He may have a tough act to follow, but incoming PartnerRe boss Costas Miranthis isn’t sweating it. Taking time out from a well-deserved holiday, he talks about staying calm and cautious – after all, even small steps can lead to new directions
There is no doubt about it: incoming PartnerRe chief executive Costas Miranthis has some big shoes to fill.
As of I January 2011, he officially takes over from legendary chief executive Patrick Thiele.
In his ten-year tenure, Thiele steered the reinsurer through the September 11 2001 attacks and the 2004-05 hurricanes, before going on to seal the deal of the year in a $2bn merger with Paris Re in 2008. The mega-merger added $1.7bn in new shareholders’ equity at the height of the financial crisis, helping PartnerRe leapfrog into the ranks of the top 10 market players.
To top it all off, the reinsurer reported stellar results for 2009, posting a net profit of $1.54bn for the year – a sharp increase from the $46.57m it made in 2008.
But PartnerRe’s golden streak seemed to be on the wane this year, when profits dipped 56% in the first half of 2010, coming in at $270.6m, compared with $625.8m in the same period last year. And this blow became a double whammy with the announcement of the departure of its long-serving leader.
You won’t find better
Yet if Miranthis is worried about building upon his predecessor’s weighty legacy – or a shift in company fortunes – he shows little sign. “Today we have a company that definitely functions very well. All the processes work; there is no panic. The company knows what it is and knows what it stands for,” says Miranthis in heavily accented English.
“Our clients know what we stand for; we have great brand recognition with our clients.” But what of the company’s recent dip in profitability? Miranthis is confident the reinsurer’s stellar track record will help weather such blips.
“Our performance over the past several years has been very good. We exceeded our long-term return target of 13% over the period. Reaching the same performance over the next couple of years will be more challenging. We are very open about this with our shareholders. We are in a low interest rate environment. When risk-free interest rates are 2%-3%, achieving a 13% return is a difficult challenge, but we think we can still deliver reasonable risk-adjusted returns,” he says.
As for the tricky matter of managing shareholder expectations, Miranthis’s assured response is that many shareholders would be hard pushed
to find a better deal elsewhere. “You have to look at what else is out there. That is my answer to shareholders. If you think you can get another operation with a better return on your money for similar levels of risk – just go for it,” he says firmly.
Caution’s in our DNA
Indeed, Miranthis’s own surefooted career history complements the steady track record of the company he is about to head. Before joining the ranks of PartnerRe, he spent 16 years with Tillinghast-Towers Perrin in London, joining the reinsurer as chief actuary in 2002. He went on to become deputy chief executive of PartnerRe Global before taking the job of chief executive at PartnerRe Global in July 2008.
Consequently, analysts predict that, under Miranthis, PartnerRe is set to build upon its reputation for stability and calm; maintaining a long-term track record for good returns. Indeed, the company is so well known for caution and stability that it can suffer by comparison to adventurous rivals such as Swiss Re and Renaissance Re.
Miranthis admits this is a reputation that is unlikely to change under his leadership. “There are no overriding needs that I see now as requiring immediate changes in direction or strategy,” he says.
Miranthis does say, however, that the now two-year-old merger with Paris Re has given it more clout on the facultative side, while he adds that the company is aiming to seek a better balance in its life portfolio.
Caution is part of the company’s DNA, he says. “Being cautious is part of who we are; that is not something that is about to change. We have a reputation for being cautious and that’s a choice. We are not the ones to try things first and see what happens. We do think in small steps, but small steps can lead to a new direction. I can’t tell you where that direction may take us, but it may be somewhere different from where we are today.”
Will his management differ from Thiele’s? Again, Miranthis admits his style may be a little less exuberant but insists he has no plans to rock the boat. “We are different individuals and we have somewhat different working styles and personalities,” he says. “It is hard to say. Perhaps I am a little bit more operationally focused, a little bit more shy. However, I have an informal management style, as does Patrick, so from that perspective, it is not going to be very different.”
Why not merge?
It is just as well Miranthis favours a steady hand, as he predicts a rocky road ahead for the sector, with sluggish economic growth, the ongoing soft market and low interest rates taking their toll. “The next five years will be a lot more challenging than the last five or 10 years, and we need to evolve to cope with these new challenges.
“We are all struggling with low economic growth, an environment that directly affects the insurance market and consequently the reinsurance sector, so demand in the first place is going to be sluggish. At the same time, there is excess capital in the industry. There is an environment of low interest rates, so all of that certainly doesn’t bode very well for top line or for profitability.”
Moreover, he adds, there is little pressure for the much-anticipated hard market to emerge. “We are in an environment where we will keep chugging along as we are for a little while yet,” he says. “I don’t see tremendous pressure for the market to turn. There are a lot of people speculating on when the market will turn. I think it is a little bit futile; nobody knows.”
This challenging climate, he predicts, will trigger a wave of M&A activity as strength in numbers becomes the route to survival for smaller companies. “There are a number of companies at the lower end of the field that are going to face challenges,” he says. “Economic logic would say: why not merge?”
Two years into PartnerRe’s own mega-merger with Paris Re, Miranthis believes that things have largely gone according to plan. But he does admit some aspects need to be ironed out. “We still haven’t completed all of the regulatory integration. Some of the legal entities need to be merged. There are still some back-office things to do, but everything has pretty much gone according to plan, and I expect that by early next year the whole thing will be behind us.”
Do the right thing
So, what of the spectre of culture clash that haunts many an M&A? “It can be a problem,” he admits, but points out: “When we looked at Paris Re, we had a fair idea about what type of culture we were likely to encounter. Although it wasn’t identical to our own, it was not very different, so from that perspective it hasn’t been a major challenge.
“It is not as if we had to merge a direct operation with a reinsurance company, or an American company with a European company; that’s when you usually find big differences.”
While matching Thiele’s legacy will remain a tough challenge, Miranthis emphasises that developing a reputation for level-headed decision-making and integrity will be his paramount concern.
“I want to do a good job, would like to have a positive impact. There are decisions I regret where, with hindsight, I can say those were wrong decisions. But I am very comfortable that I haven’t done anything that I could be ashamed of; decisions were made with the right intentions. I want to do the right thing, with the right kind of results for the people who work with me and for the people that I work for.”
It seems that, while reinsurance may be in a state of flux, the message from Miranthis is that, for now at least, it will be business as usual at PartnerRe. GR