An Unexpected Journey

• Kate Smith
• March 2018
• 

Marc Grandisson spread his hands wide. "I have arrived," he proclaimed. "I'm done. I've made it."

Sitting in a small restaurant on New York's Madison Avenue, the incoming chief executive officer of Arch Capital Group was reflecting upon his career. His statement, however, had nothing to do with being chosen to succeed Constantine "Dinos" Iordanou as the head of Arch this month.

Grandisson instead was recalling how he felt when he was hired to work under Ajit Jain at Berkshire Hathaway in 1999. Six years later, he again thought he had reached the pinnacle of career success when he was named Group CEO of Arch Re in 2005. And had he retired from F&G Re as chief actuary, a path he envisioned when he started working for the company in 1994, he likely would have had a similar sentiment.

Each stage of Grandisson's career has been met with a sense of appreciation and, to a degree, unexpectedness. His journey has never been mapped out, and his advancement has not come through striving for bigger roles.

"I've always been content with where I was," the Quebec native said. "I'm a bit of a Daoist in that way. I'm a firm believer that if it's the right thing, it will happen. There's a natural evolution to businesses and people. That why I tell you, I didn't set out to do this."

Grandisson, 50, may not have set out to be a CEO, but he always set out to be open to new opportunities. Those opportunities have tumbled forth, putting him on a path to the corner office. On March 8, Grandisson will officially take the reins at Arch, a company that shares his ethos.

Like its new leader, Arch has thrived by being open to different ideas and opportunities. That nimbleness has helped it become one of the success stories of Bermuda's "Class of 2001," a cluster of start-ups launched on the island in the wake of the Sept. 11 attacks.

"Arch Capital is one of the very few from that class that has not only survived, but has distinguished itself amidst a very competitive landscape," Bob DeRose, senior director at A.M. Best, said.

Grandisson has been part of Arch's success story from the start. He was hired as chief actuary of Arch Re in October 2001 and was among the company's first three employees, joining founders and fellow F&G Re alumni Paul Ingrey and Dwight Evans. Iordanou also was part of that early group, coming aboard in January 2002.

Now, as Iordanou prepares to turn over the company--a transition that will be formally completed on his 68th birthday--he can think of no better hands in which to leave it.

"Marc was one of the few senior managers who helped build this company," Iordanou said. "Just as I feel this company is like my child, Marc feels the same way.

"He'll do phenomenal. He's terrific."

Iordanou can say that with confidence. Not only has Grandisson been part of the decision-making team at Arch since Day One, but his ascent to the CEO role also has been carefully orchestrated. Over the past two years Iordanou gradually has transferred control of various CEO functions in hopes of smoothing the transition.

"You want somebody to ease into the job," Iordanou said, "not take over and feel like they're drinking water from a fire hose."

When he steps into power, Grandisson said, he'll be ready.

"If Dinos had left and given three months' notice, I wouldn't be as comfortable as I am with the transition," Grandisson said. "The transition will be seamless. I've already done so much and been exposed to so much. This is the job I was most ready for."

Phoenix Rising

Grandisson had reservations about joining Arch back in 2001. He had a young daughter, had just bought a home in Greenwich, Conn., and had a good job at Berkshire Hathaway.

"I was very happy," he recalled. "I thought I was going to die there. It was great."

Leaving for Arch was a risk, but it was also an intriguing opportunity. It offered Grandisson a chance to work with his former F&G Re colleagues, who had dispersed after St. Paul acquired US F&G.

"We saw Arch as an opportunity to get the band back together," Grandisson said.

The plan was to recruit former colleagues and respected competitors who could get the company off the ground quickly.

"Because we had a team that already had worked together, we had all lines of business lined up," Grandisson said. "Everyone had their relationships and their Rolodexes lined up, and we were able to get companies in the door right away. That was very powerful.

"The first of January 2002 was a lot easier for us than most companies," he said, referring to Arch's first reinsurance renewal season. "We didn't have to explain to each other how we think about things. It was seamless."

Arch leveraged its underwriting expertise and focused on casualty lines. Because the casualty market was hard after 9/11, Arch had the good fortune of being able to set favorable terms and prices from the get-go.

The company chose to write little property catastrophe coverage. That decision proved pivotal. When hurricanes Katrina, Rita and Wilma hit in 2005, Arch had little exposure and fared better than many of its Bermuda counterparts.

"The '05 storms were a watershed moment in our history," Grandisson said. "We were so heavily invested on the casualty side that we didn't want to overinvest in property because, what if things go bad? Sure enough, we were proven right. The big storms happened and companies fell by the wayside. So we were able to seize that opportunity on the property side.

"We weren't even five years old, and we had a hard market in casualty and now a hard market in property. That was pretty awesome."

It wasn't simply luck, however. Ingrey often reminded his team that luck was a residue of design, Grandisson said, and Arch has held tight to that philosophy.

"Always put yourself in a position to seize opportunities," Grandisson said. "That's what we've been able to do. But we didn't think there would be so many opportunities. I didn't dream of the breadth of opportunities."

The financial crisis of 2008 provided yet another opportunity--mortgage insurance. Arch's executive team had no experience in mortgage insurance, but it hired experts who did and built a mortgage insurance division.

"Out of every fire there is a phoenix that comes up. We were looking to find that phoenix," Iordanou said. "Originally we thought there may be opportunities through our investment portfolio to invest in different asset classes that might improve because of the calamity that was the housing collapse. But the more we looked at it, the more we realized there were opportunities in an area that was very dear to us--underwriting mortgage insurance."

Mortgage insurance has become one of the three pillars of Arch's business. Insurance and mortgage insurance are the ballasts, providing stability to the overall ship. Reinsurance offers more opportunistic plays and capitalizes on Arch's finesse with cycle management.

"We have the fortune of having a very wide net. There are a lot of areas where we can fish," Grandisson said. "We have the ability to be nimble and seize opportunities that come forward and then de-emphasize them when they go away."

That combination of opportunism and cycle management has been a cornerstone at Arch.

"The overwhelming reason for [Arch's] degree of success is its management's leadership and understanding of underwriting cycle management," DeRose said. "This keen insight is what has enabled Arch Capital to navigate successfully through both hard and soft markets and to quickly take advantage of business opportunities as they arise. This acumen has produced superior earnings and built a solid balance sheet that no doubt will continue to withstand the future test of time."

In the past 16 years, Arch's stock price has increased 15-fold. Its market cap, which started at $1 billion, had grown to $12 billion at year-end 2017, according to Yahoo Finance. That staggering growth far exceeded expectations.

"I didn't see any of this happening," Grandisson said. "It's a home run. We have to pinch ourselves sometimes."

Future Plans

It will be up to Grandisson to keep the success going. He won't be alone, though. He will be surrounded by the same management team that has guided Arch for years, and Iordanou will stay on as an adviser.

"I don't see myself as the guy leading everyone; I see myself more as the coach of everyone," Grandisson said. "I have all-star athletes all around me."

Iordanou expects Arch will look much the same under Grandisson.

"I think he'll stay the course for about 90% of what we're doing," Iordanou said. "I don't say that because I was the CEO, but because he was a very integral part of where we were going. We didn't get to where we got because of me. We got where we are because of a very strong management team. And he's been a part of that."

Over the years, Grandisson has taken on increasingly greater responsibilities at Arch, branching out from the reinsurance group to become CEO of Arch Worldwide Mortgage Group in 2014 and president and chief operating officer of Arch Capital Group in 2016.

"When you look at his performance as a member of the senior management team, and his contributions not only to the areas he was running but also to the broader picture of where we were going to take the company, he was a key part of everything," Iordanou said. "When you put all that together, he was a natural choice to succeed me."

Grandisson is also analytical, good with people, and at 50 years old can carry the baton for a good number of years--all of which contributed to his selection as CEO.

"We're an analytics company and he's really good with analytics. He's a quant," Iordanou said. "He can be a demanding manager, but he does it in a positive way. He looks to transfer knowledge and know-how to the younger generation, which is very important in our culture. And because of his age, he has a lot of runway ahead of him, so to speak."

Grandisson said his focus will be on predictive analytics and greater inclusion of younger employees in the steering of the company.

"The market is changing, product delivery is changing, technology is changing," he said. "We're going to need to hear from younger people, people with different expectations about the experience of buying reinsurance or insurance. So we're going to have more inclusion of younger people, more forums where their ideas can be thrown out there and vetted. A lot of the guys in positions of leadership right now were the young guys 15-16 years ago. Now we're getting older. We're not also-rans yet, but we're in the last few innings of our career. We need to bring people to the table who are in their first three innings."

Grandisson also wants to embed predictive analytics into the DNA of the organization, bringing about a shift in not only operations but also mindset.

"This is a challenge for us," he said. "We have a challenge to harness this predictive analytics framework and transform our mentality, which hopefully helps us catch a couple of points of loss ratio savings, which would be tremendous in our space.

"I'm not looking for the 15%-20% [stock increase], because that's outrageous," he said. "I'm looking for incremental movement, a couple of points here and there. If we could shave a couple of points, it would be huge."

Iordanou said it would be unrealistic to expect Grandisson to duplicate the exponential growth Arch has seen to date.

"A small company doing that is a lot easier than a large company doing that," said Iordanou, who was named 2017 Insurance Leader of the Year by the St. John's University School of Risk Management. "So go to 2X. Going from $13 billion to $26 billion market cap, no one's going to complain about that. If you double the value of the company in seven years, you have a good performance. You don't have to double it every couple of years, as we have done."

Grandisson will be happy if the company does half as well as it has.

"If I could grow the market value of the company from $12.5 billion to $30 billion-$40 billion, it would be great for everybody," he said. "And keep the culture alive and solid so that it outlasts me. That would be good."

As he thinks about this next stage of his career, Grandisson isn't mapping out the journey too precisely. He's instead approaching it, as always, with a sense of appreciation and, to a degree, unexpectedness.

"The one thing I'll say is, to run a company as successful as Arch is a big dream," he said. "It's almost surreal in some ways.

"So, have I arrived? I think I've out-achieved anything I've ever dreamed of."

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Learn More

Arch Capital Group (A.M. Best # 050318)

For ratings and other financial strength information visit www.ambest.com

By Kate Smith, senior associate editor: kate.smith@ambest.com.