It is hardly unusual to read about hedge funds partnering with insurance and reinsurance companies in Bermuda these days. On that score, the launch of Hamilton Insurance Group might seem like more of the same.
Executive SummaryWith too much energy left to retire after deciding it was the right time to pass the leadership baton at Marsh & McLennan Cos., Brian Duperreault has found his next challenge back in Bermuda. In a recent interview, Duperreault provided Carrier Management with a high-level vision of how the analytical bent of his underwriting team will mesh with the technology skills of investing partner Two Sigma to create a new force in the Bermuda market, and possibly in the U.S. and London as well.
But what is clearly drawing attention from many insurance market participants is the man at the helm—Chief Executive Officer Brian Duperreault, a property/casualty industry icon well known for his efforts to grow ACE Ltd. into a global powerhouse in the 1990s and for his revitalization of the Marsh & McLennan Cos. a decade later. (See related article, Brian Duperreault: Career Highlights.”)
And according to Duperreault, those who dismiss his partnership with Two Sigma Investments as just another marriage of an alternative investment strategy with traditional insurance underwriting expertise miss a more compelling underlying theme.
“They’re fundamentally a technology company,” says Duperreault of Two Sigma. “They deploy that technology in the investment world, but they’re a technology company.
“If you take that as the premise, what I would like to do is see if we can take that technology capability and deploy it, in part, into the insurance business too—marry our underwriting skills with their technology skills to see if we can move the dial a little bit.”
In December 2013, Duperreault and Two Sigma bought SAC Re Ltd.—now known as Hamilton Re—from Steven Cohen, the billionaire founder of SAC Capital Advisors LP, after Cohen’s hedge fund reached a $1.8 billion deal with federal prosecutors to end a criminal investigation into insider trading.
On the firm’s website, Two Sigma says it was founded in 2001 in New York “by a statistician and a computer scientist with the goal of applying leading-edge technology to the data-rich world of finance.”
The computer scientist is Two Sigma Co-Chairman David Siegel, who has a Ph.D. in computer science from Massachusetts Institute of Technology, formerly worked as chief technology officer and managing director at Tudor Investment Corp., and was the first chief information officer of D. E. Shaw & Co. The statistician is Co-Chairman John Overdeck, a former managing director at D. E. Shaw & Co. with a degree in mathematics from Stanford University.
Both men serve on the board of Hamilton Insurance Group, chaired by Sandy Weill, chairman emeritus of Citigroup, and led by Duperreault as CEO.
In this April 2014 interview, Duperreault, the man who started his career as a casualty actuary and now surrounds himself with specialists in analytics, actuarial science, data science and technology, tells Carrier Management why he came out of retirement for the second time to restart S.A.C. Re in Bermuda—the place where he was born—returning to his roots in more ways than one.
On a personal level, what intrigued you about this opportunity? Why not enjoy retirement and noninsurance activities?
Duperreault: When I stepped down from Marsh & McLennan, which was more than a year ago now, I did it because I thought my work was done and the company was in good shape. We had a great successor, and it just seemed like the right thing to do to step away.
I wasn’t stepping down to go into retirement in the classic sense. I was stepping down because I had the right successor, Dan [Glaser], who’s doing a terrific job. [But] I didn’t feel that I was not energized enough to continue working.
There are different things one does in that situation. You could be a director, and there were a number of companies that had sought me out. That was a possibility, and not a bad one.
I just felt I still had some energy left, and if the right opportunity came along, I would think about being a CEO again. But I had pretty high standards about what that ought to be. It had to be the right opportunity with the right people and the right ownership. Frankly, I wasn’t really expecting that all that would come to pass. I was introduced by a mutual friend to Two Sigma. They were thinking about the insurance industry, and one thing led to another.
I like them a lot—not as Two Sigma but as individuals. They’re very interesting people, very good at what they do, and [they] wanted to be in the business.
I developed a business plan I thought could work. No sooner had we finished the plan than the opportunity to acquire what is now Hamilton Re came up. It was just a fabulous opportunity with great people. And so we forged ahead and formed our company—raised the capital and made the acquisition.
Hamilton Re is a Class 4 Bermuda reinsurer. As you go forward, are you thinking that it’s going to be solely writing reinsurance, or are you going to tap both ends of the market, insurance and reinsurance? Will the company need an insurance license?
Duperreault: It is a Class 4, which could do both insurance and reinsurance in Bermuda.
We could potentially expand it, and that is something I would certainly look at. That’s Hamilton Re.
We have Hamilton Insurance Group Holdings, and there I think there’s certainly the possibility of having insurance operations that would be complementary to Hamilton Re. But Hamilton Re itself would be a Bermuda-based reinsurance company that could also do insurance as a possibility.
The type of insurance you might write from Bermuda would be similar, perhaps, to the types of insurance that, say, ACE does out of Bermuda?
Duperreault: I think there is a marketplace for certain kinds of insurance. It’s quite specialized, large-limit business. All I’m saying is there’s that potential, and I just wanted to clarify that, because you asked the question.
We have nobody doing it at the moment.
Most people ask me that question, and what they’re really getting at is doing insurance, say, in the United States or doing insurance in London, which is something I am looking at.
In order to expand then, you might be looking to acquire a Lloyd’s vehicle or a shell company in the United States—something like that?
We hear about property-catastrophe business getting softer and a casualty reinsurance market that has been getting less attractive from a reinsurer’s standpoint for a while. Why is the timing right for Hamilton Re?
Duperreault: First, the question is would you want to be in the reinsurance business.
If the answer is yes, it’s a logical part of a structured insurance group, then there’s no perfect time. But there’s no terrible time, right?
You do it. You do the business, and you recognize that the market allows you to do certain things. It gives you a certain opportunity. In hard markets, the opportunities are greater. In the soft markets, there are fewer, clearly.
But every market has some opportunities. Every market does, and I’ve always believed that.
I never worry about timing the market. I would get it wrong if I tried to time it. I make a decision about whether it’s an appropriate component part of a company’s structure, and if it is, then get started, with the appropriate amount of capital and with very good people, and let those very good people carve out a portfolio that’s profitable. I think you can do that no matter what the market is like.
You talked about having very good people. Many of the people on board are the people from SAC Re, I assume.
Duperreault: Everybody came, except their CEO, [Simon Burton]. He’s a terrific guy. He decided not to stay, but everybody else did—the entire underwriting team stayed, the financial group, the general counsel. Everybody in this office has stayed.
That group is what I’m talking about. They’re very good people; I was impressed. I knew some of them from my past experiences, and got to know all of them, and I’m very impressed with the group.
I know that you came up in the insurance business as a casualty actuary, and when I look at the roster of people, I see a lot of actuaries on your staff. Is it a stretch to say that the company is being built with an analytical bent?
Duperreault: I think that’s fair to say. We believe it’s a very important part of what we do.
The analytics, certainly, should trump everything else, but you have to be able to be in the market. You can’t be completely analytical. You have to have a personality. People have to want to do business with you and everything, and I think we have that too. It’s a nice combination, actually.
The former CEO, Simon Burton, and representatives of some of the older hedge fund-backed reinsurers have spoken about writing lower-risk casualty reinsurance business, for example, balancing off maybe higher-risk investment business. Can you talk about the balance of risk in the two income-generating activities at Hamilton and how that might be different from both SAC Re and other competitors?
Duperreault: I won’t comment about others’ strategy. We’re building an insurance company, and that means that we would look for making an underwriting profit. In order to make an underwriting profit, there’s a certain amount of risk one has to take.
Deutsch, known for his roles as a founder of Ironshore Inc., an EVP and CFO for CNA Financial Corporation, and one of the founders of Executive Risk, is a Fellow of the Casualty Actuarial Society, an Associate of the Society of Actuaries and a Member of the American Academy of Actuaries.
Our strategy is to build an insurance and reinsurance company that takes underwriting risk.
It’s hard to find no-risk business anyway. I’m not looking for that. That’s hard to find.
We recognize that there’s risk in our business, and you have to write it with that in mind and look for businesses that make an underwriting profit.
We wouldn’t sacrifice an underwriting profit for investment income. Our investment portfolio is very well managed. It’s highly liquid. It gives us, because of its profile, the ability to take risk. It’s a wonderful combination.
Let’s talk more about Two Sigma. I read a quote where you said you look forward to working with them to “expand the science of insurance.” So you might have some of your people sitting with some of their people and using their technology and their data sets to come up with some sort of collaboration?
Duperreault: That’s probably a good way to put it.
Within our operation in Bermuda, we have some very good technologically oriented people. You mentioned all the actuaries we have on staff. We do bring our own skill to the table.
They have a very large core intellectual base with hundreds of very highly trained, highly capable individuals. They’re managing massive data sets now.
Putting the two together is the thing. Not them alone; not us alone.
How do you manage the risk inherent in a technologically driven model? In the past, we’ve heard about companies and individuals that got into trouble because of their overreliance on technology or models. Do you worry about that?
Duperreault: I think you have to have a healthy respect for the models—both what they can do and what they can’t. You must use them there. They have clearly changed the way we do business, certainly in the reinsurance business. But you also have to recognize their limitations.
As you develop your strategic plans, how do you envision Hamilton being different from existing Bermuda insurance and reinsurance organizations? How will you set yourself apart? Is it the technology and analytics, or is it something else?
Duperreault: It’s that. It’s that because of what we just talked about. But we also have an investment partner, and I would call Two Sigma an investment partner that is very, very good at what they do. So I think we would have superior investment returns, as well as superior underwriting returns. I think that is what would set us apart.
On the underwriting side, is the business that was written in SAC Re still on the books or is it in runoff?
Duperreault: What we bought was the operating company. So we bought the reinsurance company. We acquired it with all that comes with it—so a portfolio business, which we were happy to acquire and continue to expand. It’s not in runoff.
The business was well underwritten. We were happy to get it.
What types of people are you looking to hire going forward?
Duperreault: As you expand the portfolio and branch out into other lines of business, first comes good underwriters with a market following and a great business plan. So it always should be the underwriters first.
Some of our readers are aspiring leaders in the insurance and reinsurance world who would be interested in lessons you’ve learned in your career, maybe at ACE. What are some of the biggest lessons you’ve learned along the way that you have brought to your new position at Hamilton?
Duperreault: It wasn’t all at ACE. I was grounded at AIG. I was there for 21 years.
I learned a lot from Hank [Maurice Greenberg, the former chairman and CEO]. What Hank stressed more than anything else is addressing issues immediately. If there’s a problem, fix it.
You can’t avoid problems. People make mistakes. That’s the way it is. There’s nobody perfect in this world. So you start with the premise that there are going to be problems. And the great companies recognize that there’s a problem, and they fix it.
Problems don’t get better with age.
Another lesson: It’s always people, no matter what. With everything I acquired, I was always concerned about the people and if putting them with us made us better…
Most of my time is really around the people in the organization, ensuring that they’re supported and they’re doing their jobs.
Don’t worry so much about the balance sheet; worry about the people who manage it.
What’s the biggest change you’ve seen in the Bermuda insurance and reinsurance market, as you consider today’s environment and looking back to your days at ACE in the 1990s?
Duperreault: It’s really populated by a lot of companies, today. When I came to ACE, there were maybe three companies in the insurance business. We had seven reinsurers, which all came out of the [Hurricane] Andrew event. There was ACE and EXEL [as XL was known back in those days], and a company [writing excess casualty] that was started by AIG. They were really the principal players in the market.
Now, you’ve got many, many companies with a broad-scale operation. It’s really been a market that has expanded dramatically.
Bermuda was not necessarily the place you would go to really make your mark in the world if you were in the insurance business at that time. It was a place you would come if you were looking for that last job before you retired, or you were looking for your first job before you got a real job.
Now it’s not that at all.
It’s populated by a lot of very, very good people. The talent base in Bermuda is second to none.
What else can you share about your vision for Hamilton Re or what you see as being your competitive advantage going forward—how you’ll distinguish the company in the market?
Duperreault: We will stress the professional nature of our business—the professional underwriting, with a very strong technological underpinning. That will be the company.
So we’re prepared to look at risks [and] to partner with companies. As they need a partner to manage their risks, we will be prepared to do it—and to use all of the analytical skills available to us to be that good partner.
Do you envision the company becoming the next ACE or the next XL in the not too distant future?
Duperreault: It’s going to be the next Hamilton.