, therefore, represented a rare sign of stability for insurers and reinsurers, particularly during the final three months of the year when the US and European banking sectors were in freefall.
But, in terms of listing the reasons for his unit’s success in 2008, Boulton emphasises the team’s long history and ‘deep integration’ in the London and Bermudian markets. “It’s true that the market generally saw Barclays as a safe house. But we had been covering the market and talking to a number of potential clients for a long time. I think the financial crisis was perhaps a tipping point at a time when a lot of chief financial officers were starting to think about counter party risk exposure. So it was an edge that Barclays had over other institutions then and it enabled us to go out and close business that we had been talking about for a number of years. But it was really down to the efforts of the people running our portfolios, the people who deal with the market on a daily basis.”
Important area
He describes the insurance industry as an important area for Barclays Corporate. The Global Insurance Unit accounts for around 45% of the revenue that Barclays Corporate generates from its non-bank financial institutions’ (NBFI) business. NBFI also includes stockbrokers, foreign exchange dealers and fund management companies.
The Global Insurance unit, according to Boulton, has grown “exponentially” over the last three years and now ranks as one of the most successful entities within Barclays. Today, the unit has banking relationships with over 70% of the member companies of the International Underwriting Association (IUA) and with over 50% of the companies in the Lloyd’s market. In terms of the latter, Barclays Corporate Insurance acts as a banker to over 60% of all the new syndicates established at Lloyd’s in 2009. In addition, it has a lead or active relationship with over 65% of the top 40 global reinsurance groups. The unit, he says, also has a lead or active relationships with seven out of the top 10 London market brokers.
The broker market, where he has completed a number of key market transactions over the last three years, is an important area for Boulton. Indeed, when he joined Barclays Corporate as a Relationship Director in June 2007 from the Financial Institutions (FI) Insurance Banking team at Royal Bank of Scotland (where he had spent the previous seven years), it was to take charge of the global broker portfolio as well as to develop the services Barclays provided to reinsurers in the London market and Bermuda. Barclays Corporate currently has two relationship directors covering the broker market which it divides into global brokers and mid-market brokers.
The service Barclays provides to brokers is somewhat different to those for insurers. There is also a difference between the requirements of the global and middle market brokers. “The global brokers tend to be interested in some of the investment banking products and services as well. Generally, we provide them with senior debt facilities, with working capital lines or with other funding facilities to enable them to acquire teams or to build up a business.”
Embedded in the market
Boulton attaches a great deal of importance to the idea that corporate bankers should embed themselves in the sectors they serve. And, as far as he is concerned, this is very much the story of the Corporate Insurance unit. Although he joined Barclays Corporate only relatively recently, he is steeped in the history of the bank’s relationship with the London and Bermudian insurance industries. Barclays, he says, was the first bank to set up a specialist London insurance market team. “It started in the late 1980s within Barclays branch very close to the Lloyd’s Building. They found, as a result of the people coming and going through the doors, that there were good business opportunities in the market. It was a question of getting into the market, understanding what was going on and specialising.”
Indeed one of the bankers who helped set up the business back in the 1980s, John French and another, Paul Johnson who subsequently joined in the 1990s, are still with the Barclays Corporate Insurance team today. “They were in from the very early days. They have come through the business. They started working with relationship directors, learnt their trade and are now running some very successful portfolios themselves.” He is proud of the fact that Barclays Corporate recruited, a broker, rather than a banker, to run the global broking portfolio. “That very much represented new thinking in the market,” he explains.
It was during the market dislocation of 2001 that Barclays consolidated its position as the main provider of banking services to the Lloyd’s market. “I was looking at it from the other side as I was working for a different organisation. But Barclays really stepped up then. Rather than retreat from the sector as many other banks did, it made available an enormous amount of liquidity to the market through what we now call catastrophe line products. Barclays was the first bank to come up with that.” Catastrophe lines are utilised during major events when insurers are in urgent need of funds to pay claims. The product serves as an emergency funding facility which is secured on reinsurance receivables or on future premium income. Boulton describes the facility as a “strong” move by Barclays at the time. “It really showed their understanding of the market. They knew rates were going to harden.”
Payments
Currency business, especially that involving the US dollar, has always been a major part of the Insurance unit’s activity. “We work with clients and provide them with liquidity, cash and deposit options. The London insurance market, particularly the broking market, have historically been large sellers of dollars. So we focused on helping the brokers manage their currency risks. They always need to change dollars into Sterling. So we enable them to secure currency rates for their budgets over a number of years. The broking world is by its nature very payments driven. And this is an area in which Barclays is very strong. So we cater to a lot of the operational banking requirements of the broker market.”
Barclays also provides a multi-currency pooling facility for many of its insurance clients. This is so companies don’t necessarily need to sell dollars if they are long on dollars and short on sterling: the pool enables its members to offset their various currency holdings. “Payments are always an interesting area for us. The insurance world makes an awful lot of payments and we work very closely with clients to enable them to do that efficiently. We are always looking to come up with solutions that fit their cash management requirements. One of our strengths is that we can even build bespoke solutions for customers.”
SEPA
Boulton is very much focused on the provision of operational solutions to insurers, not only brokers. Barclays, he explains, is very active in the Single European Payment Area (SEPA). This was first set out in 2002 by the European Payments Council but only really took off with the launch of the SEPA Credit Transfer Scheme in January 2008. According to Boulton, SEPA is going to revolutionise the way large institutional insurance companies think about making payments across the Eurozone . Barclays is the second biggest provider of SWIFT services in the world. “Cash management has finally got to the top of the agenda. As an issue it has always hovered at top of the list but then some other issue would come along and it would fall back down the list again. But now it is very firmly at the top of the agenda. A lot of companies are now thinking about how they can structure their cash management on a global basis and get control of and maximise the value of those cash balances that are sitting out in different jurisdictions around the world. This is something that we have really been concentrating on over the last two years. So we are working with a lot of our clients to give them access to Swift technology and to enable them to be super efficient with their cash management.”
This means that in the near future most insurance companies will be linked into the SWIFT payments network in the same way as most banks currently are. Boulton says that although some of the bigger insurers are already doing this, many others are not. But he thinks that the example of the larger companies upgrading their payments infrastructure will have an effect on the rest of the market. “And linking up to the SWIFT network has to be best way to go about this,” he says.
Bermuda
Barclays, he says, started to build relationships with companies in Bermuda in the 1990s, long before the Island became the force it is today. “Back then those companies were starting to look at Lloyd’s. So we first helped them set up their operations and their banking facilities for the Lloyd’s market and then we followed them back to Bermuda to understand how we can work with the parent company, to see what other services they required. The scope of their business was much wider than the companies in the Lloyd’s market. We worked with our investment bank to provide the Bermudian companies with a wide range of services.” The latter, alongside the services provided by the corporate bank to the insurance sector (letter of credit facilities, funds at Lloyd’s and senior debt syndication) included investment banking services such as merger and acquisition advisory work and arranging and underwriting the equity and bond issues to fund the M&A activity. Barclays, he says, was the first UK bank to actively cover the Bermudian insurance market.
The bank was very much involved in the capital raising by existing insurance companies as well as by new start-ups in the aftermath of the terrorist attack on the World Trade Centre. Indeed, Barclays provided support for many of the class of 2001 reinsurers. “The bank saw that as a good, long term opportunity.” More recently, Barclays’ profile in Bermuda received another big boost when Barclays Capital, the investment banking arm of the group, acquired Lehman Brothers North America. The latter came with very strong business relationships in Bermuda and with significant insurance M&A capabilities. Boulton says that one of the reasons for the Barclays Corporate Insurance’s continuing success in 2009 is because of the ‘connectivity’ between the corporate and the investment banking arms of the bank. “It means we can give the client a fully integrated service.”
Challenges
For Boulton, this integrated service proposition means Barclays can assist the insurance industry (which has emerged from the economic downturn relatively unscathed) with the challenges it faces in the current market environment.
“Lessons have been learnt from the past. I think the insurance industry can hold its head up high and be very proud of the way in which it navigated the financial crisis. But although everyone expected to see a hard market in 2009, it was the hard market that never was. Last year turned out to be a very low severity year, with most businesses performing very well. So there is now a lot of capital in the market which means that rates are going to turn off further and that is not a good thing in general.”
He says some companies will start to think about paying money back to their investors either through dividend payments or share repurchasing. And again that is an area where Barclays’ investment banking operations are working very closely with companies to come up with structures to help them do that. The same applies to the smaller insurance companies where there is a now strong sense that balance sheets need to be stronger i.e. that shareholders’ funds should be around $3bn or above. “So the appetite for equity raising is certainly there and it is something that Barclays is able to work with clients on as an institution,” Boulton explains.
He describes Barclays as one of the very few banks that can offer a one stop shop to the market. He notes that the investment bank, the corporate bank and even Barclays Wealth, the group’s asset management operation, all work very closely with the insurance market. Barclays Wealth, although generally associated with high net worth individuals, has been focusing on the offshore, captive insurance market for a number of years now. However, he stresses that the Global Insurance unit was still a growing business. “We are putting first class people out there to work with the industry. We recently recruited another relationship director to join the team. We are constantly looking for the right people in the market to improve our proposition.”
