XL Capital Ltd. tapped Michael S. McGavick, the former head of Safeco Corp., as its next chief executive officer, replacing Brian M. O'Hara on May 1.
Bermuda-based XL said Mr. McGavick will fill the slot created last October when Mr. O'Hara, CEO for the last 13 years, announced he would step down as CEO by mid-2008. In reaction, a Bank of America analyst said the appointment is both a challenge and opportunity for the company, and rated the stock a buy.
To provide continuity during the transition, Mr. O'Hara–who is currently acting chairman of XL's board–will serve as chairman during the final year of his current board term, which expires in April 2009.
Mr. McGavick was president and CEO of Seattle-based Safeco from January 2001 to December 2005, when he resigned to stage an ultimately unsuccessful campaign as the Republican candidate in 2006 for the Washington U.S. Senate seat held by the incumbent Democrat, Maria Cantwell.
XL said his appointment is subject to immigration approval from the Bermuda government.
Prior to joining Safeco, Mr. McGavick spent six years with Chicago-based CNA Financial Corp., where he held various senior executive positions before becoming president and chief operating officer of the company's largest commercial insurance operating unit.
Mr. McGavick's insurance industry experience also includes two years as director of the American Insurance Association's Superfund Improvement Project in Washington, D.C., where he became the group's lead strategist in working to transform U.S. environmental cleanup laws.
Robert R. Glauber, XL lead director, who chaired the company's CEO Succession Committee, noted Mr. McGavick's experience leading Safeco and the commercial lines business at CNA.
"The Succession Committee believes he is not only capable of meeting the high standards set by Brian O'Hara, but will be successful in transforming XL to meet the challenges of our next decade," he said.
"While the company has extremely talented and capable internal candidates, the committee decided that XL, having been led by one of its founding executives for 13 years, would benefit most from an external perspective at the top level of leadership," he added.
Bank of America said there is an additional risk to shareholders with a CEO from outside the company, "due to the tendency to want to clean the slates or raise capital and put the company under the responsibility of prior management."
However, it said the fact that Mr. O'Hara will remain as chairman until April 2009 and that Mr. McGavick was pragmatic, thoughtful and shareholder-friendly in his prior CEO role should mitigate the risks.
The bank said that while Mr. McGavick was an effective CEO at Safeco, it was a regionally focused insurer with a relatively clean investment portfolio, while in XL he inherits a complex, global dual-platform insurer with unique investment issues.
With Mr. McGavick taking over, Bank of America said, it brings uncertainty to XL's senior leadership–particularly for Chief Operating Officer Henry Keeling, the widely favored CEO candidate.
However, the analysis noted that Mr. McGavick has a track record of shedding non-core businesses and re-shaping platforms, which should benefit XL's p-c operations. "XL remains our high reward/high risk pick," with an $81 target price, the bank said.
Mr. McGavick said in a statement that XL "is known for its underwriting excellence and a values-based culture of integrity," developed under Mr. O'Hara. "These are the very differentiating characteristics with which I closely identify, and I am proud to have been chosen as the company's next CEO. XL is a world-class brand with very successful insurance, reinsurance and life reinsurance businesses, and I look forward to helping it realize its full potential."
Mr. O'Hara said he had known Mr. McGavick for many years "as a colleague and as a customer, and I am very pleased that we have selected a candidate of his caliber."
As of Dec. 31, 2007, XL listed $57.8 billion in assets and consolidated shareholders' equity of $9.9 billion.
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