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R&I Profile

Quick and Decisive

Mike McGavick, the CEO of XL Catlin, earns praise by making tough decisions others avoid.
By: | May 6, 2015 • 9 min read

With the announcement that XL Group plc bought Catlin Group, the global P&C (re)insurer that operates the largest syndicate at Lloyd’s, XL Catlin CEO Mike McGavick can say that he’s plucked a plum.

It’s a prize the former rugby player won by absorbing hard hits and staying on his feet.

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Dublin-based XL closed on the $3.93 billion acquisition of Catlin on May 1. According to experts, the purchase will combine deep benches in Bermuda and London, and position XL Catlin to be a top 10 global reinsurer and a global force in specialty insurance.

“We’re going to be darn hard to ignore. That’s meaningful to us,” McGavick said.

McGavick and XL bought Catlin from a position of strength. XL averaged a combined ratio of 92.3 over the past three years and recorded operating net income of almost a billion dollars in 2014.

“Communication, in my mind, is the least fully appreciated of the management arts. That’s a bias that I’ve developed over a long, long time.” — XL Catlin CEO Mike McGavick

Credit McGavick’s leadership, because when he became CEO in May 2008, XL was reeling.

McGavick said he knew when he took the job that the company had problems. What he didn’t know was how widespread they were.

In 2006, XL spun off a financial guarantee business, Security Capital Assurance, (now known as Syncora Capital Assurance) that suffered huge mortgage-backed securities losses in 2008.

XL’s exposure to those losses as a reinsurer as of mid-2008 was more than $67 billion. To put that exposure in perspective, XL’s assets at year-end 2008 were $45.6 billion.

With the blessing of the New York Department of Insurance, McGavick negotiated a commutation agreement with SCA that reduced XL’s exposure to around $1 billion.

But the problems didn’t end there. With the financial crisis in full roar, XL next faced heavy losses due to its own investments in mortgage-backed securities.

No sooner had the company worked to rectify those problems when the soundness of its underwriting came into question. With barely a minute to catch their breath, McGavick and his team then turned to face that issue.

Three massive problems, all handled in quick succession.

Elliott Bundy, McGavick’s assistant and XL’s chief communications and marketing officer, said McGavick’s strength as a communicator is one of the keys to the XL turnaround.

“He is very respectful of his audience,” Bundy said. “He wants everyone to understand what it is we are really trying to do, particularly what we want to do together.”

“Communication, in my mind, is the least fully appreciated of the management arts,” McGavick said. “That’s a bias that I’ve developed over a long, long time.

“Leaders can have any number of ways they choose to communicate. What they can’t do is they can’t delegate responsibility for the fact that there is effective communication.”

McGavick communicated well, but he also acted decisively, according to a veteran insurance industry leader.

“Michael came in and he didn’t flinch. He had to do what he did and he did it with speed,” said Brian Duperreault, CEO of the Hamilton Insurance Group.

Brian Duperreault CEO Hamilton Insurance Group

Brian Duperreault
CEO
Hamilton Insurance Group

Duperreault, like many other leaders who have faced steep challenges, was watching McGavick back in 2008 to see how he’d do.

Some say the biggest challenge McGavick faced at XL in 2008 was a crisis in confidence.

“He shored up confidence and he got people to believe in XL. That’s certainly a big part of it,” said Cliff Gallant, an insurance industry analyst with Nomura Securities.

Making big changes when an organization is in difficulty means telling the unvarnished truth and that’s what McGavick did, Duperreault said.

“You can’t get people to buy into a secret,” said Duperreault.

Roots

McGavick is now an established insurance leader, but public service also flows in his veins. His dad Joe McGavick was a state legislator in Washington and served on the state’s liquor control board.

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McGavick got one of his first major lessons in self-sufficiency when his father convinced him to attend the Seattle Preparatory School. A good Jesuit education had been good for him and it was the best thing for his son, Joe McGavick reasoned.

What Joe didn’t tell Mike was that he expected him to pay his own way.

Every paycheck Mike McGavick earned in high school was garnished by his father to cover tuition expenses, leaving Mike just a few bucks in pocket money. Perhaps that early lesson hardened him for some tougher cost-cutting decisions later on.

Another consequence of Joe McGavick’s training was that by the time Mike McGavick entered the University of Washington, he was out of the house and supporting himself.

“I became an incredibly independent cuss,” McGavick said.

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True to his genetics, in his early professional life McGavick worked for a public policy roundtable in Seattle and later served as the chief of staff to Washington State Sen. Slade Gorton, whom he counts as a mentor.

McGavick started with Gorton as a driver. As they crisscrossed the state, traveling from fire halls to churches and other meeting places, McGavick gradually worked up the nerve to engage the senator in conversation. Once the senator started talking, McGavick kept his ears open and picked up what he could.

One of the key lessons McGavick remembers from Gorton is the importance of true root-cause analysis.

Don’t just come to conclusions that fit your preconceived notions, the senator taught McGavick. Dig into the problem and discover its essence.

“He deeply shaped how I think about the world,” said McGavick.

Insurance Calls

Mike McGavick’s entrée into insurance came about through his passion for public policy.

From 1992 through 1995, McGavick worked with the Superfund Improvement Project for the American Insurance Association in Washington, D.C. That work led to a job with CNA.

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McGavick rose through the ranks there to become president and chief operating officer at CNA Financial, then the company’s largest operating unit. CNA Financial was plagued by inflated expenses, which McGavick addressed.

Hired by the Seattle-based personal lines insurer Safeco in 2001, McGavick again moved up, becoming president, CEO and chairman. And again he faced legacy problems.

“In many of the situations I solved, there was an absence of will to make decisions that are fairly obvious,” McGavick said.

“Too many of the strategies I saw were a hope that the problem would go away or that you could overwhelm it with good stuff.”

Before McGavick’s time, Safeco purchased American States, a life insurance business. When he became CEO, McGavick made the decision to unwind the American States deal.

The turnaround meant reductions in payroll. As anyone who’s done it knows, letting staff members go comes at a personal cost.

“You spend a little bit of your humanity with every job that you cause to be lost,” McGavick said.

As quickly as he turned around the three insurers, McGavick believes he could have acted more quickly.

“You learn that a lot more suffering comes from an unwillingness to do hard things. And even learning it you tend to be not quite as fast, as in retrospect you wish you would have been. All the big mistakes are in that bucket,” McGavick said.

Nomura’s Gallant said that McGavick showed backbone in doing what he did at Safeco.

“He said Safeco doesn’t need to be in this life business and he got rid of it. He said a big mistake was made in trying to do this and we have to let it go.”

“The right decisions always look like the easy ones in the rearview mirror,” said Greg Case, president and CEO of Aon and a McGavick admirer.

“Rarely do insurance leaders get credit for having the courage to return a company to its core business,” Case said.

Greg Case President and CEO Aon

Greg Case
President and CEO
Aon

“That was the case at Safeco. Mike inherited a business that had gone through a period of rapid M&A and lost sight of its core. It took real conviction and operational discipline to turn that around. But that is what the industry has come to expect from Mike and his team,” Case said.

McGavick said that at CNA, Safeco and XL, he discovered a formula. It wasn’t a formula he had in mind going in, but it turned out to be applicable in the case of each troubled company.

“You go in there and you try to learn to be humble and focus on two things. What is the real problem and what are some possible solutions?” McGavick said.

The team that will evolve will be comprised of three groups, he said.

“A third will be people who are in the right job and doing a good job and who are retained and become critical friends and advisers. There’s another third who were trapped under poor leadership, but in fact knew the place was falling apart and had some ideas about how to fix it,” he added.

“The other third you’re going to have to recruit.”

In 2006, showing that his taste for politics never ebbed, McGavick left Safeco to run for the U.S. Senate as a Republican. He lost the race.

“When he ran for office in Washington it wasn’t a surprise for me because you could tell he’s a gifted leader. For the insurance industry, it’s good he lost,” Gallant said.

XL Catlin

Mike McGavick is clearly excited about the XL Catlin deal. He’s so excited that he slapped a conference table several times during an interview in Stamford as he talked about what the new company is capable of.

“There are things that the combined company can do for clients that we couldn’t do before. Some of them are obvious,” McGavick said.

One of the obvious pieces is the increased capital the company will be able to align against risks.

“There are also skills that we bring that are formed differently at each company and combined, we believe, will yield a real depth of insight.”

Across the industry, specialty insurance is attracting talent and capital for a number of reasons. Risk is evolving rapidly. Specialty is the place where innovative products emerge and it’s a place where premium growth is substantial.

“Our clients’ risks are evolving rapidly. And we should expect that. That’s the world we live in,” McGavick said.

“If we’re going to have an organization matching this rate of change — in an industry that is very poor at innovation — we’re going to have to be deeply in the specialty spaces because that’s where solutions tend to emerge first.”

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That’s why Catlin, in its position as the leading insurer at Lloyd’s, the global epicenter of specialty insurance, made so much sense as a partner.

“I upgraded the stock on the day they announced the deal, so I like it,” Gallant said.

Gallant relates that XL and ACE, whose offices in Bermuda are virtually side by side, were both seen as future powers when they were formed.

XL lost ground against its rival because it needed to tend to its problems back in 2008 and in subsequent years. While XL was on the mend, ACE flourished and achieved that early promise.

Gallant views the Catlin deal as XL’s chance to catch up and become a global leader.

“Catlin really pushed them into that category,” Gallant said.

“They’ve got the Lloyd’s business which puts them in every market in the world. So I think the combined company re-establishes XL as one of the top insurers in the world.”

“ACE was well positioned and we were horribly positioned,” McGavick said. “We lost a couple of years and ACE took advantage of those years and a big gap emerged.

“We’re closing a big chunk of that gap.”

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

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

The risk manager for Boyd Gaming Corp. says curiosity keeps him engaged, and continual education will be the key to managing emerging risks.
By: | May 1, 2018 • 4 min read

R&I: What was your first job?

I was trained as an accountant, worked in public accounting and became a CPA. Being comfortable with numbers is helpful in my current role, and obviously, the language of business is financial statements, so it helps.

R&I: How did you come to work in risk management?

Working in finance in the corporate environment included the review of budgets and the analysis of business expenses. I quickly found the area of benefits and insurance — and how “accepting risk” impacted those expenses — to be fascinating. I asked a lot of questions. Be careful what you ask for — I soon found myself responsible for those insurance areas and haven’t looked back!

R&I: What is the risk management community doing right?

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I have found the risk management community to be a close-knit group, whether that’s industry professionals, risk managers with other companies or support organizations like RIMS and other regional groups. The expertise of the carriers and specialty vendors to develop new products and programs, along with the appropriate education, will continue to be of key importance to companies going forward.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

As I’m sure many in the insurance field would agree, Hurricanes Katrina and Rita in 2005 changed our world and our industry. It was a particularly intense time and certainly a baptism by fire for people like me who were relatively new to the industry. This event clearly accelerated the switch to the acceptance of more risk, which impacted mitigation strategies and programs.

Bob Berglund, vice president, benefits and insurance, Boyd Gaming Corp.

R&I: What emerging commercial risk most concerns you?

The fast-paced threat that cyber security represents today. Our company, like so many companies, is reliant upon computers, software and IT expertise in our everyday existence. This new risk has forged an even stronger relationship between risk management and our IT department as we work together to address this growing threat.

Additionally, the shooting event in Las Vegas in 2017 will have an enduring impact on firms that host large gatherings and arena-style events all over the world, and our company is no exception.

R&I: What insurance carrier do you have the highest opinion of?

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With the various types of insurance programs we employ, I have been fortunate to work with most of the large national and international carriers — all of whom employ talented people with a vast array of resources.

R&I:  How much business do you do direct versus going through a broker?

We use brokers for many of our professional coverages, such as property, casualty, D&O and cyber. We are self-insured under our health plans, with close to 25,000 members. We tend to manage those programs internally and utilize direct relationships with carriers and specialty vendors to tailor a plan that works best for team members.

R&I: Who is your mentor and why?

I have been fortunate to have worked alongside some smart and insightful people during my career. A key piece of advice, said in many different ways, has served me well. Simply stated: “Seek to understand before being understood.”

What this has meant to me is try everything you can to learn about something, new or old. After you have gained this knowledge, you can begin to access and maybe suggest changes or adjustments. Being curious has always been a personal enjoyment for me in business, and I have found people are more than willing to lend a hand, offer information and advice — you just need to ask. Building those alliances and foundations of knowledge on a subject matter makes tackling the future more exciting and fruitful.

R&I: What have you accomplished that you are proudest of?

Our benefit health plan is much more than handing out an insurance card at the beginning of the year. We encourage our team members and their families to learn about their personal health, get engaged in a variety of health and wellness programs and try to live life in the healthiest possible way. The result of that is literally hundreds of testimonials from our members every year on how they have lost weight, changed their lifestyle and gotten off medications. It is extremely rewarding and is a testament to [our] close-knit corporate culture.

R&I: What’s the best restaurant you’ve ever eaten at?

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Some will remember the volcano eruption in Iceland in spring of 2010. I was just finishing a week of meetings in London with Lloyd’s syndicates related to our property insurance placement when the airspace in England and most of northern Europe was shut down — no airplanes in or out! Flights were ultimately canceled for the following five days. Therefore, with a few other stranded visitors like myself, we experimented and tried out new restaurants every day until we could leave. It was a very interesting time!

R&I: What is the riskiest activity you ever engaged in?

I am originally from Canada, and I played ice hockey from the time I was four years old up until quite recently. Too many surgeries sadly forced my recent retirement.

R&I: What do your friends and family think you do?

That’s a funny one … I am a CPA working in the casino industry, doing insurance and risk management, so neighbors and acquaintances think I either do tax returns or they think I’m a blackjack dealer at the casino!




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]