Cover Story

Forged By Fire

Peter Eastwood and three trusted colleagues set out to build Berkshire Hathaway Specialty Insurance.
By: | December 1, 2013 • 9 min read

To understand the professional bonds and temperaments of the team that leads Berkshire Hathaway Specialty Insurance, go back to 2008.

Peter Eastwood, president of BHSI since its April 29 launch, then worked at Lexington Insurance, AIG’s excess and surplus division. David Bresnahan, David Fields and Sanjay Godhwani, the three other players in the leadership quartet that left AIG for BHSI in April, were also AIG employees at the time. All of them had worked together on major projects and trusted one another. Then came September of 2008 and the earth shook in financial services.

We all know the story. AIG’s liquidity problems brought it to its knees. For many of its employees, the question became, should I stay or should I go?

These four stayed.

David Bresnahan, now an executive vice president, casualty, healthcare professional liability, executive and professional lines with BHSI, recalled that AIG’s property/casualty operation was financially sound at the time but was losing talent.

“Because of the parent company challenges and the possibility that people would start leaving the organization, there was the threat of a vicious spiral where people would leave and then customers would leave and lose confidence in the property/casualty businesses’ ability to move forward. And if the customers had left, that is the beginning of that downward spiral,” Bresnahan said.

David Bresnahan, executive vice president, casualty, healthcare professional liability, executive and professional lines, Berkshire Hathaway Specialty Insurance

“Those years that we spent together — between December of 2008 through 2011 — were when I learned some of the most important life lessons with respect to leadership and teamwork.”
— David Bresnahan, executive vice president, casualty, healthcare, professional liability, executive & professional lines, Berkshire Hathaway Specialty Insurance

Kevin Kelley, who had stood at the helm of Lexington for years, left the company in December of 2008 to take his present job as CEO of Ironshore.

Eastwood was then promoted to president and CEO of Lexington. It was, to that point in his career, the chance of a lifetime.

“It was an enormous opportunity for me and I recognized it for what it was. As a result of that event I have received more opportunity than I ever would have been given,” Eastwood said.

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But he and his colleagues who stayed at Lexington and AIG had to battle to save the company and its reputation. Looking back, Eastwood now sees that as his proudest moment at AIG.

“I think the thing that stands out the most is how my former colleagues and I came together at the height of the financial crisis to move together as a team to move the organization forward. Essentially to run to the fight, to stay with the organization,” Eastwood said.

“I stayed, and I think my colleagues stayed, out of a sense of loyalty to one another and to the organization, as well as based on a commitment we felt we had made to customers and other business partners. Many of us had worked for AIG for many, many years,” he said.

One can’t gauge an individual in just one meeting. But when Risk & Insurance® interviewed Eastwood in New York in early November, he came off as someone with a great deal of self-control, who chooses his words very carefully. One executive who watched Eastwood at work in the stressful days of late 2008 recalled him as one who kept his cool.

“Despite everything going on around him,” said James Drinkwater, president of the brokerage division for the AmWINS Group Inc., “he was always very calm and very thoughtful in his approach.

“He obviously took over at a very difficult time in Lexington’s history. He retained many of the key staff and I think he just demonstrated great leadership at that time,” he said.

Eastwood also marks late 2008 and beyond as a time that strengthened his bonds with Bresnahan, Fields and Godhwani.

The Team

As he looks at the team he is assembling now, that proven success in sticking together to help salvage AIG is in his hip pocket.

“I have said repeatedly to people that they are individuals who are just great professionals and equally good, if not better, human beings,” Eastwood said.

In Eastwood, Bresnahan and Fields said, they have a leader who leads by example, someone who holds himself to high standards and expects the same from teammates.

“He is one of the hardest working individuals you will meet. No matter how high he has climbed in particular organizations, I find that he really sweats the details and really gets into the weeds of the business,” said Bresnahan.

Bresnahan said that he too feels the time the four spent at AIG when it was reeling not only strengthened their bonds with one another but helped them grow as individuals.

R12-13p24-26_01Eastwood12-2.indd

David Fields, executive vice president, underwriting, actuarial, finance and reinsurance at Berkshire Hathaway Specialty Insurance

“I agree with Peter,” Bresnahan said, “Those years that we spent together — between December of 2008 through 2011 — were when I learned some of the most important life lessons with respect to leadership and teamwork.

“And I share Peter’s view that it was one of the more rewarding times. It really revolved around teamwork, collaboration and being highly communicative to employees, customers and brokers. Those were some of the keys that got us through that very difficult time,” he said.

That experience and the way it strengthened existing bonds, instead of weakening them, is perhaps why this team at BHSI has as much faith as it does.

“It comes from having worked together in a variety of different situations and feeling that we had each other’s backs. We really feel comfortable with each other,” said Fields, now executive vice president, underwriting, actuarial, finance and reinsurance at BHSI.

Chance of a Lifetime

Being able to launch BHSI, backed as it is by the Berkshire Hathaway name and balance sheet, presents unique advantages.

“From my perspective, I smile every morning. I feel like I need to be able to pinch myself about is this all real,” said Fields.

“We are fortunate to be able to have the capital support and name recognition of the Berkshire organization; the freedom within the organization to focus on the things that are important and to be able to accomplish them quickly; and then the ability to work with people that we know and feel comfortable with.

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“We are creating an environment here that is completely different, in my opinion, than other places in the industry … it is a once-in-a-lifetime opportunity,” he said.

Bresnahan said the response from customers so far has been glowing.

“When you meet with customers,
a lot of validation comes out of those meetings. There is genuine joy that people have seeing what we are doing and recognizing that we have a really special opportunity,” Bresnahan said.

“They have approached the marketplace in a very responsible fashion,” said AmWINS’ Drinkwater, “and I think that they have got a terrific team that is going to be incredibly successful in building a new company.”

On the one hand, BHSI has capital strength and a strong brand so it is not viewed as a new entrant, but on the other, it has the unique opportunity to build a team and systems from the ground up that are highly efficient and service-oriented.

R12-13p24-26_01Eastwood12-2.indd“The opportunity in and of itself is exciting. But the ability to build a company with people you respect, trust and have a very strong working relationship with is unique.”
— Sanjay Godhwani, executive vice president, property and programs, Berkshire Hathaway Specialty Insurance

“The opportunity in and of itself is exciting,” said Sanjay Godhwani, executive vice president, property and programs for BHSI. “But the ability to build a company with people you respect, trust and have a very strong working relationship with is unique.”

Since its launch, Eastwood said, BHSI has grown quickly and has been received enthusiastically by brokers and insureds. The possibilities are obviously enormous, but for Eastwood — who left a position as CEO and president of AIG property/casualty in the Americas for this unique opening — so too is the gravity with which it must be treated.

“It comes with a lot of opportunity and a lot of responsibility. The former of which I am thankful for, the latter of which I take very seriously. While the opportunity is significant for me, it is important for me to recognize the team and their contributions and the significance of this opportunity to them as well,” Eastwood said.

The Business So Far

BHSI was launched in April with Eastwood, Bresnahan, Fields and Godhwani. As of early November, the company had 73 employees and five business units, those being a property group, a casualty group, an executive professional lines group, a health care professional liability group and a program business group.

Coming out of the gate, Eastwood described BHSI as “disproportionately focused on the E&S market right now” for a number of reasons, “but evolving quickly.”

The reasons for the initial focus on E&S is that there is a good growth trajectory in E&S. It offers freedom of rate and form, and that makes it attractive for a firm looking to stand up businesses quickly, Eastwood said.

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Getting to work in admitted markets takes a little longer to set up, but Eastwood said BHSI is in the process of doing that. The directors’ and officers’ market, in particular, and the larger professional lines space is more of an admitted market.

“We have just completed a primary D&O policy form and we are now underway getting that policy form filed and the rates filed with it,” Eastwood said.

BHSI is, at this point, also a predominantly U.S.-focused business. The United States is by far the largest market in the world and it is where the Berkshire Hathaway infrastructure is “largely focused and built,” Eastwood said.

But BHSI does have an interest, he said, in moving the business outside of the United States and is exploring opportunities. That said, the company is writing U.S.-domiciled risk with foreign exposures.

In terms of distribution, Eastwood said his team is “interested in seeing as much of the marketplace as we can and as a result we are interested in seeing as much business from as many brokers as we can see it, because it is, again, the only way to see the totality of the market.”

Eastwood said the network will be both retail and wholesale-focused.

“I value the wholesale broker channel as a very effective distribution channel for us, reaching brokers that we couldn’t get to on our own or getting to geographic territories that we wouldn’t get to on our own,” he said.

As this venture unfolds, the excitement on the part of the BHSI executives is palpable and the possibilities before them look to be historic in their uniqueness.

Eastwood described this chance to build a business within Berkshire Hathaway as an opportunity to work within a company that has “industry leading characteristics.”

One, he said, Berkshire Hathaway is a company that knows and values the insurance industry. Its personal lines business Geico and its reinsurance arm Gen Re being just two examples.

Two, it has great financial strength.

“In a business where companies are transferring risk and we are assuming risk — it’s a competitive advantage,” Eastwood said.

The third is the brand of Berkshire Hathaway, standing as it does in Eastwood’s words, for “integrity and doing things the right way.”

And the fourth is group empowerment.

Eastwood said he has the right team to act with that freedom and deliver.

It’s fair to say that the rest of the industry is watching closely.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2017 RIMS

Resilience in Face of Cyber

New cyber model platforms will help insurers better manage aggregation risk within their books of business.
By: | April 26, 2017 • 3 min read

As insurers become increasingly concerned about the aggregation of cyber risk exposures in their portfolios, new tools are being developed to help them better assess and manage those exposures.

 One of those tools, a comprehensive cyber risk modeling application for the insurance and reinsurance markets, was announced on April 24 by AIR Worldwide.

Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

Last year at RIMS, AIR announced the release of the industry’s first open source deterministic cyber risk scenario, subsequently releasing a series of scenarios throughout the year, and offering the service to insurers on a consulting basis.

Its latest release, ARC– Analytics of Risk from Cyber — continues that work by offering the modeling platform for license to insurance clients for internal use rather than on a consulting basis. ARC is separate from AIR’s Touchstone platform, allowing for more flexibility in the rapidly changing cyber environment.

ARC allows insurers to get a better picture of their exposures across an entire book of business, with the help of a comprehensive industry exposure database that combines data from multiple public and commercial sources.

The recent attacks on Dyn and Amazon Web Services (AWS) provide perfect examples of how the ARC platform can be used to enhance the industry’s resilience, said Scott Stransky, assistant vice president and principal scientist for AIR Worldwide.

Stransky noted that insurers don’t necessarily have visibility into which of their insureds use Dyn, Amazon Web Services, Rackspace, or other common internet services providers.

In the Dyn and AWS events, there was little insured loss because the downtime fell largely just under policy waiting periods.

But,” said Stransky, “it got our clients thinking, well it happened for a few hours – could it happen for longer? And what does that do to us if it does? … This is really where our model can be very helpful.”

The purpose of having this model is to make the world more resilient … that’s really the goal.”Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

AIR has run the Dyn incident through its model, with the parameters of a single day of downtime impacting the Fortune 1000. Then it did the same with the AWS event.

When we run Fortune 1000 for Dyn for one day, we get a half a billion dollars of loss,” said Stransky. “Taking it one step further – we’ve run the same exercise for AWS for one day, through the Fortune 1000 only, and the losses are about $3 billion.”

So once you expand it out to millions of businesses, the losses would be much higher,” he added.

The ARC platform allows insurers to assess cyber exposures including “silent cyber,” across the spectrum of business, be it D&O, E&O, general liability or property. There are 18 scenarios that can be modeled, with the capability to adjust variables broadly for a better handle on events of varying severity and scope.

Looking ahead, AIR is taking a closer look at what Stransky calls “silent silent cyber,” the complex indirect and difficult to assess or insure potential impacts of any given cyber event.

Stransky cites the 2014 hack of the National Weather Service website as an example. For several days after the hack, no satellite weather imagery was available to be fed into weather models.

Imagine there was a hurricane happening during the time there was no weather service imagery,” he said. “[So] the models wouldn’t have been as accurate; people wouldn’t have had as much advance warning; they wouldn’t have evacuated as quickly or boarded up their homes.”

It’s possible that the losses would be significantly higher in such a scenario, but there would be no way to quantify how much of it could be attributed to the cyber attack and how much was strictly the result of the hurricane itself.

It’s very, very indirect,” said Stransky, citing the recent hack of the Dallas tornado sirens as another example. Not only did the situation jam up the 911 system, potentially exacerbating any number of crisis events, but such a false alarm could lead to increased losses in the future.

The next time if there’s a real tornado, people make think, ‘Oh, its just some hack,’ ” he said. “So if there’s a real tornado, who knows what’s going to happen.”

Modeling for “silent silent cyber” remains elusive. But platforms like ARC are a step in the right direction for ensuring the continued health and strength of the insurance industry in the face of the ever-changing specter of cyber exposure.

Because we have this model, insurers are now able to manage the risks better, to be more resilient against cyber attacks, to really understand their portfolios,” said Stransky. “So when it does happen, they’ll be able to respond, they’ll be able to pay out the claims properly, they’ll be prepared.

The purpose of having this model is to make the world more resilient … that’s really the goal.”

Additional stories from RIMS 2017:

Blockchain Pros and Cons

If barriers to implementation are brought down, blockchain offers potential for financial institutions.

Embrace the Internet of Things

Risk managers can use IoT for data analytics and other risk mitigation needs, but connected devices also offer a multitude of exposures.

Feeling Unprepared to Deal With Risks

Damage to brand and reputation ranked as the top risk concern of risk managers throughout the world.

Reviewing Medical Marijuana Claims

Liberty Mutual appears to be the first carrier to create a workflow process for evaluating medical marijuana expense reimbursement requests.

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.

RIMS Conference Held in Birthplace of Insurance in US

Carriers continue their vital role of helping insureds mitigate risks and promote safety.

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]