Expecting the Unexpected

The short answer to it is joining the Navy changed the trajectory of my life. I enlisted when I was 17, and at that point I had no idea what my future held. Nobody in my family had ever gone to college. We didn’t have any college savings. It was through my experience in the Navy that I learned discipline, I learned how to focus. And through that I learned how to perform at a high level and I got to see a lot of the world. I spent time in the Mediterranean, I spent time in South America, and I spent time in the western Pacific.

I’d say the most noteworthy experience that I had was I was on an aircraft carrier when Iraq invaded Kuwait. We were the first unit to respond to that invasion and helped prevent it from continuing. And when you think about the news today, it kind of hits home because as we went into the Persian Gulf, we were the first U.S. aircraft carrier to go into the Persian Gulf since World War II. There were missile batteries on both sides, and the Strait of Hormuz was mined, much like you hear about today. So there shouldn’t be any surprise in terms of the defenses in that part of the world. And I know the Navy’s well prepared for it.

It really was. I wound up having a lot of training while I was in the military. I knew that I didn’t want to make it a career, because I saw firsthand how difficult it is to have a family when you have a military career. I took as many college classes as I could while I was on duty and fortunately had a really strong GPA from that and applied to Columbia University and was accepted by Columbia while I was on active duty. After my honorable discharge, I started at Columbia. Many, not all, of my credits transferred, and I was able to use the money that I saved while I was in the service, work full time, and [take] student loans to complete my undergraduate degree at truly a fantastic university. It’s an experience that I never would have had had I not joined the Navy.

The honest answer to it is at the time I was reading a lot about Wall Street and thought that it sounded really interesting and really exciting. Since I was at school at Columbia in New York City and I was working full time, I was able to get direct experience in the financial services industry and worked at an investment bank, Alex Brown, in New York. That’s really how my career in financial services started.

Oh, it did. And back at the time, most of your listeners, I’m sure, will be too young to remember, but there was a movie called Wall Street. There was a lot of buzz, there was a lot of activity, and it was really exciting to accomplish that goal and be able to experience it firsthand. Although, as is the case with almost everything that you’ll see in life, movies don’t really reflect the way that it is. They are dramatized and don’t display all the work that you do on a daily basis.

But nobody would want to watch a movie that’s actually about people doing tedious work.

I’m old enough that I’ve been through a number of market cycles. And one of the things that I think holds true is the world’s a very risky place and getting riskier. When you think about the value of expertise, it’s best demonstrated in specialty insurance. Sometimes there are firms that try to dabble in specialty or go in or go out, depending on where they think they are in the cycle, and that usually ends badly for them. Having a real focus on expertise and making the investments necessary to deliver that value to your clients, I think, is a sustainable competitive advantage.

I’m drawn to businesses that are in the specialty sector, I have been throughout my career. When I think about the more general classes of business, those are things that are more often disintermediated and are certainly at risk when you think about the idea of AI eating the insurance brokerage industry and the like. When I look at specialty insurance coverage and the bespoke nature of it, that’s something that will not be easily replaced.

I think there’s a lot of commonality. One of the things that you have to remind yourself of, given the length of these market cycles, is how many people haven’t been through them. When you think about people that have 10 years’ experience or so, they really haven’t been through a full cycle. Certainly many of the dynamics are the same. Of course, the world evolves, some things change. You constantly have new capital market solutions. But there’s a lot that also remains true historically.

It’s been a theme throughout my career, so we could spend a great deal of time on it. I’ll try to keep it on target.

In the early stages of my career, I was actually on the insurance carrier side before I moved to the brokerage side. I was involved in acquisitions of 20 different insurance holding companies, helped build a business from nothing to $100 billion in assets, and took on additional responsibility as we went through that trajectory. One of the things that we always focused on from Day One was integration, fully integrating these businesses that were acquired. I was one of the people that was directly involved in doing that. So I’ve had an appreciation for the importance and the complexity of doing that right.

I also have a well over 20-year trajectory of acquiring insurance brokerage businesses. One of the things that I’m proud of is our compound annual growth rate over that period of time was 12%—6% organically, 6% through acquisitions. When I look at the acquisitions in insurance brokerage, what you’re really buying are people. The people that you buy, their values, the fit within your organization, your ability to retain and incent and help those people grow and develop is critically important. If I were to look at what is most important in insurance brokerage acquisitions, I’d say that’s No 1.

If I look at what I’ve seen that hasn’t worked, it’s where acquirers weren’t focused on integration and where you had aggressive rollup strategies where they were just bolting on businesses. And frankly it sounded pretty good at the time. It was sort of financial engineering and, hey, we’re able to do this and we’ll let you keep on doing everything the way that you did before. From your standpoint, nothing’s going to change. But somehow we’ve created a lot of incremental value in practice that often didn’t turn out to be the case. I guess sometimes when things sound too good to be true, they might be.

When I think about consolidating insurance brokers, it is a long-term strategy. It has been executed as far back as I can remember. It’s also, I’d say, a pretty mature strategy as a result of that. So in some ways I think that we’re in the later innings of the game.

When you think about private equity firms, and I’ve worked with a number of them, almost everybody wants to have a platform within insurance brokerage given what the track record has been. Many of them do have platforms. Many of them have large platforms. Those that don’t have platforms want to have platforms and want them to be large. So all of that has contributed to the level of insurance brokerage M&A that we have seen.

When I look at it now, I think it’s actually slowing down a little bit. In the past couple of years you’ve seen some bigger transactions; other than that I think there is more of a recognition around the need to integrate businesses. I think that changes the volume of businesses that are a good fit for acquisitions. You’re also in a credit environment that is not as conducive as it was a few years ago. I think that has pricing dynamics. And then when you think about the multiples on insurance brokerage businesses, unfortunately they’ve come down some recently. That can also affect the feasibility of some transactions. So I think that you’ve seen a deceleration. You are still seeing M&A activity and I expect that you will continue to see M&A activity going forward.

I definitely was right in the mix of that for a long time. And I was fortunate enough to lead what I believe was a fantastic bank-owned insurance broker, [Truist]. So I saw it from the bank side, where originally there was a lot of enthusiasm from banks to create financial fee income solutions and where banks thought that they had tremendous cross-sell opportunity. If you go back far enough, banks were actually valued at higher multiples than insurance brokers. So at that point in time there was a lot of activity of banks acquiring insurance brokers. Each of those dynamics has played out over the years where when you look at bank multiples versus insurance broker multiples, at least for many years now, insurance brokers’ multiples have been considerably higher. When you think about cross-sell, generally banks weren’t able to execute cross-sell strategies as effectively as they’d hoped. Our business was considered a leader at it. We are proud of our performance. But it wasn’t the be-all, end-all strategy that many hoped.

Then when you think about the fee income attractiveness to banks, it’s difficult for a bank to get their insurance brokerage operations to a scale where the fee income is material enough to make that big of a difference in how the bank is valued. We did do it at my company, but there aren’t many banks that have been able to do that successfully. Certainly, bank activity within insurance brokerage has been declining. I think that will continue to be the case, I don’t really see a resurgence. There may be deals here and there.

There’s also fundamentally a difference in culture between banks and insurance brokers. Banks are very heavily governed, heavily regulated, focused on risk management, all for very good reasons. And insurance brokers tend to be very entrepreneurial and very sales oriented, also for very good reasons. So there isn’t always a great fit between those cultures.

I used to joke that I felt like I was the most regulated person in the world given what I do on the insurance side and what I did on the bank side. Sometimes it still feels like that.

I’m in the category of believing that insurance regulation is actually pretty effective and generally well done and frankly necessary. I always focus on compliance, and more than compliance, having a culture that ensures that you’re doing the right things the right way. Unfortunately, over a length of my career I’ve seen too many cases where people didn’t do things the right way. So I’m generally a proponent of our regulatory environment. If I look at what I’m sort of viewing as a developing area that I’m trying to learn more about, [it’s] within the Lloyd’s marketplace, the focus on non-financial misconduct, and that’s being carried over from the banking industry in London to the insurance industry for very good reasons. But anytime that you’re introducing parameters like that, the industry has to learn the best way to apply them. That’s what I’m most interested in right now.

The biggest challenge that we’ll face most likely will be something that’s unexpected. If you think about the biggest challenges that our industry has faced historically, it’s where there has been a really significant event and, how not just the industry responds to it, but how our societies and our governments and our economies respond to it. I think that’s, in all honesty, the biggest risk over, say, a five-year period of time.

The relatively obvious answer to that question is to talk about technology and the development of technology and AI and the implications that AI will have on the industry. I think all of those are true as well. But those are things that people are really actively thinking about and trying to prepare for. So there will probably be fewer surprises. When I think about the risk, the biggest risks are the things that you’re not prepared for.

Sorry about that. But when you talk about risk, it isn’t always comfortable.

I am a huge fan of The Council, have been for many years. I think it’s an incredible organization. I think the staff is very strong, and I think it is wonderful how leaders across the industry gather to participate in advancing the interests of the industry through The Council. I’ve served on the board for quite a few years now, I chaired the advocacy committee for the board for several years, and then of course have had a variety of officer positions with The Council.

Through that, I’ve developed firsthand appreciation for the role that The Council plays in advocating for issues that our industry cares about. Mostly on Capitol Hill, but also within state legislatures. I am also passionate about the events that The Council organizes. We’re sitting here at EBLF now. It’s fantastic to see how EBLF has grown over the years. And if you think about many of the most important issues facing our industry today, they are within the benefits realm and have been in recent years. I, of course, love the Insurance Leadership Forum, I love our Legislative Summit, all of which are fantastic activities that I have made a priority for participation and would encourage others to do the same.

The Council’s also made great investments in education and training and pulling together study groups for officers of functional areas of Council member firms. Those are great places to network, and those relationships can be very valuable throughout the course of your career. It isn’t always at the moment that you need a relationship that you want to be forming it. It’s a lot more effective if you have those relationships in place. So I would encourage our listeners to make those investments. And I can tell you from firsthand experience that I have been delighted with the people that I’ve met through my experience with The Council. I’ve built many good friendships and personal relationships in addition to the professional relationships.

The easy answer to that is my family. I know that’s a common answer for just about everybody, but I think that’s because it’s true. I mentioned that back when I was in the Navy, I knew that I didn’t want to make the Navy a career because of the importance to me of my future family. That has remained consistent throughout. My overall priority is my wife and partner and best friend and our two daughters. Everything else builds off of that.

We could talk about this for as long as you want to. I do enjoy playing golf, and mostly because of the experiences, the places that you get to see and the people who you get to meet. It isn’t always just about the golf itself.

I had a friend who used to talk about the top 100 golf courses in the United States. I’d never heard of the idea before, and so I began to pick up a little bit of it from him. And I was in a shop at Pebble Beach about 16 years ago, and they had a pegboard that was the top 100 golf courses in the United States, according to Golf magazine, circa 2009. And they had another pegboard that was the top 100 golf courses in the world, according to Golf magazine, circa 2009. I bought both of those pegboards, thinking they were pretty cool and I’d show my friend and tell them about it. And then, being a goal-oriented person, I didn’t want to look at empty pegboards, so I focused on playing both of them. But it was a lot more practical to do the top 100 courses in the U.S. So I completed that first.

Call it roughly 10 years. I recently completed playing the top 100 golf courses in the world. That I probably completed about six weeks ago.

Thank you. I’m one of 64 people alive to have done it.

They update this list every other year. Once you’ve completed one of the lists, there are only a few changes from year to year. So since I completed my 2009 list six weeks ago, I also completed the 2007 and 2005 lists. So now I’ve played three of the top 100 lists of golf courses in the world.

It’s such a hard question. Because when you’re rating courses, you can rate it based on the architecture of the course—I’m a little bit of a golf architecture nerd—you can rate it on the conditions of the course, the shot quality of the course, the experience when you’re there. For me, it’s also the people that you’re with. And how you play also has a little bit of an effect. If you play really badly then it’s hard to say, “Wow, that was a great golf course.”

I also try to surprise people with my picks. The easy pick in the U.S. is to say Pine Valley [in New Jersey]. It’s a fantastic golf course. The conditions are always incredible. The architecture is fantastic. Every time I’ve been there, I’ve absolutely loved it. So that’s the easy pick. If I try to get something that’s a little less known, a place called Sand Hills in Nebraska. It wasn’t very well known. The golf was incredible. The experience was incredible. I was with really nice people, so that’s very high on my list.

If I were to pick one in the world, it’s also really hard. I was in Australia recently, just a couple of months ago, and loved it. It was the first time in my life that I’ve been to Australia. I loved every golf course that I played in Australia. I think just about everybody would pick Royal Melbourne West as being their favorite course in Australia. Since I want to be unconventional, I’ll pick Kingston Heath, which is sort of next door to Royal Melbourne. You could make a good argument for either one, so I’ll pick Kingston Heath.