Insurance veterans share their stories
A light-hearted quip that likened a panel of Bermuda insurance and reinsurance pioneers to The Rolling Stones of the industry sparked a coincidental story that involved the rock stars.
Brian O’Hara, the founding chief executive officer of XL Group and one of the panellists, related how he and Bermuda insurance sector colleagues Paul Scope and Joe Rego “hung out” with Mick Jagger and Keith Richards in Barbados in 1987. At that time XL was in its infancy having been formed the previous year.
The unusual but fitting anecdote was shared with attendees at the 25th anniversary celebration for the Association of Bermuda Insurers and Reinsurers after Caroline Foulger, moderator of the “Lessons learnt from the pioneers” panel, introduced Mr O’Hara, Michael Butt, Fiona Luck, Don Kramer and Stephen Catlin and said: “We have more experience on the panel here than The Rolling Stones have.”
Mr O’Hara, the first chairman of Abir after it took its current name in 2004, shared stories about how he came to Bermuda in 1978 to help start a reinsurance company, which was got up and running with $25 million of capital. However, a few years later the wave of captives that had jumped into business in Bermuda around the same time were being punished for “not having a clue what they were doing”.
Mr O’Hara said: “Within two or three years the losses started pouring in. By 1984 captives were getting killed and companies were going out of business. The reversal of capacity and market was breathtaking.”
He relocated back to the US with the company he worked for, but in 1986, XL Group — originally known as Exel Ltd was formed, and Mr O’Hara was picked as its first CEO. How that came about involved a long night of being interviewed by XL’s original 60-strong board of directors after dinner and cocktails. Mr O’Hara stood his ground when he was being asked how he would run the underwriting side of the business, and that was one the key lessons he said he had learnt.
“Stand your ground when underwriting and do not budge, do not give an inch,” he said.
He said that the lesson he learnt from the crash of the captives in the early 1980s was: “Never make business decisions based on tax reasons, you have to make them on fundamental business reasons and if there is an ancillary tax advantage that’s all the better, but don’t let tax drive the decision-making.”
A third lesson he shared was that to form a “really effective association you need a professional administrator” and he said hiring Bradley Kading as president and chief executive of Abir in 2005 was probably one the best decisions he ever made. Mr Kading led the organisation until he retired last year. John Huff succeeded him as president.
Abir was previously known as the Property Catastrophe Reinsurance & Excess Liability Insurance Association, which was created in 1993 in the wake of a second wave of insurance companies setting up in Bermuda to fill a gap in the market created by losses associated with Hurricane Andrew. The Association was started at the suggestion of Mike Murphy, a top executive at American International Group in Bermuda.
Mr Murphy was CEO of Abir until 2005. He also led an even earlier forerunner organisation called the Bermuda International Insurance Association which was set up in the 1980s as an umbrella lobbying group. He was among the event attendees and his contribution to Abir was recognised by Mr O’Hara and Mr Butt, who was the association’s second chairman.
“Michael Murphy did the first job of getting Abir together and I respect that,” said Mr Butt, who also tipped his hat to Sir John Swan, the Bermuda premier from 1985 to 1995, who was also in attendance.
“Sir John, you did the treaty negotiations. You led Bermuda into having the legal structure that we were able to maximise to make our business work.”
Mr Butt, chairman of Axis Capital, spoke about how the island’s insurance sector had transformed itself from having a difficult and “fringe market” reputation in the mid-1980s to being a global leader with the highest level of regulatory acceptance internationally.
“But it didn’t get there by accident. It got there through a lot of hard work and through one of the uniqueness’s of Bermuda; because of our size, we can work together closely, more effectively than some of our competitors. We can focus and get decisions made more quickly.”
He said that even with the emergence of Ace and XL in the 1980s, Bermuda still had to lift its reputation around the world in order to attract more business.
“The self interest of the industry, the Government and the BMA came together; for us to work together in a unique environment to finance the upgrading of the BMA, which we all supported, to reach the highest standard.”
He said the lesson learnt was: “If you want to play in the big league, you’ve got to play by their rules or you don’t win.”
Mr Catlin, founder of Catlin Group, came to Bermuda in 1999, having previously worked at Lloyd’s of London.
He said: “We came because we felt we were coming to an arena where regulation was fit for purpose and we could work with it. Decisions could be made in real time and you could get on with growing your business, rather than spend maybe years in London just trying to get a simple decision made.”
Mr Catlin said Lloyd’s and Bermuda have always been most successful when they have worked together. “We need each other and we can learn from each other,” he said, pointing out that 30 per cent of Lloyd’s capital comes from the members of Abir. When it comes to lessons learnt, he said the most important in his view were: “Communicate; add up; make sure you have independent verification of what you are doing; and think the unthinkable.”
Regarding the last point, Mr Catlin said that in the immediate wake of the 9/11 attacks, his company had been caught out by a cancellation policy that in light of the circumstances had “terrible coverage in it”. The cancellation policy covered NFL football games and was geared towards the possibility that up to five games might be cancelled in a single day.
“What happened? The whole lot got cancelled that week. Had we thought about that in terms of aggregated risk? No. Had we thought of that in terms of pricing? No. Had we thought about it in terms of the very tough losses we could have? No.”
Meanwhile, Mr Kramer, chairman of ILS Capital Management, said failure was a valuable lesson. Early in his career he was a partner in Oppenheimer Company, which set up Oppenheimer Re only to go into liquidation after a short existence due to the burden of claims.
“What I really earned was a doctorate in failure; a degree that’s more valuable than all the other degrees that I have. I learnt so much by my mistakes.”
After almost a 20-year gap, Mr Kramer returned to Bermuda in 1993 to set up Tempest Re, which later became Ace Tempest Re. Following his retirement from Ace in 2005, he founded Ariel Re. He spoke about the changes to the industry that have made it smarter and stronger on the underwriting side, and Bermuda is now taking twice the market share of US reinsurance premiums than its nearest competitor.
Fiona Luck, director of the Lloyd’s Franchise Board, was first involved in the Bermuda insurance sector in the mid-1980s during the formation and early years of Ace and XL.
She said: “I don’t think anyone understood the transformational impact of Ace and XL. I was fortunate to have sat in a room with Bob Clements, Bob Newhouse, and Bob Redmond and literally helped start Ace and XL. I was purely the bag carrier, taking notes and making sure everything happened when it needed to happen.
“Honestly, we did not know if it was going to succeed. Every client that wanted to get insurance had to put in a big chunk of capital. Nobody knew if that was going to come together. But when you look back it truly changed the landscape in Bermuda.”
Ms Luck, former managing director of Marsh and McLennan, said one of the key lessons she had learnt was “how critical it is for Bermuda to have CEOs in situ”.
Referring to Brian Duperreault and Mr O’Hara, who were respective CEOs at Ace and XL in the 1990s and into the 2000s, she said: “Don’t underestimate how powerful it was to have the two Brians physically resident in Bermuda. Brian Duperreault is Bermudian and has long connections with Bermuda. Having them here where they would be committed to the island, where their children went to school, where they understood what was going on in the island, really changed the landscape in terms of what went on.
“We had lots of waves afterwards, and a number of those CEOs also committed and that has been fantastic, some as you know haven’t and they commute. But don’t underestimate the power of having people here, because it changes the way that Bermuda is viewed.”
Ms Luck also spoke about the need for diversity in the industry, and beyond. A report on what she said on the topic will be featured in tomorrow’s Royal Gazette.
The Abir celebration event was held at Rosewood Bermuda. David Burt, the Premier ,was among the keynote speakers, as were Julian Enoizi, CEO of Pool Re, Michael Consedine, CEO of the National Association of Insurance Commissioners, and David Altmaier, insurance commissioner for Florida.
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