And Now For Something Fundamentally Different

Anyone who listens to AXIS Chief Executive Officer John Charman describe ideas behind the formation of an insurance and reinsurance company in 2001 doesn't hear a story about seizing on a market opportunity.

Replacing the older “opportunity” stories of past Bermuda start-ups is the tale of a group of old-timers who set out to create something “fundamentally different,” to use his phrase.

“You have to remember that we may be a new company, but many of us have been around for a long, long time,” he said, going on to describe the management team as “a bunch of old 60s hippies.” Like the rebellious group of a prior decade, he said, “weve done all the big company stuff and we didnt like it. We spent most of our time [in those companies] defending value instead of creating it.”

“What AXIS did was provide us with an opportunity to, at long last, craft a modern-day company,” he added.

AXIS isn't alone in its mission to strike out in a new direction with seasoned management, a clean balance sheet and a focus on underwriting.

In the mini-profiles of five new Bermuda carriers that follow, executives reveal what they think sets their companies apart, where they've been, and where they're going.

AWAC: Insurance Predominates

Incorporated: Nov. 13, 2001.

Corporate Structure: Allied World Assurance Company, Ltd is a wholly-owned subsidiary of Allied World Assurance Holdings.

Initial Investors: American International Group, The Chubb Corp. and Goldman Sachs Capital Partners head a list that also included Arthur J. Gallagher.

Products: “All lines of property-casualty insurance and reinsurance,” but not retrocessions, according to AWAC's Web site. Product Mix (based on net written): For 200375 percent insurance/25 percent reinsurance. Insurance business: 38 percent property/62 percent casualty.

Ratings: “A-plus” from A. M. Best.

Who's In Charge? Scott Carmilani, president and CEO, who was president of the Mergers & Acquisition Insurance division of AIG before joining AWAC; held a succession of underwriting and management positions with AIG since 1987.

According to AWAC's Web site, eight members of the senior management team have over 240 years experience in the p-c industry30 years each, on averageranging from 17 years for Mr. Carmilani to 51 years for Michael Morrison. On Jan. 13, Mr. Carmilani replaced Mr. Morrison as CEO, but Mr. Morrison remains active in the company as director and vice chairman.

What Sets The Company Apart? “We are almost the inverse of our competitors, meaning we are 75 percent insurance and only 25 percent reinsurance,” Mr. Carmilani said. “The other thing that sets us apart is we have a larger infrastructure here in Bermuda than other companies do,” he added, noting that with 10 hires in progress, there will be more than 190 people resident in Bermuda. “By having that infrastructure, we are set apart in terms of our service level to our clients here on the island and internationally.”

What's Changed? “The only thing that's different is that we've expanded quite a bit internationally, both in Dublin and Londonand we're expanding a little bit more in the United States as well,” Mr. Carmilani said, stressing “we're doing it all organically. We haven't done it by acquisitionWe talk about [going into acquisition mode] with our shareholders quite a bit, but I don't think the timing or the opportunities are out there right now.”

Explaining how the business is grown organically, he said AWAC is adding businesses and infrastructure at the other locations outside of the Bermuda operation. “Those platforms existed before. Now they're just becoming bigger parts of what we do,” he said, noting that while the split in business was 80 percent U.S./20 percent international up until 2004, that should change to somewhere around 65-to-70 percent U.S. this year.

Goals for 2004: Mr. Carmilani cited “infrastructure goals,” such as shoring up the IT department and getting better at managing AWAC's processes and improving its efficiency. “Those are our focuses right now.” he said. “And we've hired a bunch of business analystsinternal control managersso we can have auditing and become Sarbanes-Oxley-compliant.”

The firm is under no obligation to become compliant, he confirmed, noting that being the only non-public entity among the new Bermuda outfits is a distinguishing feature right now. But “we're going to be tested and ready to go in the event we do want to go public,” he noted. “Our goal is to have the testing completed by the end of this year. We won't get certified, because we don't have to. We'll do everything up to that point.”

Beyond that, he said, “we're trying to create as much value in the company as we can and [will] continue to grow conservatively.”

Arch: Regional Infrastructure, 700 People

Incorporated: Arch Capital Group, Ltd. is actually a successor company to Risk Capital Re, which changed its name in May 2000. Underwriting activities under the Arch name commenced in October 2001.

Investors: Additional capital from private investors in November 2001; subsequent stock and bond offerings in 2002, 2004.

Corporate Structure: Insurance operations include Arch Insurance (U.S.) and Arch Insurance (Bermuda); reinsurance operations include Arch Reinsurance Ltd. (Bermuda) and Arch Reinsurance Company (U.S.).

Products: In insurance: casualty, program business, D&O, professional liability, construction and property. Most reinsurance business is non-property business, and most is written on a pro-rata basis. Product Mix (based on gross written premium): In 2003: 55 percent insurance/45 percent reinsurance; 81 percent casualty/19 percent property; 82 percent U.S/18 percent non-U.S. In first-quarter 2004, the split was 44 percent insurance/56 percent reinsurance.

Ratings: “A-minus” from A.M. Best.

Who's In Charge? Constantine Iardonau became president and CEO on Aug. 1, 2003. Prior to joining Arch, Mr. Iardonau held various executive positions at Zurich Financial Services, including CEO of Zurich North America.

What Sets The Company Apart? Mr. Iardonau points to implementation of a business plan, which “from Day Onecalled for us to build both an insurance and a reinsurance enterprise,” noting that the current specialty business portfolio is well balanced in the two areas. Also, “we probably have attracted as good a team and as deep a team as anybody,” he said, noting that in 12 U.S. locations, Arch has hired over 700 people. “We built a great regional infrastructure that allows us to be closer to the distribution channels and service customers close to their locations.”

Another competitive advantage seen by Mr. Iardonau is that Arch “focused early on, by choice,” on building mostly a casualty book. “Our book is broad in nature in a lot of different classes,” even though it's all specialty-type business, he said, noting that the broad profile will allow it to fare better as the market turns.

What's Changed? “Only recently, we have expanded our capabilities by obtaining a license in the U.K. that will allow us to penetrate the European Union,” he said.

Goals for 2004: “Our number-one goal is to maintain our underwriting disciplineYou can't be an underwriting company without having that.”

In addition to continuously building product capabilities and infrastructure, another goal “is to expand our distribution capabilities. We still have quite a bit of ground to cover,” he said.

Listing the alphabet houses, large regional brokers and “a lot of other facilities” including wholesalers as important U.S. channels, he said, “we're trying to make sure we're reaching as many producers that have the specialty kind of business that we like as we can.”

As for product expansions, he said, “we're starting to expand capabilities into the admitted markets,” noting that most of the business Arch wrote early on was in professional liability, and most of it surplus lines.

“We just want to have the ability to have a broad array of product capabilities, [and] there are certain segments where if you don't have admitted capabilities, you won't be able to participate.” Giving an example, he said that an insurer might write liability for a general contractor, but auto liability for the vehicles, or workers compensation offerings that would “round the relationship with a client” would be on an admitted basis.

AXIS: Connect, Cooperate, Coordinate

Incorporated: Capitalized on Nov. 1, 2001.

Corporate Structure: Axis Capital Holdings Ltd. is the holding company for the group, which includes Bermuda-based AXIS Specialty Ltd., three U.S. operating companies and five operations (companies, representative offices and branches) in Europe.

Initial Investors included Trident II, L.P., a private equity fund managed by MMC Capital. IPO in July 2003.

Products: In addition to p-c insurance and reinsurance, AXIS writes marine, aviation, terrorism, political risk, D&O, energy, and global credit and bond ($100 million in new business in first-quarter 2004). Product Mix (based on gross written premium): For 2003: 70 percent insurance/30 percent reinsurance; 64 percent property/36 percent non-property; 37 percent U.S./63 percent non-U.S. For first-quarter 2004: 43 percent insurance/57 percent reinsurance; 40 percent property/60 percent non-property; 30 percent U.S./70 percent non-U.S.

Ratings: “A” from A.M. Best and Standard & Poor's.

Who's In Charge? John Charman has been CEO and president since the companys inception. He has over 30 years of experience, serving in senior underwriting positions since 1975. He most recently served as deputy chair of ACE INA Holdings and president of ACE International.

According to the company's Web site, 12 members of the firm's senior management team have 314 years experience in the p-c industry26 years each, on averageranging from 14 years to a high of 50 years for Robert J. Newhouse, chairman of the executive committee and director.

What Sets The Company Apart? Mr. Charman points to the depth of experience and proven track record of AXIS management team and senior underwriters. He also emphasizes a culture of coordination and cooperation where team members are connected by technologymuch of it proprietary. AXIS's “fundamentally different business model” is built around those “three Cs.”

Technology draws people together (connects them) on individual transactions, so that they can share expertise or bring the value of a personal relationship to bear (coordinate) on each transaction, he said. The third “C”cooperationbecomes embedded in the business units, allowing AXIS “to maximize penetration risk-by-risk and [to] maximize pricing ability,” he said.

Unlike some competitors, AXIS transacts individual-risk business with major clients globally rather than program business that is underwritten by other underwriters.

Also, he said, “we diversified by both product and geographic location from the very first day we set up AXIS,” explaining that rather than simply taking advantage of reinsurance market dislocations, the AXIS “underwriting machine” set out to be in the insurance business as well.

What's Changed? “We have continued strongly to diversify geographically and by mix,” expanding from two founding businesses to five, including reinsurance businesses in the United States and Continental Europe.

Mr. Charman expects the U.S. insurance operation, set up in the first quarter of 2003, to close in on $1 billion of revenue by year end. The European operation, he said, is diversifying, writing property-catastrophe, motor excess-of-loss, as well as credit and bond business.

Other changes Mr. Charman highlighted included AXISs successful initial and secondary public offerings, and an evolutionary change in the composition of its board of directorsmoving from a largely investor-based board to more of a global business board. (Editor's Note: Other milestones included the acquisition of renewal rights to Kemper's Financial Insurance Solutions business in February 2003.)

Goals for 2004: AXIS will focus its efforts in 2004 on making sure that its businesses remain operationally efficient and focused. “I think this is a good year to do it,” Mr. Charman said.

Endurance: A Risk Taker

Incorporated: Endurance Bermuda was incorporated on Nov. 30 2001.

Corporate Structure: Endurance Specialty Holdings was organized as a Bermuda holding company on June 27, 2002; operating subsidiaries in Bermuda, the U.S. and the U.K.

Initial Investors included Aon and Zurich Financial Services. IPO in February 2003.

Products: Property per-risk treaty, property-catastrophe reinsurance, casualty treaty reinsurance; property insurance, excess casualty insurance, professional lines, aerospace. Product Mix (based on gross written premium): For 2003: 65 percent treaty reinsurance/19 percent individual risk (insurance and facultative re)/16 percent aerospace and specialty; 66 percent U.S./33 percent non-U.S. For first quarter 2004: 18 percent insurance/82 percent reinsurance; 50 percent property/39 percent casualty/11 percent specialty.

Ratings: “A” from A.M. Best; “A-minus” from S&P.

Who's In Charge? Kenneth LeStrange has over 24 years of experience in p-c underwritingas a treaty and facultative underwriter and manager at Swiss Reinsurance and American Re, and more recently serving as chair and CEO of Aons retail brokerage operations for the Americas. Most other members of the management team have 20-plus years of industry experience.

What Sets The Company Apart? “One of our little phrases is, 'We take risks for money,'” Mr. LeStrange responds when asked about his company's vision. “We do not provide value-added services. We are in the business of taking on risksvolatile risksthat our clients cannot or do not want to retain. That's the function that we serve in the world's economy.”

“Endurance has positioned itself to be a long-term participant,” he continued. “At the heart of our business is a strong sense of discipline and a focus on analysis.” Like other Bermuda start-ups, he also said Endurance is free of legacy issues”legacy liabilities like asbestos, legacy infrastructures and legacy thinking.”

Three ingredients come together to make Endurance what it ispeople, technology and data to inform risk-taking decisions, and capital, Mr. LeStrange said.

Mr. LeStrange said that the quality and timeliness of information, and the fact that Endurance is “relatively small in terms of numbers of people and locations,” makes the organization “nimble and agile.” Referring specifically to the timeliness of data, he said: “The industry tends to lag. Prices become unattractive and it takes sometimes years for others to address that.”

What's Changed? “When we started, there were three of us with computers and phones. Now there are 250 in three subsidiaries in the U.K., Bermuda and the United States,” he said. “But our purpose, and the way we want to go about the business has not changed.” (Editor's Note: Other milestones have included acquisitions of the renewal rights of LaSalle Re property-catastrophe business and HartRe's reinsurance business.)

Goals for 2004: “Our externally stated goal financially is to achieve a 15-to-17.5 percent return-on-equity.” In addition, “we want to continue to build infrastructure. [And] Sarbanes-Oxley compliance becomes real for us, and many others, at year end,” he said, noting that the firm has spent a lot of time on compliance issues.

Beyond that, he said, “we're really positioning ourselves for 2005Our yearwith the exception of hurricanes, earthquakesis largely over. The revenue that we will do as a company is already in the door.” While Mr. LeStrange said his team is focused on opportunities for growth and diversification in 2005, he kept his cards close to his vest beyond characterizing them by saying that Endurance is “always interested in new areas of specialty insurance and reinsurance.”

Platinum: Reinsurance Exclusively

Formation: At the end of 2001, St. Paul exited the reinsurance business and sponsored Platinum Underwriters, which renewed the best St. Paul Re business on Jan. 1, 2002. An IPO for Platinum Underwriters Holdings took place on Nov. 1, 2002.

Corporate Structure: Platinum Underwriters Holdings is the Bermuda holding company for a group of three operating companies: Platinum Underwriter Reinsurance Inc. in the United States, Platinum Re (UK) Ltd. and Platinum Underwriters Bermuda Ltd.

Products: “We're a multi-line reinsurer with an international platform. We write property, casualty and finite-risk products,” said Gregory Morrison, president and CEO. Product Mix (based on net written premium): For 2003: 30 percent property and marine/40 percent casualty/30 percent finite risk; 79 percent U.S./21 percent non-U.S. For first-quarter 2004: 36 percent property and marine/47 percent casualty/18 percent finite risk; 64 percent U.S./36 percent non-U.S.

Ratings: “A” from A.M. Best.

Who's In Charge? Gregory Morrison replaced Jerry Fadden as CEO on May 13, 2003. Mr. Morrison's background in domestic and international life and p-c reinsurance spans 23 years. Before joining Platinum, he was CEO of London Reinsurance Group Inc. (LRG), a Canadian reinsurance company. Analytic talent abounds on the executive management team, with 60 of the team members holding actuarial designations (including Mr. Morrison).

What Sets The Company Apart? Unlike the start-up companies, Mr. Morrison noted that Platinum began its operation with “a profitable, diversified book of renewal business,” which was transferred from The St. Paul Re. Underwriters hired from St. Paul already “knew these accounts,” he said, adding that they had “long-established client and broker relationships” in place.

Other competitive advantages for Platinum include “a clean balance sheet, free from reserves prior to Jan. 1, 2002,” as well as a strong U.S. presence that Mr. Morrison believes is essential to developing U.S. casualty reinsurance business.

Importantly, he also highlighted the fact that Platinum operates “exclusively as a reinsurer” through operating subsidiaries in the United States, Bermuda and the United Kingdom. “We believe that provides us with flexibility in entering and exiting various markets, and allocating our capital effectively,” he said.

What's Changed? Platinum has built its property-catastrophe modeling capabilities “in a significant way,” he said, adding that the mix of business has changed to meet the opportunities to generate good returns that underwriters have spotted in the market. For example, the operating companies write more casualty business than was anticipated at the time of its IPO, and the focus of the London operations has shifted away from commodity businesses like U.K. motor toward specialty casualty coverages such as trade credit insurance and directors and officers liability.

Goals for 2004: “Our goal in 2004 is to effectively execute our business planThe reinsurance market is still a good one, and that provides us the opportunity for good profit and that's all we need to build our company.”

Reproduced from National Underwriter Edition, June 4, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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And Now For Something Fundamentally Different

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