Ariel Re’s new chief executive George Rivaz has a lot to contend with, not least the persistent merger speculation surrounding the firm. A deal may happen, but it’s got to be worth it

George Rivaz has got a tough job on his hands. Following in the footsteps of industry legend Don Kramer is no small task – and throw in the M&A chatter now dominating the Bermuda scene, plus the soft market, and it’s clear that the new chief executive of Ariel Re has a heaving in-tray.

But he’s no newcomer. In fact, Rivaz is a familiar face in Bermuda; he’s been number two to Kramer at Ariel Re since its formation in 2005 and, now that he’s taken on the top job, he’s keen to emphasise that little will change. That said, he admits a merger could well be on the cards.

Meeting Global Reinsurance at the Lloyd’s building, in the offices of Ariel-owned Atrium, Rivaz is a friendly but understated Brit, a touch tanned from that offshore lifestyle, with a couple of bags behind his chair reminding us that he’s ever ready to jet back to the island.

From the start, Rivaz downplays the management overhaul that has seen him promoted from president of Ariel Holdings to chief executive, with Don Kramer taking over as non-exec chairman. “Don’s still going to be around as a resource, so there’ll be someone keeping an eye on me,” he jokes.

So how will the operational responsibilities change? Rivaz pauses. “I will be more specifically identified by our board and people internally with development and communication of strategy for the group,” he says finally. “It’s not that much of a change, really.”

Timing is everything

It’s interesting that Kramer chose this moment to leave: his announcement came just weeks after that of fellow grandee Ken LeStrange stepped down at Endurance, another Bermudian company, though of an earlier vintage to Ariel. Could this be a changing of the guard?

“If you look around at how many companies are out there and what the typical CEO tenure is, I’m not sure we’re seeing anything that’s not just natural turnover,” Rivaz says.

“[Succession] is something we’ve been thinking of for years. I wouldn’t say it’s the first thing we started thinking about when we formed the company, but once we settled down, established our path and acquired Atrium, we started looking forward and thinking at some point that we would have to address it.

“Don is in his 70s; he’s had a long and distinguished career. I’m sure there’s more left in the tank, but he’s at an age where people start to ask the question ‘what happens next?’. We’re saying okay, let’s line it up in an orderly way; hence this transition.”

Strength in numbers

Against the backdrop of a soft market and the Max Capital/Harbor Point merger, Rivaz must have one particular issue pressing on his mind. Ariel Re, like a few other members of the Class of 2005, is seen as being ripe for a merger.

Indeed, it has been heavily linked to Aspen, as well as included in those three-way deal rumours with Montpelier Re and Max at Monte Carlo last year. Of specific deals, Rivaz says, poker-faced: “We don’t comment on any of our M&A activity and discussions whether they happen or don’t.”

He is a little more forthcoming when asked about M&A generally. “Inevitably, people come to us with ideas for business combinations from time to time and, were we to be approached with something that we thought had the potential for a value-accretive combination – where the two parts could be worth more together than they are separately – we would expect to take quite an interest,” he says.

It’s a bit of a mouthful, but the intent is clear. And Rivaz would prefer a business that offered different strengths. “We’d like to be rather selective in that, just as we are with underwriting in our choice of partners,” he says.

Of course, the decision may ultimately be taken out of Rivaz’s hands, as Ariel is still backed by private equity houses. It’s the nature of the beast to look for an exit sooner rather than later.

“It’s pretty well-known that the investment lifetime of private equity funds is limited,” Rivaz admits. “We’re very unlikely to be owned by the same set of investors in five years, but in the intermediate term, no, we’re not under intense pressure. Our investors have been broadly satisfied with the returns they have achieved to date.”

Rivaz is an underwriter by trade but, still, it is noticeable that he chooses his words carefully. He’s had plenty of time to get used to the way reinsurance works, having started out at Munich Re’s UK office in 1984. After three years, he moved with his bosses to found a new syndicate at Lloyd’s, before being poached by General Re to help form Tempest Re in the wake of Hurricane Andrew in 1993, where he first met chairman Don Kramer.

After eight years on the island, he returned to the UK for a few years’ consultancy and project work. Then, when the storms hit in 2005, the phone started ringing. “Don Kramer came and tracked me down for Ariel,” he recalls. “I wasn’t particularly looking for it – I managed to put the others off – but Don wouldn’t be put off.”

Windstorms of change

So there you have it. Five years later, Ariel has just posted its best set of results yet with $383m of profits, on the back of $484m GWP. It has returned excess capital to its shareholders in the form of a $422m dividend, and Rivaz insists the reinsurer will remain selective in its underwriting throughout the soft market.

“Our plans are very dependent on how events play out, especially given that we are a catastrophe-focused company subject to a wide range of different outcomes,” he says. “If 2010 repeats something close to 2009, where our principal operating subsidy ran a 10% loss ratio, then that’s a very different scenario than if it repeats 2008, let alone 2005 – and of course there are worse scenarios possible.”

Rivaz is too much of a seasoned player to be affected by this dependence on acts of God – “that’s what we’re getting paid for” – and says his major concerns centre on keeping the company’s talent employed and engaged, and achieving the best returns for shareholders.

Whether he likes to admit it or not, that may mean making the right deal sooner rather than later. GR