For Jeffrey Radke, perhaps the biggest lesson learned during his tenure as PXRE's chief executive officer is that the company's age-old business model cannot be sustained in today's reinsurance world.
"It is very, very difficult to be a monoline property-cat company in the current environment. It's a difficult business model to make work given the completely revolutionized capital requirements that come from the rating agencies," he said.
Other strategies that historically made sense for PXRE won't for Argo Group and its reinsurance arm, Peleus, going forward, he noted–citing, as an example, taking on retrocessional business.
Peleus is going to be one specialty of many, "so it won't have to push to write every attractive property-cat risk," he said–adding that, by contrast, "when you're a monoline property writer, you sort of have to. By definition, that's your one line [and] you have to use your capital in that business."
Mr. Radke said over the long term, retro business has two notable characteristics: extremely good apparent pricing and extremely low transparency of information. "As part of an overall, very large property portfolio, it probably makes sense. Certainly, PXRE thought it did, and I feel personally it makes sense," he noted.
As part of a smaller portfolio, however, "the uncertainty and lack of transparency that you expose your [company] to…really doesn't work all that well."
Responding to an often-reported view that it was retro business that got PXRE into trouble, he said PXRE–like every retro writer–had a very high percentage of sold limits lost in the 2005 hurricanes.
"What people call 'the miss factor' just isn't there" for retro, which is sold on a worldwide or national basis, he explained. A property-catastrophe reinsurer, on the other hand, may have experienced such a miss by writing a cat cover for an insurer like Seattle-based SAFECO that had no Southeast exposure, he added.
Mr. Radke, who will resign when the merger deal closes, will become a consultant to Argo Group. "Jeff and the IT team have built a cat-modeling system that has been used by other Bermuda reinsurers. He'll focus on that initiative going forward," said Argonaut CEO Mark Watson.
Mr. Radke told NU that the number of people who will join him from PXRE has not been determined. "It's a small group. A handful of the talent that currently resides in PXRE will be hived off into this new venture" that will provide services to Argo and to third-party insurers and reinsurers. Mr. Radke's separation agreement identifies the venture as Indica Consulting Ltd.
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