R&I Profile

A Man of Principle

Those who know the business say the success of Arch is due to the drive, intellect and discipline of Dinos Iordanou.
By: | December 10, 2014 • 10 min read

Constantine “Dinos” Iordanou could be forgiven if he wasn’t in the best of moods when we talked to him. It was the day after his beloved Arsenal Soccer Club lost 2-1 to Swansea City.

Even more painful was the loss by the Virginia Cavaliers women’s soccer team to Florida State 1-0 in the ACC Championships that same day. Iordanou’s daughter Tina is on that team.

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“It was not a very good weekend for me,” said the chairman and CEO of the Arch Capital Group, a former soccer player who friends describe as an intense competitor in his own right.

All fans know that they cannot control the outcome of sporting events. But in the areas of his life that he does control, Dinos Iordanou simply does not lose.

The Arch Capital Group is a rarity among those Bermuda-based companies formed in 2001 — in the hardened market after the terror attacks — in that it wrote primary and reinsurance from the beginning. It clearly outperforms its classmates and is one of the darlings of Wall Street investors in this space.

Those who know the business and know Iordanou say the success of Arch is due to his drive, intellect and discipline.

The Police Academy

Iordanou, in turn, is quick to point to the roots of that ambition and self-control. They begin on the island of Cyprus, where Iordanou was the eldest of six children.

Iordanou’s father Philippos was a police officer. The family struggled to make ends meet.

“You know how far a policeman’s salary can go,” Iordanou said.

The only great thing for me, I was the first born, the hand-me-downs went to my brothers.” — Dinos Iordanou

“We always had food to eat but we didn’t always have the best clothes. The only great thing for me, I was the first born, the hand-me-downs went to my brothers,” Iordanou said with a chuckle.

In the house of Philippos Iordanou, you were expected to work hard and make something of yourself. All the kids had jobs after school. The money they earned was theirs for pocket money but sometimes it was needed to help the family cover its grocery bills.

As Dinos matured, his father made it clear to him that it was in the United States that he was expected to make his fortune.

“My father was very disciplined, he ran the house like it was the police academy,” Iordanou said.

After his mandatory military service, Iordanou boarded the SS Queen Anna Maria to the United States — the family couldn’t afford a plane ticket — and journeyed by himself for 17 days.

If Iordanou was expecting helicopter parent behavior from his father, he wasn’t going to get it.

“When I got here, I called him and his first words were, ‘Did you get a job yet?’ and his second were ‘Did you register for school?’ He didn’t ask me if I had a good time or if I was OK,” Iordanou recalled.

Iordanou was clear on his marching orders. With an uncle in Astoria, Queens, providing the roof over his head, Iordanou’s first job was pumping gas at a Shell station. He also washed dishes in a nursing home, drove a cab and worked as a cook.

“You’ve got to earn your way through school and get on,” Iordanou said.

With his father’s voice in his head, Iordanou moved on and stayed on track. He graduated from New York University with a degree in aerospace engineering.

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His first job out of school was with Pratt & Whitney, assessing the condition of wheels on New York City Transit subway cars. But as an immigrant, Iordanou soon realized that he would never get the clearances to do more involved public sector work.

“The career would have been over before it started,” he said.

A college counselor suggested that Iordanou turn to Wall Street and consider a career in finance or insurance. Iordanou’s next job was with AIG.

The School of Greenberg

At AIG, Iordanou, who started out assessing engineering risks for underwriters, found himself rubbing shoulders with an equally young, talented and ambitious group. Many of them, like him, would go on to important leadership positions in the industry.

“[AIG] would give you a lot of exposure, understanding all the facets of the business as long as you were willing and able to put in the time.” — Dinos Iordanou

Colleagues like Kevin Kelley, the future head of Lexington and later Ironshore; Brian Duperreault, the builder of ACE Ltd. and now CEO of the Hamilton Insurance Group; Evan Greenberg, ACE’s current CEO, president and chairman; and Joe Taranto, the retired chairman of Everest Re; were Iordanou’s classmates in what we will call the School of Greenberg — the company run by former AIG Chairman and CEO Hank Greenberg.

Iordanou put in 80 hours per week as part of AIG’s “fast track” program, which identified promising future executives and gave them a lot of exposure. In addition to their assigned jobs, they were rotated through different areas of the company, to learn as much about the business as possible.

Iordanou wasn’t working 80 hours per week because it was specifically asked of him. The young, hungry immigrant did it because he wanted to.

“They would give you a lot of exposure, understanding all the facets of the business as long as you were willing and able to put in the time,” Iordanou recalled.

“I was very hungry to learn and very hungry to get ahead. So to me it was a blessing,” he said.

Kevin Kelley, Chairman and CEO, Ironshore

Kevin Kelley, CEO, Ironshore

Ironshore’s Kevin Kelley recalls Dinos Iordanou as his kind of co-worker, someone who worked hard and was useful to his colleagues, but didn’t wear his ambitions on his sleeve.

“Dinos was a very, very bright guy, a very driven guy,” Kelley said.

“I think his colleagues respected him. He had the right perspective on how one should be ambitious,” Kelley said.

“He was charismatic, self-assured and personable and while he was certainly aggressive, with a desire to succeed, it was clear he had great leadership skills,” recalls Brian Duperreault, an AIG alumnus and the CEO of The Hamilton Insurance Group.

“He’s a born leader,” Duperreault said.

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Iordanou’s big break came after the passage of the Resource Conservation and Recovery Act in 1976, which called for closer governance of hazardous waste disposal. Iordanou in 1979 was given the responsibility of creating an environmental liability group at AIG.

“It was new and it had quite a bit of risk in it,” Iordanou said. It was also closely watched by Hank Greenberg, by reputation a very detail-oriented business manager.

“After that, I started getting promoted with more responsibilities and more divisions,” he said.

“[Iordanou] was charismatic, self-assured and personable and while he was certainly aggressive, with a desire to succeed, it was clear he had great leadership skills.” — Brian Duperreault, CEO, The Hamilton Insurance Group.

When Iordanou was recruited away from AIG to Berkshire Hathaway in 1987, he was 37 years old and in charge of all casualty at AIG subsidiary American Home, overseeing a division with $1.7 billion in revenue.

That was an experience reflected by his equally ambitious teammates. At the age of 36, Kevin Kelley was running Lexington.

“All I know is that every day they seemed to be throwing more at you,” Kelley recalled of those days.

“I guess Greenberg saw how you responded and if you liked it he just gave you more.”

First Hank Greenberg, then Warren Buffett

At Berkshire Hathaway, Iordanou was eventually placed in charge of all casualty. The graduate of the School of Greenberg also had a new mentor — Warren Buffett.

“He provided lessons in understanding business every single day.” — Dinos Iordanou, on Warren Buffett, Berkshire Hathaway chairman, known worldwide as the “Sage of Omaha.”

“He provided lessons in understanding business every single day,” Iordanou said of the Berkshire Hathaway chairman, known worldwide as the “Sage of Omaha.”

“He is beyond brilliant. He has a style almost like a college professor. Every time he speaks, you are learning something from him,” Iordanou said.

The ambitious and now in-demand Iordanou had a handshake agreement with Buffett to stay for five years. He honored that agreement, then left to take on a variety of roles at Zurich North America.

During his tenure at Zurich, Iordanou needed to consolidate a number of troubled businesses. That meant he wasn’t engaged in building the business to the degree he would have liked.

“You’re putting such an emphasis on remodeling the house that you don’t have time to be adding any rooms to it,” he said.

Iordanou also chafed at not seeing the path that would take him to CEO.

“The CEO at the time did not want to give up the top job and I just didn’t want to be there to have a lot of responsibility and not have the ability to run the company,” he said.

The Founding of Arch

Then came the terror attacks of Sept. 11, 2001 and the drive to bring new capacity to the market in the form of the “Class of 2001.” Arch, Allied World, Axis, Endurance and Montpelier were all formed by the end of that year.

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Paul Ingrey was brought out of retirement to run Arch’s reinsurance operations and Iordanou was tapped to head up the U.S. insurance operation.

In that respect, Arch was very different from its classmates, the rest of which were reinsurance companies.

“Our view was that when the market cycle was turning that there would be very good opportunities across the spectrum of insurance,” he said.

Arch’s board made the commitment to sacrifice short-term results in the effort to create a more diverse company.

It’s an effort that is now paying off by the bucket load.

“If you are a mono-line company in a cyclical business and the sector you have dominance in becomes highly competitive, what do you do?” — Dinos Iordanou

“Diversity allows you room to navigate,” Iordanou said.

“If you are a mono-line company in a cyclical business and the sector you have dominance in becomes highly competitive, what do you do?”

Arch’s financial reports show just how successful Iordanou’s approach is.

One area where Arch excels is the program business.

From 2011 to 2012, Arch saw net premiums written growth of 17 percent in programs. That was followed by 23 percent growth from 2012 to 2013.

“We have been in the program business from the beginning, but we have a very disciplined approach,” Iordanou said.

Iordanou’s view is that the managing general underwriters in the program business excel at marketing and distribution but need to be governed by a firm underwriting hand.

“Usually, we look for programs to be an extension of our system as long as our program administrators are willing to have that kind of partnership,” Iordanou said.

Program administrators working with Arch can underwrite business but they must do it within Arch’s pricing guidelines. By net premiums written, programs are the biggest piece of Arch’s primary insurance business. The company is trimming its exposure to property, marine, energy and aviation.

Another area where Arch is distinguishing itself is in the private mortgage insurance business. Arch launched Arch Mortgage Insurance in 2011 and is growing it through acquisitions.

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In 2013, Arch bought the assets of the bankrupt Private Mortgage Insurance company, or PMI, for $300 million.

“I think the step into the mortgage business was smart, it was timely and it was quite unique,” said Kelley.

“They were entering at a time when the wind was at their back. As with most ventures, timing is extraordinarily important,” Kelley said.

To Iordanou, the mortgage business move gives him the diversity he craves as much as he craves an Arsenal goal.

“Us buying that asset from PMI creates over time a competitive advantage,” he said.

Don’t think, given Arch’s success, that Iordanou is done innovating.

“For some CEOs, once they’ve built a successful company, they don’t want to take any more chances,” the Hamilton Insurance Group’s Duperreault said.

“Ironically, they become risk averse, and in that process, they make mistakes in trying to avoid them. That’s not Dinos, and he‘s obviously not finished building Arch.”

Loyal to his Roots

Pat Ryan, founder and chairman,Ryan Specialty Group

Pat Ryan, founder and chairman, Ryan Specialty Group

Pat Ryan, founder and chairman of the Chicago-based Ryan Specialty Group, counts Iordanou as a dear friend. He also considers him an industry standout.

“Dinos is very strategic in his thinking and is very definite,” Ryan said.

“He is not unwilling to be a contrarian and in fact I think he kind of likes being a contrarian,” Ryan said.

Ryan, who also founded Aon, said Iordanou’s reverence for his roots and for his family is unshakable.

“Dinos is a very deeply loyal person,” Ryan said of the man who now commands a company with total assets of $22.6 billion.

“He is very proud of his heritage and very proud of his background and he keeps those front of mind.”

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

More from Risk & Insurance

More from Risk & Insurance

Black Swan: Cloud Attack

Breaking Clouds

A combination of physical and cyber attacks on multiple data centers for cloud service providers causes economic havoc. Even the most well-prepared companies are thrown into paralyzing coverage confusion.
By: | July 27, 2017 • 10 min read

Scenario

By month 16 of the new presidential administration, the Sunshine Brigade is more than ready to act.

Stoked by their anger over rampant economic inequality, the mostly college-educated group of what might best be called upper-middle-class anarchists — many of them from California, Oregon and Washington State — put in motion the gears of a plan more than two years in the making.

Their logic, to them at least, is unimpeachable. Continued consolidation of economic power into the hands of fewer and fewer corporations is creating a world where the rich increasingly exploit and shut out the poor.

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The rise of the techno giants is accelerating this trend, according to the Sunshine Brigade’s de facto leader Emily Brookes, an All-American rugby player and a graduate of Reed College in Oregon.

With a new presidential administration seemingly bent on increasing the economic advantages of the rich with no end in sight, nothing to do then but break things up; and in so doing break the hold of this technology oligarchy.

As Emily Brookes so forcefully put in her instant messages to the other members of the brigade: Break the Cloud.

With more than 500 members, many of them with ample financial and technical resources, the Sunshine Brigade is very capable of delivering on its plan for a two-pronged attack.

It is also radicalized enough to justify the loss of some human life, even its own countrymen, to “save” — in its collective logic — the tens of millions of global citizens that are living as virtual slaves in this callous, exploitative global economy.

With websites and digitally connected services large and small down for days, irritation turns to fear.

The first wave in the attack is an attempt to infect and shut down the data centers for the top three cloud service providers. It takes months to set up this offensive.

Rather than rely on a phishing scam from outside the firewalls of the service providers, The Sunshine Brigade uses its social and business connections to place three members on each of the cloud provider’s payrolls. An infected link from someone you know, someone in the cubicle right next to you, seems like an unstoppable play.

It only partially works. Only one of the cloud service providers is harmed when an unsuspecting employee clicks on a link from their traitorous co-worker. The released malware manages to cripple a major cloud service provider for 12 hours.

With millions of users affected, the act creates substantial disruption and garners global headlines. Insured losses are around $1.5 billion. But this is just the beginning.

The morning after, the Sunshine Brigade unleashes a far more devastating and far more ruthless Round Two.

Using self-driving trucks, the Sunshine Brigade smashes into five data centers; three on the West Coast, and two in the Midwest. Fourteen employees of those cloud servers are killed and another 23 injured; some of them critically.

This time the Brigade gets what it wanted. The physical damage to the data centers is substantial enough that it significantly affects three of the top four cloud service providers for five days.

With websites and digitally connected services large and small down for days, irritation turns to fear.

Small and mid-sized banks, which host their applications on clouds, are shut down. Small business owners and consumer banking customers immediately feel the brunt. Retailers that depend on clouds to host their inventory and transaction information are also hit hard.

But really, the blow falls everywhere.

In the U.S., transportation, financial, health, government and other crucial services grind to a halt in many cases.

Not everyone is disrupted. Some of the larger corporations are sophisticated enough in their risk management, those that used back-up clouds and had steadfast business resiliency plans suffer minimal disruption.

Many small to mid-size companies, though, cannot operate. Their employees can’t get to work and when they can, they sit idly in front of blank computer screens connected to useless servers.

For the man on the street, this is hell.

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Long lines blossom at the likes of gas stations, banks and grocery stores. A population already on edge from a steady diet of social media provocation becomes even more inflamed.

By nightfall of Day Five, the three major cloud service providers are recovered, and digital “normalcy” begins to creep back. But for many small and medium-sized businesses, the recovery comes way too late.

Economic losses promise to register in the tens of billions. It’s not being too imaginative to think that losses could hit the $100 billion mark.

Two multinational insurers based in the U.S., three Lloyd’s syndicates and a Bermuda insurer signal to regulators that their aggregate cyber-related losses are so great that they will most likely become insolvent.

Emily Brookes and her cohorts were willing to kill more than a dozen people to promote their worldview. In their youthful naiveté, they could not know just how much suffering they would cause.

Observations

For some commercial insurance carriers, the aggregated losses from a prolonged disruption of cloud computing services could be catastrophic, or close to it.

“It’s on a par with any earthquake or hurricane or tornado,” said Scott Stransky, an associate vice president and principal scientist with the modeling firm AIR Worldwide.

AIR modeled the insured losses for the Fortune 1,000 were Amazon’s cloud service to go down for one day. They came up with a figure of $3 billion.

Now consider that most businesses in this country are small businesses, with not nearly the risk management sophistication of the Fortune 1000. Then consider a cloud interruption of five days or more.

Mark Greisiger, president, NetDiligence

“Almost any company you talk about today would rely to some extent on the cloud, either to host their website, to do invoicing, inventory, you name it — the cloud is being used across the board,” Stransky said.

“It’s a significant issue for insurers and one we think about a lot,” said Nick Economidis, an underwriter with specialty carrier Beazley.

“Should a cloud service provider go down, everybody who is working with that cloud service provider is impacted by that,” he said.

“Now, pretty much every software maker is on the cloud,” said Mark Greisiger, president of NetDiligence.

“In the old days, someone would come in and install software on your servers and come in annually for maintenance. That’s all gone bye-bye. Everybody who makes software is forcing you onto their private cloud,” Greisiger said.

The aggregation risk for carriers is complicated by the degree of transparency they have into which insured’s applications are hosted on which cloud provider.

Now here’s the even trickier part. Clouds outsource to other clouds.

“It’s almost becoming a spider’s web of interdependencies on who has access to what in terms of upstream and downstream providers,” Greisiger said.

Determining which of their insureds is hosted on which cloud, and in turn, where that cloud is outsourcing to other clouds can be very difficult for carriers to determine.

Even if a company is careful to diversify the risks they’re taking, they might not realize that a high percentage of insureds are even with the same cloud provider. They could be hit with devastating losses across their entire portfolio of business, said an executive with BDO consulting.

AIR’s Stransky said his company launched a product in April, ARC, which stands for Analytics of Risk from Cyber, which is designed to help carriers gain that much needed transparency.

Among insureds, surviving an event of this magnitude will depend not only on the sophistication of their risk management department, but on the company’s overall ability to negotiate contracts with vendors and suppliers that will indemnify the company in the case of a cloud outage of this duration.

It will also depend on organization’s understanding that there is no off-the-shelf solution that will prevent an event like this or make a company whole after it.

Shiraz Saeed, national practice leader, cyber, Starr Companies

Experts say contracts with cloud service providers, customers and suppliers must be structured so that a company is defended should it lose cloud access for as much as five days or more.

Best practices also include modeling just what your losses would look like in this area, and vetting your full portfolio of insurance policies to understand how each would respond.

One broker said buyers can’t be blamed if the complexities of the coverage issues at stake here are initially hard to grasp.

“It’s becoming a spider’s web of interdependencies on who has access to what.” —Mark Greisiger, president, NetDiligence

“I think it’s the broker’s job to inform the client of this exposure,” said Doug Friel, a vice president with JKJ Commercial Insurance, based in Newtown, Pa.

“You may have business interruption coverage for direct physical damage to your building. But have you ever thought about your business income if your IT structure goes down?” Friel said.

He said many buyers might not realize there is a difference.

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Large businesses should have the resources to demand from their cloud service providers that they be indemnified for the entirety of a cloud failure event. There will be a fee for that, but it will be well worth paying, Friel said.

“You have to push,” Friel said. “They are going to say, ‘Here is our standard contract, sign it.’ ”

Don’t settle for that, he said, although many do in ignorance, he added.

“Where possible, we would look for clients to negotiate their contracts. These business relationships should be mutually beneficial, even if one of these events occur,” said Shiraz Saeed, national practice leader, cyber, for the Starr Companies.

It’s a partnership, he said.

“It shouldn’t be a zero sum game on either side. I think there should be an understanding of what the potential loss might be and then designing a contract around that,” he said.

While cloud service providers are known for having high grade security systems, most average organizations don’t have the means for that. But no matter what a company’s resources, the first step is modeling where your digital assets are, and what you and your customers stand to lose if you lose access to them.

“Most insureds don’t seem to understand the amount of individual loss that you could be subject to,” said Jim Evans, leader of insurance advisory services at BDO Consulting. “Usually this stuff is measured in hours,” he said. “But what if a cloud provider is out for three or four days?” he said.

“Trying to quantify what you did lose in an event is hard enough. Trying to do a modeling exercise about what you could lose? It’s something that just doesn’t get done enough,” he said.

Once you have an understanding of what you own and what you stand to lose, the next step is prioritizing the protection of the assets you have. That means drilling into your contract with your cloud service providers to get the maximum indemnification.

It also means spreading your risk so that if at all possible, not all of your assets or your customers’ assets are housed by one cloud service provider. Cloud platforms can be public, private, or a hybrid of the two.

Understanding where your assets are in that architecture is crucial. Spending the money to insure that they are protected behind a diverse menu of firewalls is highly advisable.

Navigating the different iterations of business interruption coverage in property, cyber and kidnap and ransom policies is also important.

Make sure your broker can provide clarity on the different types of coverages and tailor them to your needs, experts said.

The concept of design thinking is really what’s in play here. Organizations have to work with vendors in every aspect of their operations to design a risk management system that can sustain this kind of hit.

“Build a better mousetrap to protect yourself,” said JKJ’s Friel.

“Depending on your service, you need to have the best and the brightest designing this stuff. Spread the risk.”

“Don’t be afraid to ask for more,” he said.

Postscript

In engineering an attack on the cloud, Emily Brookes and her cohorts accomplished the opposite of what they set out to do.

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Only the largest corporations with the most sophisticated risk management programs were able to survive the attempt to break the cloud with manageable losses.

Small businesses, the true backbone of the U.S. economy, suffered terribly. Entrepreneurs who put their life’s work into their business lost it in many cases.

Those on the lowest part of the economic scale, the working poor, lost their jobs and their ability to cover their rent and grocery bills. They joined the ranks of those subsidized by the government by the millions.  The attempt to break the cloud resulted in an even more polarized society. &

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