Nikolaus: Hi, everyone. Welcome back to another episode of Reinventing Finance. I'm very happy today to have a repeat guest, Frederik, with me today in my virtual humble abode. Frederik, how are you this fine day?

Frederik: I am very well. Thank you very much, Nick, for having me again. It was a pleasure last time and I'm honoured to be here again. Thank you very much.

Nikolaus: Honoured to have you and last time we had so much fun that offline we said, why we don’t talk about a different topic, M&A, M&A in the insurance industry. Let's see where the conversation takes us, which part of the insurance value chain we'll discuss more. But there have been quite a few activities in the space. Before we do that, though, for the few of our listeners, viewers that might not know or recognise you yet, do you mind briefly introducing yourself? Who's Frederik? What do you do?

Frederik: Absolutely Pleasure. So Frederik, yes, Frederik is currently the CEO of Markel for the European business. I look after what the Markel Group does in Europe. We have, following Brexit, introduced a carrier in Munich called Markel Insurance SE that writes all the business of the Markel Group in Europe since then. And obviously, we also have operational business on the ground in Europe, mainly in Germany, Spain, Netherlands, France, Switzerland, but also Ireland, where we write on the ground in Europe business. And I look after that as well. And that's a lot of fun.

Nikolaus: Awesome. Let's talk about M&A in the insurance industry. Now, maybe let's just go through some kind of current headlines and just kind of wanted to kind of get your take on it. What's the background? What kind of runs through your head? As most of these things, I think, have a different flavour to them. So IPTICU, you know the big bet of Swiss Re on B2B2C embedded insurance is up for sale. What goes through your head about this when hearing this news?

Frederik: Yeah, I mean, first of all, I mean, let me start with obviously M&A is part of our corporate culture. Markel has always been very active in the space. That's why we're also very kind of like open observers of whatever happens around us. And as you've said, I think there's a lot of different reasons for M&A to happen and there's a lot of different motivations for buyers as well as for sellers. When you talk about IPTICU, I think, as you said, it was a big bet from Swiss Re a couple of years back. I think what they might have realised that that space is a bit more difficult to get to scale than they originally thought. And with maybe the question mark behind, can we really get this to scale? Maybe they are looking for a strategic partner to kind of bring this into an area where its fun for everybody involved. So that's the only that's the only thing I have. I mean, it is in a space embedded where I think we have seen a lot of cases come about and it has proven to be not as easy as a lot of the cases have originally suggested. So I mean, there are some of the traditional embedded cases where you sell travel insurance with the travel, where you basically buy your extended warranty when you buy a refrigerator or whatever. But the other embedded models have proven to be a bit more difficult than I think we have all thought there would be, me included, by the way. And I think that IPTICU bit seems to be a little bit of a consequence of that, if you ask me.

Nikolaus: So I think that's absolutely right. I think one of the reasons I think what we'll learn in that space is, you know, how strong of a lead something really is and how close that is to an insurance transaction. And maybe we'll also appreciate for those of us who have forgotten, you know, how difficult it is in the traditional sense to get a customer to buy insurance, which is sometimes not something that insurers, especially when they're kind of sitting in product development, might sit and appreciate. I think from the outside in, I think at the time there was a consideration that strategically re-insurers thought that they had to potentially get a second leg against their seeding insurers and kind of go more directly to the market other than losing that business, which might be a little bit less so as some of the kind of insure tech waves, et cetera, have gotten where they have. I also think and this might be the downside of having such a big and I think then the core business seems to be going really well, which generally refocuses people's attention on ancillary businesses. And then for IPTICU to make a dent, to move the needle, it always had to be so big because that is what Swiss Re was used to, that they just had to place these really big bets, these really big deals and that's maybe just quite hard to kind of get to. And I believe they had costs just ran out of I mean, they just didn't manage costs. You know, maybe Switzerland is not a cost advantage when you run these types of businesses.

Frederik: I don't think it is.

Nikolaus: And, you know, especially when you run and I think that's kind of the genesis of that. But let's kind of see where this goes. But as usual, I think it's, you know, execution matters and expectation matter as well, because that is where you drive your people on how to execute. I'm talking about expectations and execution. WeFox.

Frederik: Yeah, I knew at some point that word was going to come up and to be honest here, Nick, I do have a little bit of a problem with that because I and I don't want to sound like the wise guy. I always had problems really understanding that the WeFox business model. And I know it pivoted over time, many, many times and kind of moved from here to there, which is all right. And I mean, we've all seen that in start-ups and that's what they should be doing if that if they hit a wall. So that's good news. What I was always astonished about was the overall valuation where I said, listen, to create that sort of a value, you would need to bring a lot more to the table than I was seeing in WeFox. And that's a completely personal opinion. So I wasn't very surprised when at some point the news came out that OK, now obviously delivery or execution or however you want to call it, fell so much short of expectation that obviously questions were being asked and that these questions now go as far as questioning whether it should now be sold in some sort of a fire sale process to somebody else, I think is a bad development for the overall insurtech environment in Europe. So from that perspective, I don't think that's good news. And obviously it's not good news for the investors, but it is a little bit of a result where I think that the model, at least a lot of insurance market participants, was never that clear. So maybe for a lot of the market insiders, not as unexpected as maybe for some of the investors.

Nikolaus: As if you were to ask, what assets do you think that there are kind of outside in? Because there seems to be, I don't know how to pronounce them, this UK broker group, which incidentally has a similar shareholder than one of the shareholders, which is also interesting. You know, then one of the investors who would kind of get out of it unscathed due to some liquidation preferences. But be that as it may, there is, you know, I've read something around, what it is, 200 to 300 million and then 200 million, you know, let's say it's 500 million. What do you think from the outside in are the assets that they managed to create with their 1.5 billion in funding?

Frederik: Yeah, and in all fairness, I wouldn't really be able to give a very deep insight into that. I mean what I've seen and heard and kind of like, yeah, realised is that there seems to be some sort of a ground up, solid kind of intermediary business in Switzerland. There seems to be a certain level of volume on an intermediary business level in Germany. There is business in Italy, of which I have no kind of like way of assessing how good or bad that is. And that's basically where my knowledge stops, to be honest. I have no means to judge or value any of the technology investments, which I think were quite extensive. And I mean, obviously, there were acquisitions made. But I think the bits and pieces that I've just mentioned are basically the result of acquisitions. So ultimately, I couldn't really tell you to be honest. And again, any number that's on it, I couldn't really say whether I would have a view on whether it's worth it or not. I just really don't know. I think it's a little bit of a difficult one, very simple, because there were a lot of pivots and there was a lot of different focus areas. And they sounded sometimes very much driven by what was kind of like a dish of the day from an investor perspective for a while. And that obviously never makes it very easy. So once you get to a point where somebody starts to really count the beans and ensure that there's value for what's being paid, suddenly becomes difficult if you kind of like went through the investor landscape for three, four, five, seven years and basically used every buzzword that was there. So I think that makes it not that much easier at the current state.

Nikolaus: Fair enough, fair enough. I would second that assessment. Let's go into another case. What are your thoughts about Gothaer and Barmenia? What's the rationale there?

Frederik: Whoa, that's a big jump, I mean, in terms of topic, because I mean, obviously, those are two extremely solid market participants with a very, very strong market reputation, with a very strong kind of like position in the market with what they are known for, again, completely outside in. I mean, if you ask me, I kind of like see the Gothaer party, probably more the PNC, commercial PNC driven bit of the equation with Barmenia being very strong and health, especially. The combination of the two, from my perspective, makes a lot of sense, because I mean, obviously, they both have a direct distribution by agents. They both service the broker market. They kind of like are quite complementary from where they have their strength on the product side, at least, again, completely outside view. And I'm the absolutely last person that should be saying anything on life or health insurance, because I really have no idea about it. But that's kind of like my take. And to me, what I found fascinating about it, and that is something that I really would like to say, I think a lot of these mergers, economically, strategically, from a market perspective, and so on, make a lot of sense, but do not happen, because involved individuals do not allow for it to happen.

And I think the people involved in this transaction should get a lot of credit for the fact that they are trying to complete something which, from my outside in perspective, kind of like makes absolute sense. And it's obviously not ego driven. So it's more really, hey, what's driving value rather than what's driving ego? And that, to me, is a very, very positive thing.

And that's why I think it deserves a lot of credit.

Nikolaus: Two follow up questions. On the value, so is the reason because you have one of the values is distribution access, both through your tied agents and your broker network. And because you need to invest however you go into nurturing these relationships, and that is actually the hard part, having a very expansive product portfolio in and of itself creates value. Is that one of the value creation levers that you see? That you, you know, Bermenia agents will now also offer product ranges that they previously couldn't and vice versa. It's easier for brokers and they don't compete on certain lines of product. You know, why does it create value by merging these two businesses together?

Frederik: And I think that's an absolutely fair question, because I mean, I think the history of German insurance M&A has not been very rich in terms of success cases where these kind of like, let's call it cross-selling models have been working very well. So ultimately, I think the question on if you bring two companies together and you have distribution forces that can sell either, or is it very easy to ensure that suddenly they can offer good products from both sides as easily as everybody thinks? I think the answer to that is absolutely no. I think if you have a tied agent network and that has been selling PNC insurance all its life and has been very good at that, normally they cannot live off that very well, but kind of like even if they have, so that's one side. If they suddenly get a better health insurance product than they might've had in the past, will that really drive sales that much? I'm not sure, but, and here's the interesting part on that, in the past, I think a lot of the insurance thinking has been around selling to customers and being able to better sell to customers. It has not always been at the forefront that it should be to the advantage of the customer. And what I see in this one is basically that I think the tied agents from Gothaer have been able to sell health insurance and life insurance and so on. And again, I'm not an expert on these fields, so I cannot really judge it. But my understanding is that, for example, the Barmenia health insurance offering for a client is better than what the client would have previously gotten if they would have bought the Gothaer one. And that's not even saying anything bad about the Gothaer health offering. It's just saying, it sounds to me, but again, I'm not an expert, I'm more like a consumer on that side, that the offer that they now could be getting because they're now getting the Barmenia product is a better solution for the customer. And if this merger helps to ensure that ultimately more clients are getting better insurance solutions than they were getting before, maybe not more, but better, then I would still say that's an absolute pro. And again, I would give a lot of credit to the people who are driving that because they put the right things in the focus. And if that then is kind of like a model that drives other dynamics in the market, I think we could all be happy because ultimately, that will then help the overall reputation of the industry towards its clients. And we'll just make the whole equation between insurers, the intermediary, whether it's an agent or a broker, and the end client a lot better. So ultimately, I see a lot of value in there. And again, I mean, I think we need to be careful that we're not just limiting value to economic value.

Nikolaus: No, it's fair, I think. And interestingly enough, I mean, you've alluded it as well to Markel, if you kind of look at how insurance companies, large insurance companies, international insurance companies have developed, it's been through mergers and acquisitions. It hasn't been organically because it's really hard to kind of, right? I mean, most, yeah, there is some organic things, but you know-

Frederik: It's normally a mixture, yeah. Right. But the ones that have grown the fastest have been companies who have been able to provide substantial organic growth and combine that with kind of strategically relevant and organic growth. And I think that's the perfect solution, yeah.

Nikolaus: I wanted to ask you also what your kind of take and where you see, where you as Markel see value and have placed bets. But before we go into that, I think one of the very active spaces is broker consolidation, M&A within brokers, consolidation, like left, right, centre. What's your take on this? What's the economic rationale and potentially, is there any learnings or any cautionary tales or any adjustment strategy for those that say we're going to remain independent, but also as an insurer, if you've been working with, or you plan to work with these larger consolidated entities?

Frederik: Yeah. I mean, obviously it is in everybody's, in every kind of industry dinner table discussion. And I mean, obviously there are a lot of things happening.

Nikolaus: So spill the beans.

Frederik: Yeah. I think what, I mean, if you look at it, I mean, it's not a new topic to the industry, if you look at it from a global perspective. I mean, if you see what's going to happen in the US, if you see what's going to happen in the UK, it's been absolutely obvious that that's the trend that would probably hit other markets as well. I think that the European markets have been later hit rather than earlier is actually a bit surprising because what these investors are looking for is a constant cash flow, asset light models with a very constant cash flow. I mean, obviously in Europe due to test renewal and the way how business is conducted on the PNC side in Europe, those cash flows are even more secure than they are in the US or in the UK. So it's actually quite a bit surprising that it didn't come up earlier. Obviously that the market is quite broadly spread in terms of diversification and not very consolidated in Europe is also pretty obvious. So for me, it's been actually relatively late that that has kicked in. Now that it has kicked in, I think it's very positive because what it does, it does to a certain degree add to the professionalisation of the models. It also ensures that you have proper exit opportunities for business builders that have gotten to an age where maybe they don't want to do it anymore, whether they cannot do it anymore. So I think it's actually, it's a positive sign of a living and active market. Is there a little bit of a hype and will that hype dry down and will that have an impact on prices? Yes, absolutely. Yes, if you ask me. So obviously there was a lot of capital that went into the market, especially the German market at once. Obviously there were some extremely successful models like M&R Trove, like GGB that have been able to really kind of like go on a buying streak and make sure that things are happening. But I think it will dry down a little bit. So I think we have seen the first couple of people have realised, okay, maybe not the perfect space anymore. Maybe we're a bit late to the game. I think others will realise that over time there will be secondaries, there will be things like that. So I think we're moving into a completely normal environment and let's face it, I mean the transactions that you read about in the newspapers, how many are there? 100, 150? Yeah. How many brokers do we have in Germany? I mean, nominally there are 40,000. Let's call relevant ones, maybe 6, 7, 8,000, something like that. That is still just an absolute fraction. Okay. The larger ones, but still a fraction of the overall market being bought. So I think it will have kind of like, it has a big future. In the next couple of years we will see a lot of more consolidation happening. I think it's very healthy. I think the hype will drive down a little bit and I think we will see a bigger differentiation of the models. I think just buying companies to own a company is a model that initially helps to kind of like make best use of kind of like the hype and the fact that there is more sellers and that there's more market and so on. But obviously over a longer period of time to create value, there will need to be some sort of a consolidation, some sort of an integration. And then we might see some of the larger strategic buyers kind of like appear on the landscape that are not yet very active, like the Gallagher's of this world, like the Lockton's of this world and so on, that will then step in and buy larger consolidated units if they are not too big for the acquisition appetite for just single countries like Europe. Because let's face it, if you have an asset that you just buy as an insurance broker, that is costing you whatever, 3, 4 billion, because that's what the valuation multiples tell you. The question is whether a strategic buyer would spend that money just to be very active in the German market. And I don't think they would. So ultimately, there's a size game. You need to have the right size. You need the right moment. You need to do a good job in consolidation. So there are just lots of question marks around it. But I think it's extremely good that it's happening because it professionalised the whole environment and it kind of like brings a little bit of activity to the market, which is always a good thing in my perspective.

Nikolaus: Do you see any change intact for, let's say, the larger independent brokers who go on the record of saying, you know, we don't want to sell. We've seen this. We've heard this song before. You know, this is the same as Aeon Marsh Willis. And we actually position ourselves against, you know, being family orientated, etc. And what we are actually seeing is the German Mittelstand is quite receptive to whether it's true or not. You know the tale of having a PE owned or US based controlled broker rather than, you know, having a face to face relationship. And also that's for talent, because not everyone likes the reporting cascades that ultimately come when you are a part of a spreadsheet calculation that needs to be reported upstream.

Frederik: Let me start with a later point. I mean, what you have seen in the US and the UK is that sometimes these consolidation waves have at some point started to breed their own babies. So you have then seen that things or companies have been bought and then people have left those companies that have been bought, have started their own brokers, have kind of taken three to five years to kind of make them bigger and then bring them into the selling curve again as well. So I don't think we have yet seen that in Germany at all to a larger degree, at least not that I'm aware of. So I think that is an area that will happen over time. And I think there's good reason for that, because what you've mentioned as your first point is, there is large German national brokers where I do not see that in the shorter period of time they will be on the on the kind of like selling side of their businesses that will play that advantage, that will go, hey, we're not AIM, we're not Willis, we're not Marsh, we're not one of the private equity backed consolidators. We are still here with our name. We own our company like you own your company. Let's talk about how we can define risk and how we can mediate risk and that storey still works in Germany very, very well. And there will always be room for that story. And you know what? As a carrier, I'm very happy that there is this diversification. So you have the family owned large national brokers, you have the private equity owned consolidators, you have the large multinationals, you have the smaller specialists that kind of jump into certain spheres where they suddenly can attract very large customers and service them very well. So I think that this diversity in the market is actually something very healthy and very positive. So I'm a big supporter of that. And to be honest, I'm a big fan of the Schungs, the Südfers, whatever of this world, not Schungs, Fungs, not Schungs, Fungs and Südfers of this world that still can have their business, run it very professionally and ensure that there's diversity. So I really like it. And I think that they have a bright future ahead of them because there will be a lot of clients who will listen to that story.

Nikolaus: Do you think there is a change in strategy on the insurer side who are using these as producing brokers? Anything rather than just kind of going with the flow and, any strategic changes that you would make based on what you can expect these consolidators to do, et cetera?

Frederik: Yeah, I mean, there's always this issue in Germany. If you have a decentralised country like Germany, you tend to have a lot of decentralised relationships. So as we have seen with the large international ones, you might have had your very good kind of standing with the international folks of A.N. Marsh, whatever. But that doesn't mean that the placing broker who sits in an office somewhere regionally in Germany places the business with you as an insurer. So there was always the need to kind of like, yes, have a national relationship, but also have a local relationship. And that, to be honest, is something that I think is also absolutely true for the consolidators. Just because there is a consolidator doesn't mean you only need to talk to the consolidator. It just means, OK, you also need to talk to the consolidator and make sure that on that level, you're also kind of like set as an insurer, but you also still need to do the local work. There still needs to be a local relationship and so on. And the same is true for some of the national brokers. Some of the national brokers, and I think there's a very good example of Hamburg, have been very, very strong at organising their placement strategy and making sure that they actually do place most, if not all of their business centrally. Obviously, that then becomes a huge asset because then you can start to leverage that placing power that you have. If you are still organised in a way where, yes, you need to have a national relationship, but you also still need to have local relationships because the placing strategy is not as clear or not as well executed. Obviously, then you still have the same kind of game that you had before. So ultimately, I don't think it has changed much yet because I don't see that there has been a very good evolution of well-executed placement strategies in the market so far. Once that happens, it becomes a bit more difficult for carriers. So I'm not unhappy with the state that we have. But overall, that is something that I think we will see emerging over the next five to 10 years. Even though if you look at it internationally, while there have been progresses on that internationally, if you look at the US and UK markets, it's still not the case. And I think that's very healthy, that suddenly you can like say, okay, I switched all my business from A to B, because I can, and I think I should be doing this. Because again, let's not forget, there's clients in the equation, there needs to be good reasons why that switch is being made, and so on. So I think we have a very healthy balance in the moment. And I don't see that that healthy balance in the moment is being disturbed by what we're seeing as broker M&A in the moment.

Nikolaus: Would you say part of a placement strategy is that the measure of beefing up your own MGA activities, which is something that I see left, right and centre. So all of the consolidators seem to be adding in an MGA, both potentially as a placement, but also then to get some margin, but also increasingly, because I think now that's a space that I am quite familiar with the cost of actually spinning up an MGA procedurally is much better. There's been a lot of development over the last couple of years. And so they'll actually start insourcing more. Is that part of a placement strategy or a different thing? But it just seems like everyone is beefing up and making moves to spin up the MGAs.

Frederik: I mean, first of all, I absolutely see that and absolutely share your view on that, full stop. Second bit, I think it's kind of like, there is a private equity term, I don't recall what it is, I mean, phrasing in my own words, it's kind of like the share of your own dollar that you get. So ultimately the question is extending the workbench, making sure that you get more of the revenue that's associated to a client than you would get in classic scenarios. It's obviously a thought that not only private equities have come up with, but that also very large working firms have come up with. I mean, look at the big ones, whether you call it facilities or you call it MGA setups or whatever you want to call it, it doesn't really matter.

But I mean, obviously that is a play that has been in the markets. And I mean, London market, probably forefront of that. But I mean, it's obviously coming to local markets as well. I mean, that is a tendency that I think you see. Is that good? Is that bad? I don't know. I think there are both sides. I mean, obviously for the intermediary side, it normally promises a bit more money. On the carrier side, you would expect that for the more money you get a bit more value in terms of service, additional bits of pieces that the intermediary takes over on that. But overall, I think that's a little bit, sounds a little bit like me as being a little bit of a zero sum game. And I think that's where it becomes interesting. I'm not really sure whether that is a brutally new development if we're talking about placement strategy. Because on the placement side, I mean, obviously that's what they do, but that's something they've done before. So they've always had certain key carriers that were driving their business, that were having the majority share in their business, and that were paying them maybe a little bit more commission or whatever. So there's nothing new. It's just maybe a little bit more professionalised. What I'm not really seeing, and I couldn't really maybe give you too many good reasons for that, is a proper introduction of an MGA into the placement strategy. I think there's a lot of playing around with MGAs. So some use MGAs to professionalise facilities. Some use MGAs to separate the MGA business from the rest of the broking business. Some actually use MGAs to also attract third-party business and leverage their own business with third-party business to place it better. So there are all sorts of ways. But if you ask me, do I see any player doing that extremely well, extremely professional, to a degree that I would say it really makes a difference in the placing strategy of a broking house? I would say no, to be honest. I haven't really seen that. There's a lot of playing around with ideas, but I don't think we have yet, or the broking side has yet found, the perfect kind of way of really using an MGA in their placing strategy. And by the way, I would welcome that. I think it would be a good thing.

Nikolaus: Yeah, I mean, I think the interesting thing, if it were to proliferate, and it is a zero-sum game, if you say you might have some potential sunk costs if you have invested in processes that your brokers value versus kind of more on a capacity side that would be like a logical consequence of that. But time will tell. And as we've all seen, and I think that kind of also comes back to the IPTQ example, these products and processes, they all seem so standardisable on paper, and the product only seem to have nuances, but they have such an impact on processes, on how it's being positioned. And especially in the commercial space, it's just not as easy. Even in the retail space, it's difficult. Coming to your own activities, what is your M&A strategy? And any kind of transactions that you'd like to kind of share and what the rationale behind that was?

Frederik: Yeah, and I mean, I mentioned at the beginning, Markella has, by our heritage and nature, been quite inquisitive over the years. And you can look into the history of Markella.

Nikolaus: Why is that? What made you cheap money to profitable? What made you impatient? What made that part of your DNA?

Frederik: I think it's more what I said as well, like a mixture of having a very, very strong commitment to growing organically, while at the same time adding additional growth elements and organically. And sometimes that is to kind of fill a strategic niche. Sometimes that's about entering a market. Sometimes it's just about balance sheet. So there's all sorts of reasons why that can make sense. But that was always our approach. I think the last very large acquisition that was also covered quite wildly in the financial press was our acquisition of Altera in 2014. But even since then, we've made very small acquisitions. I mean, the most recent one that was in the press in the UK is where we bought a minority share in an MGA called Serta. I mean, obviously, the reasons for these kinds of transactions are very much different. But they follow the same principle that we want to use an organic growth to supplement our organic growth, while at the same time ensuring that it fits into the philosophy of our insurance engine, which is basically creating very, very long term, stable results for our shareholders, and providing our investment and venture engines with floats that can be invested. And that's always the main principle. And if you then look at our appetite, our appetite is still broadly there. So I mean, we are still constantly looking at acquisition opportunities. And I can only speak about Europe, that's definitely the case for Europe. But I know that's also the case internationally. And that's also the case in the US. So it's not something that we haven't continuously pursued. And if you look at it, the other perspective to that is also kind of adding strategic capabilities. So when you look at the acquisition of a state national, which is the most successful fronting insurance company in the US, at some point, we believe that we still do, that it was very intelligent and is intelligent to have fronting in your portfolio of services and solutions that you can offer to customers. The same is true for Nephila, which was an acquisition that we also made a couple of years ago, where we believe, strongly believe and still do believe that the power of the platform of bringing all these different sorts of abilities together is worth something to the ultimate relevant party, which are the insured. And Nephila was another example where we have complemented to our platform of strategic abilities. And that that was a very good thing. If you look many, many years back, when we talked about the establishment of our international platform, because Markel was for a very long time only active in the US. But in 2000, we bought something called Altera, which had an insurance company in the Lloyd syndicate, and is what forms Markel International today, which is a highly successful platform for Markel globally. So for everything outside of the US and Bermuda. So the acquisition was always very important to us and still is, but it needs to make a lot of sense and it needs to complement very strong organic growth and ensure that we are creating value, not only for the business and our employees, but also obviously for our shareholders, and obviously, most importantly, for our customers.

Nikolaus: So we're talking a bit about M&A, let's maybe talk about, and you've mentioned it a little bit that, you know, some of these acquisitions create their own babies and their kind of own flow. And let's, let's maybe switch gears and kind of talk about MGA builders, MGA platforms, something that is very active in the, in the UK. And by my definition, but please compare and contrast that to yours. It's a series of services that you offer to anyone wanting to launch a new MGA or cover holder. You know, predominantly, this might be a successful underwriter who doesn't want to work for the man, but also might have a family to feed, most underwriters aren't 19, I guess, there's this experience element to it. And so what you provide is a series of service ranging from initial investment to cover salaries, regulation, capacity, potentially distribution, and then a, depending on what it is and earn out potential to kind of go independent, there's different flavours, but there's been quite successful models. However, we haven't seen that in Europe that much. So number one, what do you think about these models? Right. And why do you think that hasn't happened in the same way? Why don't we have, or you could call it master MGA, however you want to call it, right. Why haven't these vehicles sprung up in Europe or let's, you know, maybe just Germany for now?

Frederik: Yeah. I mean, point one, from my perspective, there's nothing more customer focused than an underwriter who decides to found an MGA and bring a specialist product to customers. Very simply because these guys obviously entrepreneurial driven, want to be successful by satisfying customer needs. And in a lot of cases they have not been able to fully deploy that willingness and also the creativity in their normal insurance environments. And they've also not made the profits and cashed in the benefits from that. So I think normally these models are extremely customer focused. That's why we like them to be honest. Yeah. Normally they focus on, yes, I've understood an insurance carrier needs to make money technically and therefore I need to provide sound underwriting. But at the same time, I need to make sure that my product is as perfect as possible suited for the needs of my customer. And I think that is something that MGAs do. They also do so if they are selling by other intermediaries, because they normally provide excellent service. They normally make sure that the brokers they work with really kind of like have a go-to person that kind of like solves their problems and so on. So overall, I'm a huge fan of that sort of model. It would be crazy if I say anything else, because I my origins are on MGA as well that has tried to do something like that. So ultimately, I'm a very, very big fan of that model. Statement number one. Now statement number two; how does that work with carriers and how does that then transition into the European markets? If we're being very, very honest here, the UK and US markets have had far more successful MGAs, if you look at them as standalone MGAs, than we have seen in Europe. In Europe, there's still a lot of bias. You hear MGA, well, why don't I work directly with a carrier? Okay, I understand I now need to work with them because they're offering something proper, but I would prefer to work directly with a carrier. There's more bias, so people in Europe have on the broker side, on the broker side. And I mean, the policy holder normally doesn't really know. So I mean, they hear some sort of company name and whether it's a carrier or broker or whatever on MGA, they normally don't make that differentiation. It's the brokers that would need to kind of say, hey, yes, I embrace that. And I don't think that has been the case. Plus, and I think that's also an interesting one. I think in the UK and in the US, there was much earlier a tendency to really differentiate the business models and have standalone business models. So you have standalone MGAs that do nothing but being an MGA and you have standalone brokers that do nothing but being a broker. I think in Europe, we always have the tendency, I have this broker relationship, and he brings me a lot of clients. So then I give him some sort of an authority to kind of like a tariff or his own product or whatever. So that he could basically work a little bit like an MGA, but not be an MGA. And that obviously has taken away a lot of the volumes that would have normally gone into MGA. So I think the total volume of MGAs in Europe is just so much smaller that this phenomenon has just not gotten as many legs as it has gotten in the UK and or the US. And let's not forget one last thing that is also market dynamics around test renewal and so on. So if you are an expert underwriter in a certain class in a certain country in Europe, the volume that's ahead of you is so much smaller than the volume that you would normally see in the London market, or that you would see in the US market, that it is just more difficult for you to live over a model like an MGA that is scalable, yes, but only to a limited degree. So ultimately, I think that probably drives the fact that in Europe, we haven't seen the emergence. Do I think that's missing? Absolutely, yes. I think it will be highly beneficial for the European markets, if we would see more of that. And I am optimistic that it will happen to us, because I do think it's necessary.

Nikolaus: So we've kind of just conscious of time. We've talked a little bit at M&A; we've talked a little bit about MGA platforms, MGA builders, consolidation, etc. Is there anything kind of top of mind within that overall theme of this conversation that you think we haven't addressed that, you know, an appeal or you know, any kind of shout out before we wrap this up?

Frederik: Interesting question. But what I think what is an interesting point that we haven't 100% touched on, but I don't know how much in this context that makes sense. But I think that M&A is normally considered as being, I am buying something. But sometimes it could also be a way or methodology to kind of deepen the partnership with someone. So you might have a service provider, you might have an MGA, you might even have a broker firm that a carrier has a very, very deep link into. And where you just want to bring your collaboration from a business collaboration onto a level where it becomes a strategic collaboration. And I think that will be something that given that there is more M&A momentum in overall markets, that is something that we will see more and more. And I think that's very positive.

Nikolaus: Yeah, it was funny that you should mention that. I was kind of thinking around that when you were talking about, your overall M&A strategy at Markel. But it seems also kind of opportunistic in the sense, can I deepen this relationship? And there can be many things, because I really, this can be, oh, this is a really strong producing broker from us. And we want to kind of make sure that they stay faithful.

Keep on doing that. But it could also just be, you know, there's some people that want to take some money off the table, but continue doing that. And I much rather have continue to extend that relationship longer. And so to have a, and it's almost like having a muscle that you can then enact a certain transaction when these opportunities present themselves, because this is not something that you can force someone down someone's throat, right? It needs to have a mutual interest at the time, and then understood. Yeah, I think that's an interesting one, right? It's to say, it deepens the relationship. And we've mentioned it before, it might make sense on the MGA model, on a certain consolidation model, to have a secondary voice around, which maybe has more patience and understanding than some potentially purely financially orientated, move fast and break stuff things who might hear the same reasons, but not believe them because they haven't felt them, right? You know, because it's like, and I think that's it's a choice of what you want to do, right? And I think it's interesting to have that alternative source of financing.

Frederik: And let's not forget, it also brings a broader perspective to the table. Because I mean, if you look at it from a PE perspective, and you look at intermediary, obviously, you talk about maximising commission, and then minimising costs, so that profits optimised, all fair, all good, all what they should be doing. But if you then bring in a strategic partner that looks at profitability from a completely different perspective, because they are looking at the profitability of an insurance book, rather than the profitability of an intermediary activity, that brings a completely different angle to the table, and might open completely different perspectives also from a valuation perspective. So I think it's absolutely critical to, if you are an intermediary that has a very profitable book, and you're not really interested in selling, but you're more interested in finding a strategic partner to also speak to carriers, speak to MGA, and speak to other people. And that's, I think, this, again, this diversity in the market, makes the market richer, and kind of makes the market even more interesting for everybody. So I think that that will be very positive.

Nikolaus: Frederik, thank you so much for your time.

Frederik:  Absolute pleasure, as always, Nick, thank you so much.

Nikolaus: I'll invite anyone and everyone listening to, you know, make your thoughts, reach out to us, and have your comments. These conversations are not intended to create an echo chamber, but to start a conversation offline. And Frederik, it was really nice talking to you again. Have a lovely day.

Frederik: Thanks a lot. Bye-bye.