RenaissanceRe has rebounded from the crisis it faced at the end of 2005 when founder and CEO James Stanard left the company. Today Bermuda’s only true monoline has its top-notch ratings back, and has been expanding and snapping up top talent, reports Mairi Mallon.
It has been 15 years since James Stanard and Neill Currie started up RenaissanceRe in a small hired office in Hamilton, Bermuda. They had $141.2m in capital and a conference table they had cut in half to make two desks. From here they began to write property cat business and turned this small venture into one of the most successful reinsurance companies in the world. In 2007 RenRe generated operating income available to common shareholders of $735.5m, compared to $796.1m in 2006.
RenaissanceRe was borne out of the capacity crunch produced by the devastation caused in southern Florida by Hurricane Andrew in August 1992. At that time, Andrew was the costliest insured event ever to have occurred: it redefined the reinsurance industry, leading to new ways of managing exposure and to the development of the new dark arts of sophisticated computer modelling. With a techie background, combined with good insurance and reinsurance knowledge, Stanard was ideally placed to take advantage of the brave new world Andrew had created.
Stanard studied computer programming in the late 1960s and then met legendary actuary Charles Hachemeister who persuaded Stanard into actuarial work, his first foray into insurance. Later Stanard joined Prudential Re and then moved on to F&G Re. He also got experience on the other side of the fence at primary insurer USF&G.
It was this combination of skills that Stanard used when he started up RenRe. He applied portfolio management to property catastrophe risk, and built a unique system for underwriting from the ground up, while instilling a culture of risk management that weighed risk and reward, which still prevails today.
His steady hand at the helm saw RenRe weather the soft markets of the 1990s, and left it in a strong position when the market turned post 9/11. Out of the Class of 1993, the only independents that remain are RenaissanceRe and IPC Re. Stanard, as chief executive, chairman and president, was considered a golden boy who could do no wrong. He made money hand over fist for his shareholders and secured the loyalty of key staff by making them shareholders.
But the company received a hard blow in 2005, when Wells Notices were issued to Stanard and former senior vice president of specialty reinsurance Michael Cash in connection with the Security and Exchange Commission’s investigation into the company’s restatement of results from 2001 to 2003. (The notices indicated that SEC staff had made a preliminary decision to recommend that the commission bring a civil action.) The investigation was part of an industry-wide crackdown by former New York attorney general Eliot Spitzer on finite reinsurance deals, which also played a role in the departure of Maurice “Hank” Greenberg, AIG’s former chairman and chief executive officer.
In July 2005, Neill Currie, who had been senior vice president until his retirement from the company in 1997, was brought back in to deal with agitated shareholders and media speculation. Many who had previously been fulsome in their praise of Stanard, now said the company could not go on with him at its head. In November 2005, Stanard stepped down and Currie was brought in to save the day as the new CEO. “I’ll tell you, that was obviously a distraction,” says Currie. “But once again, the company has moved on very appropriately and is in great shape.”
Currie says that while the company has moved on since he took over, RenRe has maintained the same attitude toward managing risk. “We’ve kept the same principles from the beginning, even as we have become involved in more lines of business.” Currie says that they brought in some old hands – “retreads” – as he calls himself with a laugh, which has helped the company out of its difficult times. Dan Eudy, a well-known specialist in underwriting complex commercial property risk insurance, is a particularly prized feather in his cap. “I would say in terms of moving on we kept a very large core of our managers, the people who are actually making the product, if you will,” he says.
Monoline at heart
RenRe still is mainly known as a cat reinsurer, although its business model has changed as it has grown. Its strength is in its flexibility, in being able to “accordion” its property cat business out and in as demand grows and falls and pricing fluctuates. RenRe underwrites on behalf of its own balance sheet as well as the balance sheets of joint ventures. “We are the same company as when we started,” says Currie. “The idea is that we want to be disciplined underwriters, we want to understand risk and we want to bring capital to bear on risk.”
Currie adds that RenRe has superior market and underwriting capabilities, supported by strong analytical tools and modelling. Added to this is advanced capital management, and part of this section is their Ventures Group, through which they access capital. “That is our basic model,” he say. “While when we started in 1993 we only had the property catastrophe area of expertise, now what you will see over time is many more areas of expertise where we are leaders in that field.”
In the future, Currie anticipates fewer peaks and troughs, while wanting to continue aiming for the high returns. “If we can develop more areas where each individual line has volatility, but we have more of those lines of business added together we will have less volatility, but continue to have higher returns,” he explains. One area they hope will help do this is in crop hail business, where they have purchased Agro National, a managing agent with which they had been doing business. “It matches up with our existing skill sets – there are a lot of similarities between writing agricultural insurance and writing property catastrophe or catastrophe-exposed business.”
Running towards gunfire
But the core business still remains large difficult-to-place reinsurance, particularly when there has been a major event and dislocation. “There’s one advertisement in the US for the Marine Corps,” said Currie. “You know, they are known for being tough, brave, heroic folks and so their advertisement says, ‘when we hear gunfire, we run towards the gunfire’. Well fortunately we don’t run for the gunfire, but we are there when the smoke is still lingering in the air. We like to show up and help out. When there is dislocation that’s a time when we roll up our sleeves. With the turmoil in the financial markets we are seeing opportunities both on the asset side and on the underwriting side.”
While RenRe intends to grow, it will only be growth at the right time for the business. “There are many insurance and reinsurance companies that either are no longer with us or that don’t have an enviable track record who get caught up in the pressures to grow,” he says. “If you try to grow in our business at the wrong times or on a smooth basis, you are not going to wind up in a very happy place. When it is the wrong time, and the rates are inadequate, we will put the breaks on substantially.”
Currie points to modelling as being an integral part of the company. Modelling allows RenRe to utilise its capital wisely, says Currie, by helping underwriters quickly assess risks by looking at return on capital. In a changing world, the reinsurer is finding there is more “velocity” in transactions, and feels that reinsurance is set to change the way it does business quite drastically. “We feel like the reinsurance business will become more and more of a trading type of business,” he says, citing capital markets, ILS products and cat bonds. If a venture capitalist or hedge fund approaches RenRe its underwriters can make a decision in the afternoon of that day – while understanding the risk, claims Currie. “That is a huge advantage for us. We have got to have the modelling capabilities to do just that.”
RenaissanceRe: Neill Currie, CEO
Neill Currie was a co-founder of RenaissanceRe in 1993 and served as a senior vice president until he retired from the company in 1997. He re-joined the company in July 2005 as executive vice president to oversee marketing and client relations as well as lead the specialty underwriting business. When former CEO James Stanard left the company in November 2005, Currie assumed the role of CEO.
Currie served as a director of Platinum Underwriters Holdings from May 2003 until July 2005. Prior to co-founding RenaissanceRe in 1993, Currie was CEO of GJ Sullivan Co in Atlanta, a private domestic reinsurance broker. From 1982 through 1992, Currie served as senior vice president at R/I and GL Hodson, predecessors to Willis Group Holdings.