The re/insurance management roller coaster has roared over the dips and humps of the cycle, proving some executives did not have a sufficiently sound constitution to carry on riding. By Adrian Leonard.
It's déjà vu all over again, again. The re/insurance market has suddenly realised the cost of its years-old practice of non-technical underwriting driven by competition. Some of the market's most senior figures have, to use the phrase of euphemistic marketeers everywhere, left their posts to pursue other interests. Others have made humiliating climb-downs from lofty positions, while still others have simply been sacked. Many are riding the CEO merry-go-round, moving from company to company, leaving their past behind them in exchange for a clean future ahead.
Perhaps the highest profile of all the management actions was the resignation in January of 18-year American Re veteran Ed Noonan from his post of president and CEO of American Re Corp, a position he had held for five years. He was to be replaced by parent-company veteran John Phelan, president of Munich Re's Canadian subsidiary. However, even before Mr Phelan took up his post, more major personnel changes were to take place. Robert Burgess, executive vice president, general counsel and company secretary left "to pursue other interests," according to an Am Re statement. Next to go was Mahmoud Abdallah, executive vice president and president of international operations at American Re Co. He left "in order to pursue a new venture."
Before the end of March, the Munich had shuffled most of the management deck chairs at Am Re, notably by naming the actuary Albert Beer as president of strategic business units, and giving him responsibility for US p/c underwriting. As for non-US business, the Munich saw fit to take the business that had been run by Mr Abdallah and transfer it closer to home - right to Munich, in fact, to be taken over by Munich Re itself. The non-underwriting division of American Re was handed to former Munich Re global asset manager Wolfgang Engshuber. Both he and Mr Beer report to Mr Phelan.
A few days later, management reshuffles were announced in both men's areas, including new presidents for many of the reinsurer's operating subsidiaries. Later, William Moll left his post as president of Munich-American RiskPartners, to be replaced by Andrew Kuczinski. All that remained to shore things up at American Re was for the Munich to plug $2bn into its long-tail liability reserve, and another $500m into its WTC reserves (all on top of a reserve strengthening of $1bn in 2001). Alas, the triple-A reinsurer's management and financial strengthening actions were rewarded with a watch-negative announcement by Moody's.
St Paul Re
Just as with the shuffle at American Re, management changes at The St Paul Cos began at the top, although Doug Leatherdale, the tanned long-timer as chairman and CEO, clearly chose to jump. After Mr Leatherdale announced his surprise intention to retire at age 65, Jay Fishman, the chairman and chief executive of Travelers Insurance Group, was named the successor to the St Paul empire in November 2001.
The follow-up changes at St Paul Re didn't begin in earnest until the following March. Affable Jim Duffy, a 22-year veteran of the St Paul, announced his imminent retirement. He was replaced as CEO by Jerome Fadden, who left his executive post at UBS PaineWebber. Previously, Mr Fadden had been treasurer of Travelers. Michael Price was brought in as chief underwriting officer of the reinsurer, from his job as chief operating officer at Global Aerospace Underwriting Managers (where, incidentally, his seat, if not his position, was filled by Stephen Riley, late of the defunct CNA Re London, who joined GUAM as underwriting executive). At St Paul Re, Mr Price rejoined Steve Newman, the man who would be chairman of Platinum Underwriters, and with whom Mr Price had worked a few years before at Swiss Re (the reinsurer Mr Riley had worked for a few years before).
The next step was to take St Paul Re to market, in the form of a new Bermuda reinsurer, Platinum, with subsidiaries in the UK, US and Ireland. The proposed IPO has, so far, been twice aborted. Some new blood was brought in to handle the deal, taking the management team to an average age closer to 45 than 65. William Robbie joined the pre-Platinum St Paul Re team as chief financial officer (departing his executive vice president - financial services post at XL Capital), and Michael Lombardozzi as general counsel, from a senior vice presidential post at WR Berkley. Meanwhile the flotation of Platinum Underwriters Holdings "has been temporarily postponed in light of current market conditions," the St Paul said. Market conditions have only deteriorated since.
A number of senior management changes also took place at The St Paul Cos, including the appointment of David Reed, the former managing director of QBE's Lloyd's underwriting operation, to replace the departing Duncan Wilkinson as chief executive of St Paul's sprawling Lloyd's business. And the upshot of the good efforts to restructure the St Paul, bring in new blood and float the reinsurance business? Downgrades from Moody's and AM Best.
Gerling Global Re
Changes at Germany-headquartered Gerling have happened more amid an atmosphere of distress than of optimism. Alongside its announcement of a @410m loss for 2001, executive board chairman Norbert Strohschen fell on his proverbial sword, to be replaced by Björn Jansli, a regular of the Gerling since 1984 and, most recently, chairman of the board of Gerling's German insurance business, a position he continues to hold. All but one of the remaining executive board members were swept aside, to be replaced by other executives from within the organisation, including Hans-Joachim Guenther from GGRe's Swiss operation, and Stephan Knipper from its London office. Chief operating officer Uwe Eymer was appointed deputy chairman of the executive board.
Earlier changes included the departure, in the summer of last year, of Charles Troiano as chairman and chief executive of Gerling Global Re Corp of America. President and chief operating officer Thomas Tartaro took over day-to-day management. Months later Mr Tartaro retired, handing the president's chalice to Mr Troiano's replacement, chief executive Michael Morrill.
In September 2001 came the defection of several people from Gerling Group Financial Products, including the high-profile managing director, Marilyn Fichte, who went to XL Capital. In later news from Gerling, major equity partner Deutsche Bank asked to exit the business after pumping in more than a quarter billion euros in new capital. A strategic partner has been sought, and an IPO for GGRe mooted. In the meantime, Gerling Global Reinsurance Corp of America has stopped writing US p/c business, and instead Gerling is "positioning itself as an international reinsurer with a European focus, concentrating on profitable markets and business segments," it stated, although worldwide life reinsurance business remains on its radar. The result so far has been downgrades by AM Best and S&P.
As recently as four years ago, CNA Re was the largest reinsurer in London. The combined ratio hit 274.4% in 2001, after which Debra McClenahan, former chief operating officer, took the position of CEO away from Bill Adamson, who "left to pursue other interests." All historical records of subsidiary CNA Re London have been purged from the group's public face. This makes it difficult to track the history of that part of the business since a succession of managers, including Harvey Simons and Stephen Riley, attempted to keep it alive. All failed at the job, and it has now been sold into run-off. Mr Simons went to the post of active underwriter at the Lloyd's operation of HIH, the failure of which brought down the Cotesworth agency, formed in 1855, while Mr Riley has gone into the airplane insurance business.
The changes at the top followed changes below. In a management shuffle in late December 2001, Michael Toman of PXRe was appointed executive vice president to head up CNA Re's treaty business. A swathe of other new vice presidents were named, many as promotions, others poached from outside, in a complete executive shuffle. CNA Re continues, without its London anchor, but AM Best, Moody's and S&P have all downgraded the company and its parent.
More than three decades of profit-making business was insufficient to secure a rock-solid future for AXA's serious-sized reinsurance business, which, among other roles, had been one of the world's major retrocessionnaires in recent years. Longstanding chief executive Jean-Marie Nessi of AXA Corporate Solutions (and, before the creation of the subsidiary, of AXA Re) left the AXA group after rumoured disagreements over the strategic direction of the reinsurance business with management board chairman and chief executive Henri de Castries. It is understood that the big hit on the reinsurance account in 2001 (despite years as a cash cow) made Mr de Castries think again about the wisdom of mixing so much volatile reinsurance with AXA's steady life business. As a result, the whole future of the French giant's reinsurance business is unclear: it too has been looking for a strategic partner for reinsurance, and has pledged to split AXA Corporate Solutions back up into its component parts, including AXA Re, AXA Global Risks and AXA Liabilities Managers. It has, at least, managed to avoid the official downgrades. Meanwhile Mr Nessi made his exit (for "personal and other reasons") and has been replaced by old-timer Philippe Donnet. More recently, Mr Nessi was spotted by a senior reinsurance executive from another company in a meeting with investment bankers in Bermuda. More moves on the merry-go-round, no doubt.
Bermuda these days is becoming a favoured location in which to launch a new re/insurer, and many familiar faces have found a home there. Some have left other companies - notably Michael Butt, until recently a director of XL Capital, formerly president and CEO of Mid Ocean Re, and originally chairman of Eagle Star. Mr Butt has crossed the floor to join AXIS Specialty, the $1.6bn insurance venture in Bermuda and Dublin backed by Marsh, through Trident, JP Morgan, Credit Suisse First Boston and others. AXIS is the brain-child of former Lloyd's personality John Charman, who is president and CEO of the start-up, following an acrimonious parting-of-ways with the powers that be at Bermuda's ACE Ltd, where he headed their international operations after selling his Lloyd's agency to the Bermudians for a not insubstantial sum in the late 1990s. (As an aside, Mr Charman has now been replaced as head of international at ACE by Evan Greenberg, who had been briefly group chief executive of ACE Tempest Re, after giving up his role at Hank Greenberg's family business, American International Group.)
AXIS has also recruited other prominent reinsurance types, including chairman Robert Newhouse, former chairman of none other than Mid Ocean Re from inception until its sale to XL. He is also an old hand from Marsh, having served as president in 1976 and vice chairman until 1990. AXIS vice chairman is Richard Blum, who was formerly chairman and chief executive of the Marsh reinsurance broking operation, Guy Carpenter, and vice chairman of J&H Marsh & McLennan. AXIS's chief reinsurance officer is William Fischer, briefly a senior vice president at American Re, and previously of Everest Re.
Meanwhile, at XL management changes have been made throughout the organisation, many of which have been focused around changing the guard at acquired subsidiaries. Early last year three of the four founding executives of Latin American Re left the company after XL Re bought their shares. XL front man Henry Keeling took over as chief executive - from chairman and chief executive Richard Meyer. Keith Shroyer was promoted to president and chief underwriting officer. Late in 2001, Jérôme Coggia left his post as chief executive of Le Mans Ré (which soon is to be `integrated' into XL Re). His replacement is James Veghte, who also serves as executive vice president and general manager of the London branch of XL Re.
The big changes were to come in July. In order to "streamline its global reinsurance operations," Mr Veghte, who gets to move to Bermuda, was made president, chief operating officer, and chief underwriting officer of XL Re, which by then included all of XL's reinsurance businesses. Charles Skrzinski, XL Re executive chairman, took on the role of chief executive officer of Le Mans Ré, and former NAC Re man Dave Watson, who had become senior vice president and chief non-life underwriter, was appointed general manager of the London branch. Henry Keeling kept his CEO role at XL Re, became non-executive chairman of Le Mans Ré, and gets to move back to London permanently.
The links between Bermuda and London highlight the peregrinations of Tony Taylor, former chairman of the Lloyd's agency Wellington Underwriting and, prior to that, the successful active underwriter of the Taylor syndicate 51 and one of the triumvirate of Taylor, Agnew and Dumas, which steered Wellington into its late history. To the surprise of many, he jetted to Bermuda to join Jack Byrne, chairman of White Mountains and One Beacon, at the One Beacon/Benfield Group-backed launch company Montpelier Re. Mr Taylor became president, CEO and chief underwriting officer, while Mr Byrne (one-time chairman, CEO and champion of Warren Buffet's GEICO) became chairman of the start-up.
Yet Mr Taylor has not forgotten his roots. Montpelier Re is to spend $60m of its $1bn of start-up capital backing Wellington Re, the much-lauded London start-up. In addition, it is providing Wellington Re (which is understood to have done more business in its first three weeks than the Taylor syndicate did in the whole of 1990) with a substantial quota share reinsurance treaty. Of course the old relationships are a bit more confusing than that: Warren Buffet's Berkshire Hathaway has provided a 30% qualifying quota share reinsurance for Wellington's syndicate 2020, and is funding a new parallel syndicate with capacity of £150m. Wellington Re has written a qualifying quota share covering some of Berkshire Hathaway's Wellington underwriting business. Benfield, presumably, will bring a lot of business to everyone, and both babies - Wellington Re and Montpelier Re - should mature nicely. Incidentally, both Wellington Re and Montpelier Re have said they intend to float, though the abortive attempts so far in the sector, such as St Paul Re's Platinum and Gerling, may temper this enthusiasm.
Notably absent from this accounting are GE Re, Swiss Re (where former McKinsey fix-it man Lukas Mühlemann has stepped down as deputy chairman), and others. It has also failed to tell the story of some very stable management teams (Hannover Re, SCOR and Converium spring to mind), although static management does not necessarily mean solid management. Perhaps their time will come, as the big wheel keeps on turning, and proud reinsurers keep on burning.
By Adrian Leonard
Adrian Leonard is a freelance insurance journalist and a regular contributor to Global Reinsurance.