Insurance Executive

Six Questions for Michael Sillat

Ethos Specialty Insurance is launching into the competitive, but potentially lucrative program business as an MGA. R&I queried Michael Sillat, the CEO of this Ascot Group subsidiary, on his hopes for the launch.
By: | March 12, 2018 • 6 min read

R&I: The program business, as we know, is a growth area in insurance. Why are you enthused to be heading up an MGA in 2018 and beyond?

Michael Sillat: It is very much an opportune time to enter into the MGA space, especially if you can do so with some compelling advantages in terms of the business partners supporting such a venture. Ethos is a subsidiary of the Ascot Group Ltd. (AGL) which is owned by the Canada Pension Plan Investment Board (CPPIB). Ethos operates as a separate entity to the other AGL businesses, namely Ascot Underwriting Limited (Syndicate 1414 at Lloyd’s) and Ascot Reinsurance Company Ltd. (Bermuda), we have very strong capital backing and that’s quite important when you’re building out an underwriting infrastructure and need not only the time but also the resources to build that foundation properly and for scale.


Ethos is independent and while we sit alongside the Ascot Syndicate and Ascot Re, we are not mandated to trade with each other, in fact, and Ethos was founded with the express intent of engaging third party capital providers for capacity, which we are doing today. That being said, when we are in the London marketplace or any of our carriers are seeking to buy reinsurance, we are happy to show either AGL entity the business just as we would any other capacity provider, whether it be directly or through the many intermediaries we have great relationships with.

R&I: What sectors or types of businesses are attractive to you from an underwriting perspective?

MS: The best way to answer that would be to look at what we have already built in terms of business units. Currently we are engaged in three verticals: M&A transactional Liability Insurance, E&S Primary, and Excess Property and Specialty Business. The M&A line is led by Navine Aggarwal, who has with him a team of 9 underwriters. This team is in the market writing R&W business and select specific tax liability and contingent liability products.

On the property side, we have a senior leader, Michael Carr. As Michael executes his property strategy, it will consist of a bifurcated approach between shared and layered and middle market business, written both on a primary and excess basis and covering myriad classes of property business.

Every one of our staff was chosen for a specific reason. They come from either a long standing career in the MGA world, or a successful career within the insurance carrier space, whether it be underwriting, actuarial experience or administration.

Our third business unit, headed by Joe Calise, focuses on a wide array of unique opportunities in the specialty sector. Products in this sector can range from niche single-peril or single-class products to large scale programs requiring specific underwriting expertise. When fully built out, this business unit will cater to a wide variety of products that will serve to address the “specialty” needs of our clients.

R&I: It’s an interesting time to be starting up any insurance business, with price increases starting to filter into the mix for the first time in a long time. How is the pricing dynamic influencing your thinking at this time?

MS: Pricing is no doubt an important component of underwriting, but we feel even more important is risk selection and the intelligence we utilize in allowing the underwriter to being as well informed about the risks being contemplated as possible. For this, technology and utilization of third party data is critical and something we have taken great advantage of.

Looking ahead, as prices fluctuate, we plan to be in lines of business where our infrastructure and underwriting strategy can produce profits in any pricing environment. To that end, if we feel a market is getting to a point where it isn’t sustainable and able to return the underwriting results we seek, then we will not waver in exiting that space. Conversely, when a market hardens, we will be there to provide capacity, and that’s important for our clients to know now and in the future.

All in all, however, we take a long-term view in terms of our pricing strategy and are pleased that as we enter into the market and start building books of business in 2018, we are well positioned in terms of the current market cycle supporting our underwriting efforts as we grow our portfolios.

R&I: One might conclude from the company’s name that you will be an E&S player. Can you help us understand how much admitted business you will be doing?

MS: Certainly, we are primarily engaging in the E&S sector as you can see from the products mentioned as we enter the market place. But by no means will that mean we will exclusively stay in that insurance sector. Our growth strategy is twofold: We will, on the one hand, seek to employ individuals and teams to build out an organic strategy pursuing lines of business we will have strategically decided to enter.


While many of those could be in the E&S space, they don’t have to be. We could and likely will engage a line of business or an individual that will require an admitted market. That could be in the SME space or middle market space. On the other hand, the AGL group has an M&A team that focuses on potential acquisitions of MGAs. With few exceptions, we can consider MGAs from all walks of life, and as such, it could be quite possible that some of these MGAs deal in the admitted market.

Essentially, whether it be via organic growth or through acquisitions, we do see ourselves engaging in the standard markets as well as the E&S sector and are prepared in terms of our operating systems to handle that business just as much as we are already executing within the surplus lines arena.

R&I: What’s the biggest challenge you face in launching this business?

MS: Our biggest challenge is that we are a new MGA, and as such, we have to earn our way into the marketplace. That comes through taking the right amount of time and investing the required resources to build a strong and capable infrastructure. We have, today, completed that and are operative with a scalable underwriting and admin system as well as a team of senior leaders covering underwriting, actuarial, human resources and finance. Now, we need to earn the trust of our clients and execute a comprehensive marketing/PR strategy so that we can not only introduce our products to the marketplace but also identify the clients and capacity providers that we seek to partner with as we begin underwriting.

R&I: How do you feel your career prepared you for this moment? Why do you know in your gut that you’ll be successful?

MS: I direct your attention to the team that has been and continues to be assembled. Every one of our staff was chosen for a specific reason. They come from either a long standing career in the MGA world or a successful career within the insurance carrier space, whether it be underwriting, actuarial experience or administration. These are people that have seen the soft and hard market cycles; they make decisions that come from a wealth of experience; and most importantly, at Ethos, they foster a culture of “we,” and in doing so, our teams are constantly communicating and learning from each other’s specific skill sets.

In all my years in this business, if you can get that part right and bring the right people together, success is almost assured. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Focus: Cyber

Expanding Cyber BI

Cyber business interruption insurance is a thriving market, but growth carries the threat of a mega-loss. 
By: | March 5, 2018 • 7 min read

Lingering hopes that large-scale cyber attack might be a once-in-a-lifetime event were dashed last year. The four-day WannaCry ransomware strike in May across 150 countries targeted more than 300,000 computers running Microsoft Windows. A month later, NotPetya hit multinationals ranging from Danish shipping firm Maersk to pharmaceutical giant Merck.


Maersk’s chairman, Jim Hagemann Snabe, revealed at this year’s Davos summit that NotPetya shut down most of the group’s network. While it was replacing 45,000 PCs and 4,000 servers, freight transactions had to be completed manually. The combined cost of business interruption and rebuilding the system was up to $300 million.

Merck’s CFO Robert Davis told investors that its NotPetya bill included $135 million in lost sales plus $175 million in additional costs. Fellow victims FedEx and French construction group Saint Gobain reported similar financial hits from lost business and clean-up costs.

The fast-expanding world of cryptocurrencies is also increasingly targeted. Echoes of the 2014 hack that triggered the collapse of Bitcoin exchange Mt. Gox emerged this January when Japanese cryptocurrency exchange Coincheck pledged to repay customers $500 million stolen by hackers in a cyber heist.

The size and scope of last summer’s attacks accelerated discussions on both sides of the Atlantic, between risk managers and brokers seeking more comprehensive cyber business interruption insurance products.

It also recently persuaded Pool Re, the UK’s terrorism reinsurance pool set up 25 years ago after bomb attacks in London’s financial quarter, to announce that from April its cover will extend to include material damage and direct BI resulting from acts of terrorism using a cyber trigger.

“The threat from a cyber attack is evident, and businesses have become increasingly concerned about the extensive repercussions these types of attacks could have on them,” said Pool Re’s chief, Julian Enoizi. “This was a clear gap in our coverage which left businesses potentially exposed.”

Shifting Focus

Development of cyber BI insurance to date reveals something of a transatlantic divide, said Hans Allnutt, head of cyber and data risk at international law firm DAC Beachcroft. The first U.S. mainstream cyber insurance products were a response to California’s data security and breach notification legislation in 2003.

Jimaan Sané, technology underwriter, Beazley

Of more recent vintage, Europe’s first cyber policies’ wordings initially reflected U.S. wordings, with the focus on data breaches. “So underwriters had to innovate and push hard on other areas of cyber cover, particularly BI and cyber crimes such as ransomware demands and distributed denial of service attacks,” said Allnut.

“Europe now has regulation coming up this May in the form of the General Data Protection Regulation across the EU, so the focus has essentially come full circle.”

Cyber insurance policies also provide a degree of cover for BI resulting from one of three main triggers, said Jimaan Sané, technology underwriter for specialist insurer Beazley. “First is the malicious-type trigger, where the system goes down or an outage results directly from a hack.

“Second is any incident involving negligence — the so-called ‘fat finger’ — where human or operational error causes a loss or there has been failure to upgrade or maintain the system. Third is any broader unplanned outage that hits either the company or anyone on which it relies, such as a service provider.”

The importance of cyber BI covering negligent acts in addition to phishing and social engineering attacks was underlined by last May’s IT meltdown suffered by airline BA.

This was triggered by a technician who switched off and then reconnected the power supply to BA’s data center, physically damaging servers and distribution panels.

Compensating delayed passengers cost the company around $80 million, although the bill fell short of the $461 million operational error loss suffered by Knight Capital in 2012, which pushed it close to bankruptcy and decimated its share price.

Mistaken Assumption

Awareness of potentially huge BI losses resulting from cyber attack was heightened by well-publicized hacks suffered by retailers such as Target and Home Depot in late 2013 and 2014, said Matt Kletzli, SVP and head of management liability at Victor O. Schinnerer & Company.


However, the incidents didn’t initially alarm smaller, less high-profile businesses, which assumed they wouldn’t be similarly targeted.

“But perpetrators employing bots and ransomware set out to expose any firms with weaknesses in their system,” he added.

“Suddenly, smaller firms found that even when they weren’t themselves targeted, many of those around them had fallen victim to attacks. Awareness started to lift, as the focus moved from large, headline-grabbing attacks to more everyday incidents.”

Publications such as the Director’s Handbook of Cyber-Risk Oversight, issued by the National Association of Corporate Directors and the Internet Security Alliance fixed the issue firmly on boardroom agendas.

“What’s possibly of greater concern is the sheer number of different businesses that can be affected by a single cyber attack and the cost of getting them up and running again quickly.” — Jimaan Sané, technology underwriter, Beazley

Reformed ex-hackers were recruited to offer board members their insights into the most vulnerable points across the company’s systems — in much the same way as forger-turned-security-expert Frank Abagnale Jr., subject of the Spielberg biopic “Catch Me If You Can.”

There also has been an increasing focus on systemic risk related to cyber attacks. Allnutt cites “Business Blackout,” a July 2015 study by Lloyd’s of London and the Cambridge University’s Centre for Risk Studies.

This detailed analysis of what could result from a major cyber attack on America’s power grid predicted a cost to the U.S. economy of hundreds of billions and claims to the insurance industry totalling upwards of $21.4 billion.

Lloyd’s described the scenario as both “technologically possible” and “improbable.” Three years on, however, it appears less fanciful.

In January, the head of the UK’s National Cyber Security Centre, Ciaran Martin, said the UK had been fortunate in so far averting a ‘category one’ attack. A C1 would shut down the financial services sector on which the country relies heavily and other vital infrastructure. It was a case of “when, not if” such an assault would be launched, he warned.

AI: Friend or Foe?

Despite daunting potential financial losses, pioneers of cyber BI insurance such as Beazley, Zurich, AIG and Chubb now see new competitors in the market. Capacity is growing steadily, said Allnutt.

“Not only is cyber insurance a new product, it also offers a new source of premium revenue so there is considerable appetite for taking it on,” he added. “However, whilst most insurers are comfortable with the liability aspects of cyber risk; not all insurers are covering loss of income.”

Matt Kletzli, SVP and head of management liability, Victor O. Schinnerer & Company

Kletzli added that available products include several well-written, broad cyber coverages that take into account all types of potential cyber attack and don’t attempt to limit cover by applying a narrow definition of BI loss.

“It’s a rapidly-evolving coverage — and needs to be — in order to keep up with changing circumstances,” he said.

The good news, according to a Fitch report, is that the cyber loss ratio has been reduced to 45 percent as more companies buy cover and the market continues to expand, bringing down the size of the average loss.

“The bad news is that at cyber events, talk is regularly turning to ‘what will be the Hurricane Katrina-type event’ for the cyber market?” said Kletzli.

“What’s worse is that with hurricane losses, underwriters know which regions are most at risk, whereas cyber is a global risk and insurers potentially face huge aggregation.”


Nor is the advent of robotics and artificial intelligence (AI) necessarily cause for optimism. As Allnutt noted, while AI can potentially be used to decode malware, by the same token sophisticated criminals can employ it to develop new malware and escalate the ‘computer versus computer’ battle.

“The trend towards greater automation of business means that we can expect more incidents involving loss of income,” said Sané. “What’s possibly of greater concern is the sheer number of different businesses that can be affected by a single cyber attack and the cost of getting them up and running again quickly.

“We’re likely to see a growing number of attacks where the aim is to cause disruption, rather than demand a ransom.

“The paradox of cyber BI is that the more sophisticated your organization and the more it embraces automation, the bigger the potential impact when an outage does occur. Those old-fashioned businesses still reliant on traditional processes generally aren’t affected as much and incur smaller losses.” &

Graham Buck is editor of He can be reached at