Insurance Executive

Six Questions for Michael Sillat

Ethos Specialty Insurance is launching into the competitive, but potentially lucrative program business as an MGA. R&I queried Michael Sillat, the CEO of this Ascot Group subsidiary, on his hopes for the launch.
By: | March 12, 2018 • 6 min read

R&I: The program business, as we know, is a growth area in insurance. Why are you enthused to be heading up an MGA in 2018 and beyond?

Michael Sillat: It is very much an opportune time to enter into the MGA space, especially if you can do so with some compelling advantages in terms of the business partners supporting such a venture. Ethos is a subsidiary of the Ascot Group Ltd. (AGL) which is owned by the Canada Pension Plan Investment Board (CPPIB). Ethos operates as a separate entity to the other AGL businesses, namely Ascot Underwriting Limited (Syndicate 1414 at Lloyd’s) and Ascot Reinsurance Company Ltd. (Bermuda), we have very strong capital backing and that’s quite important when you’re building out an underwriting infrastructure and need not only the time but also the resources to build that foundation properly and for scale.

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Ethos is independent and while we sit alongside the Ascot Syndicate and Ascot Re, we are not mandated to trade with each other, in fact, and Ethos was founded with the express intent of engaging third party capital providers for capacity, which we are doing today. That being said, when we are in the London marketplace or any of our carriers are seeking to buy reinsurance, we are happy to show either AGL entity the business just as we would any other capacity provider, whether it be directly or through the many intermediaries we have great relationships with.

R&I: What sectors or types of businesses are attractive to you from an underwriting perspective?

MS: The best way to answer that would be to look at what we have already built in terms of business units. Currently we are engaged in three verticals: M&A transactional Liability Insurance, E&S Primary, and Excess Property and Specialty Business. The M&A line is led by Navine Aggarwal, who has with him a team of 9 underwriters. This team is in the market writing R&W business and select specific tax liability and contingent liability products.

On the property side, we have a senior leader, Michael Carr. As Michael executes his property strategy, it will consist of a bifurcated approach between shared and layered and middle market business, written both on a primary and excess basis and covering myriad classes of property business.

Every one of our staff was chosen for a specific reason. They come from either a long standing career in the MGA world, or a successful career within the insurance carrier space, whether it be underwriting, actuarial experience or administration.

Our third business unit, headed by Joe Calise, focuses on a wide array of unique opportunities in the specialty sector. Products in this sector can range from niche single-peril or single-class products to large scale programs requiring specific underwriting expertise. When fully built out, this business unit will cater to a wide variety of products that will serve to address the “specialty” needs of our clients.

R&I: It’s an interesting time to be starting up any insurance business, with price increases starting to filter into the mix for the first time in a long time. How is the pricing dynamic influencing your thinking at this time?

MS: Pricing is no doubt an important component of underwriting, but we feel even more important is risk selection and the intelligence we utilize in allowing the underwriter to being as well informed about the risks being contemplated as possible. For this, technology and utilization of third party data is critical and something we have taken great advantage of.

Looking ahead, as prices fluctuate, we plan to be in lines of business where our infrastructure and underwriting strategy can produce profits in any pricing environment. To that end, if we feel a market is getting to a point where it isn’t sustainable and able to return the underwriting results we seek, then we will not waver in exiting that space. Conversely, when a market hardens, we will be there to provide capacity, and that’s important for our clients to know now and in the future.

All in all, however, we take a long-term view in terms of our pricing strategy and are pleased that as we enter into the market and start building books of business in 2018, we are well positioned in terms of the current market cycle supporting our underwriting efforts as we grow our portfolios.

R&I: One might conclude from the company’s name that you will be an E&S player. Can you help us understand how much admitted business you will be doing?

MS: Certainly, we are primarily engaging in the E&S sector as you can see from the products mentioned as we enter the market place. But by no means will that mean we will exclusively stay in that insurance sector. Our growth strategy is twofold: We will, on the one hand, seek to employ individuals and teams to build out an organic strategy pursuing lines of business we will have strategically decided to enter.

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While many of those could be in the E&S space, they don’t have to be. We could and likely will engage a line of business or an individual that will require an admitted market. That could be in the SME space or middle market space. On the other hand, the AGL group has an M&A team that focuses on potential acquisitions of MGAs. With few exceptions, we can consider MGAs from all walks of life, and as such, it could be quite possible that some of these MGAs deal in the admitted market.

Essentially, whether it be via organic growth or through acquisitions, we do see ourselves engaging in the standard markets as well as the E&S sector and are prepared in terms of our operating systems to handle that business just as much as we are already executing within the surplus lines arena.

R&I: What’s the biggest challenge you face in launching this business?

MS: Our biggest challenge is that we are a new MGA, and as such, we have to earn our way into the marketplace. That comes through taking the right amount of time and investing the required resources to build a strong and capable infrastructure. We have, today, completed that and are operative with a scalable underwriting and admin system as well as a team of senior leaders covering underwriting, actuarial, human resources and finance. Now, we need to earn the trust of our clients and execute a comprehensive marketing/PR strategy so that we can not only introduce our products to the marketplace but also identify the clients and capacity providers that we seek to partner with as we begin underwriting.

R&I: How do you feel your career prepared you for this moment? Why do you know in your gut that you’ll be successful?

MS: I direct your attention to the team that has been and continues to be assembled. Every one of our staff was chosen for a specific reason. They come from either a long standing career in the MGA world or a successful career within the insurance carrier space, whether it be underwriting, actuarial experience or administration. These are people that have seen the soft and hard market cycles; they make decisions that come from a wealth of experience; and most importantly, at Ethos, they foster a culture of “we,” and in doing so, our teams are constantly communicating and learning from each other’s specific skill sets.

In all my years in this business, if you can get that part right and bring the right people together, success is almost assured. &

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now and where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]