Renaissance Man

• Brendan P Noonan
• August 2002
• 

When pressed to explain how his company stays in the black while competitors flounder in a sea of red, James N. Stanard is quick to spread the credit around. He's certainly received enough to spare.

"I was fortunate to have a series of excellent bosses that I learned a lot from," Stanard said. Then the founder of RenaissanceRe Holdings Ltd. ticked off an all-star list that included the late Charles A. Hachemeister of Prudential Re; Paul Ingrey, now of Arch Re; and Norman Blake, the former head of USF&G. Other important influences were Paul Flack at INA Re, Dave Hartman at Chubb and Tom Tartaro at Prudential Re.

Stanard also gives plenty of credit to the team he assembled around him and has kept in place through a roller-coaster ride that's approaching a decade in duration. It began in the supercharged catastrophe reinsurance market that followed Hurricane Andrew. Scouring southern Florida in August of 1992, Andrew redefined the possible in terms of insured losses and forced the industry to seek a new level of sophistication in modeling and managing its exposure. The change played right into Stanard's hands.

"I have a very techie background," Stanard explained. The kind of modeling and risk analysis demanded by the post-Andrew market was waiting for a logical mind such as his. "I want to do something that's theoretically sound," he said. "What's hard is getting people in an organization to do it."

Part of the answer was setting up the infrastructure to make the strategy possible. In Stanard's mind, it was an exercise in portfolio theory-applying portfolio management to property catastrophe risk. But it required building a unique system for underwriting from the ground up, while instilling a culture of risk management that weighs risk and reward. Stanard also kept the task manageable by keeping the organization centralized and focused in its area of expertise. It would be harder to do in a more dispersed and diversified company, he acknowledged.

Applying technology to the problem produced the Renaissance Exposure Management System, or REMS, which is built on a database of all Renaissance policies, plus a sizable cross-section of the entire industry's property contracts. Renaissance underwriters are able to run the company's full portfolio through various outside catastrophe models in close to real time-allowing, for example, an underwriter to assess the impact of a single prospective contract on the entire portfolio while in the midst of negotiations, Stanard explained.

But part of Stanard's strength lies in putting an overlay of sound human judgment on the technical output, said Arch's Ingrey. Stanard, Ingrey said, is able to "look from the top down and not get too wound up in his own analysis." Put another way, it's the ability to "look under a particular technical result and ask, 'Does it make sense?'" Ingrey said.

Ingrey recalled first meeting Stanard during negotiations over a medical-malpractice excess cover in Fort Wayne, Ind. It was the mid-1970s, early in Stanard's career, but even then, Ingrey recalls being impressed with Stanard's technical skill and "diplomacy" in a line of business known for ticklish bargaining.

Entering the Industry

Linking up with Ingrey was one of several turning points for Stanard, who was studying computer programming in the late 1960s when he met Charles Hachemeister-"one of the top technical actuaries in the world." Hachemeister, who died in 1993, lured Stanard into actuarial work, his first foray into insurance, and later invited Stanard to join Prudential Re, where he worked with Ingrey.

Stanard credits Ingrey with teaching him the reinsurance business as the two worked together, first at Prudential Re and then at F&G Re. He described Ingrey as "legendary in his understanding of reinsurance and the reinsurance markets."

With the actuarial and reinsurance foundations in place, Stanard later joined Blake at USF&G. There he completed another phase of his working education-watching the chief executive officer of a public company in action. From Blake, a noninsurance executive who had worked at Jack Welch's General Electric Co., Stanard learned that it was possible to "run the business at three times the speed."

At USF&G, Stanard also gained experience working at a primary insurer-which means he's "been on the other side of the table" and therefore better understands the reinsurer's clients.

Those experiences set the stage for the launch of RenaissanceRe in 1993. With Stanard as chairman, president and CEO, the company now stands as one of the few independent survivors from the crop of reinsurers that sprang up after Andrew.

As the memory of Andrew faded and stock markets soared through the '90s, providing ready cover for poor underwriting, discipline crumbled in the reinsurance markets, pulling the industry into a soft market that consumed most of the decade. But Stanard and his team stuck to the basics.

"You have to be willing to be contrarian," Stanard said. "You have to really have all your senior management understand the strategy and really buy into it." In that vein, Stanard found rewards to be a powerful persuader. "People do what you pay them to do, not what you tell them to do," he said. Key underwriters at RenaissanceRe are long-term shareholders-as opposed to mere option holders.

Teamwork Counts

The approach to underwriting is collaborative and doesn't allow for "lone rangers," applying instead the principle of at least "two pairs of eyes on every risk-taking decision." To do this in a fast-paced environment requires strong communications and underwriters who are open to constructive criticism, Stanard said.

"It is not hard to be contrarian and to resist pressure," he insisted-as long as the company communicates to all parties what it is going to do and then follows through consistently.

That consistency, which placed RenaissanceRe at the high end of pricing in the soft market, now has it in a strong competitive position as rivals scramble to jack up rates in the post-Sept. 11, post-bull market world.

"We're not trying to recoup losses," Stanard said. "It puts us in an enviable position." The company hasn't had to reunderwrite, he said, and it was quoting business uninterrupted on Sept. 12.

"The market was hardening before Sept. 11. There was a question about whether that hardening was leveling off," Stanard said. But he said that even with the fourth quarter as good as it was, the hardening would have continued. Companies wouldn't have been able to put off their reserve strengthening for very long in the wake of Enron Corp.'s collapse and the resulting focus on transparency in financial accounting, he said.

Stanard said he doesn't worry much about copycats, although he expects them. "I think it's natural for people to try to emulate successful organizations," he said, but he cautioned that centralized decision making and a focused business are important to making the RenaissanceRe model work.

RenaissanceRe has had its share of suitors over the years, but its primary focus is on shareholder value, Stanard said. "We evaluate the benefits. Is the shareholder better off doing the deal or not doing the deal?" But the company and its suitors have never agreed on what RenaissanceRe is worth. "We have a pretty high opinion of what our future earnings stream is," he said. by Brendan Noonan,