The Not Unreasonable Podcast

Ken Brandt on the Impact of COVID-19

June 05, 2020 David Wright Season 1 Episode 46
The Not Unreasonable Podcast
Ken Brandt on the Impact of COVID-19
Chapters
The Not Unreasonable Podcast
Ken Brandt on the Impact of COVID-19
Jun 05, 2020 Season 1 Episode 46
David Wright

Ken Brandt is the co-President of Global Underwriting at Trans Re and in this episode, recorded on June 3, 2020, we're talking COVID-19. In this episode we cover: 

  • What are good and bad outcomes for the (re)insurance market, (they're surprisingly similar!)
  • How the insurance industry might get commandeered by the government to satisfy social aims
  • Ken's observations on working remotely for the past 20 years
  • What do we lose as a face to face industry with remote work?
  • How pandemics are insurable and more!


See show notes at notunreasonable.com/podcast

If you enjoyed this episode you'll probably also like other shows with reinsurance executives: Joe Taranto, Dinos Iordanou, Paul Ingrey, Mike Sapnar (Ken's boss!) and Bart Hedges

Show Notes Transcript

Ken Brandt is the co-President of Global Underwriting at Trans Re and in this episode, recorded on June 3, 2020, we're talking COVID-19. In this episode we cover: 

  • What are good and bad outcomes for the (re)insurance market, (they're surprisingly similar!)
  • How the insurance industry might get commandeered by the government to satisfy social aims
  • Ken's observations on working remotely for the past 20 years
  • What do we lose as a face to face industry with remote work?
  • How pandemics are insurable and more!


See show notes at notunreasonable.com/podcast

If you enjoyed this episode you'll probably also like other shows with reinsurance executives: Joe Taranto, Dinos Iordanou, Paul Ingrey, Mike Sapnar (Ken's boss!) and Bart Hedges

David Wright :

My guest today is Ken Brandt, co president of global underwriting for transferring. Ken started his reinsurance career at employers reinsurance Corporation in 1993. As a facultative underwriter. He held a number of management positions in the US and Europe and was president of the Americas and Asia Pacific division prior to joining Treasury in 2006. Since joining trans re he launched and led the formation of their direct team later led the North American underwriting team and the Americas team and now runs the underwriting globally along with Paul Bonnie. Ken, welcome to the show.

Ken Brandt :

Thanks, David.

David Wright :

So we're recording this on June 3 2020. admits significant turmoil in the United States during the COVID-19 epidemic and now riding across the country extraordinary stuff in the last week. There's a real big range of potential outcomes here both for society and also in particular for the reinsurance and insurance industry seems like a go a lot of different ways. And, and it will take a little time to play out. What I'm wondering about is your position as senior man At a global reinsurance company, what what do you think of as the best realistic market scenario for for trans re over the next couple of years?

Ken Brandt :

That's actually an easier question, I'm sure then more questions that you're going to ask I think our best and now I think more realistic market scenario is we actually get paid appropriately for the exposures we're taking on. And that hasn't really been happening over the last 345 years, you know, for the past handful of years of reinsurance markets become very soft across almost all business lines. And this off market, obviously also applied to the insurance market. But, but reinsurance returns, I think we're particularly weak. I think it's reasonable to say that in a quote unquote, normal cat year, whatever that is, but a normal level of cat losses. reinsurance is a is or was a low too. Mid single digit RV business. And now that's just not adequate for the exposures we're taking on and certainly not sustainable for a long period of time. And by the way, we haven't had a normal cat year and sometimes that was 17 1819 and 20. You know, we're in the middle of a lot of cats. So over the next couple years, I'm actually pretty bullish while I can predict cat activity. I'm pretty bullish that there'll be solid reinsurance opportunities that allow us to actually price it for the exposures we're taking on and that there's good insurance, pricing momentum in the market, and they'll be reinsurance pricing momentum and the opportunity to provide our customers with, you know, quality return solutions at a fair price is probably better, better now than it has been in the last decade. Why? Well, that's a good question. Why we you know, it's not like someone woke up and announced, let's alter in the market together. You know, it's coming from pain and anticipated pain. So if you look at what was happening, pre pandemic, the market was already moving in several large areas, particularly in the US, particularly in casualty lines. Do you know public Do you know lines, you know, original market rates were going up 20 to 30%. According to our customers, reinsurance terms weren't really improving that much. But certainly, the insurance market was moving rapidly. And it was doing so because of a couple of obvious dynamics. The first one is investment yields are historically low and now post pandemic, they're going to get even lower that the ability to recognize positive lost development was diminishing, if not disappearing. And there's just a tremendous amount of I think loss, casualty loss, particularly in the pipeline that was coming through and will continue to come through particularly, if you look at accident years, I don't know 2013 14 through 18. There's a lot of loss to be recognized. And so when you listen to different earnings calls and articles, people talk about social inflation. Or you can say it's just lost development or good old fashioned under reserving. There's a lot of loss to recognize in the system, I think, coming through and so the market was moving on those particular dynamics, again, mainly in the US, mainland, Kathy, do you know, lions property have been moving, even in reinsurance, but, you know, not as much as we'd like. So these things were already emotion. I think, what, what COVID does, and this is obviously just my opinion, but what COVID does is it creates a market that experts told me would never happen again. And that is They'll never be another broad based hard market. And that's no longer true, right? COVID shows that the world is phenomenally connected in a lot of ways. And losses are going to hit from COVID on a lot of product lines, not just property, not just event cancellation. And it's global. It's not just one part of the world. And so I think the response to that the response to the unknowns of how all this resolves is going to push what was going to be a harder market, it's going to push it harder, and it's going to likely sustain it longer.

David Wright :

So this is funny situation. And this is kind of one of the things I'm just totally fascinated by, is an anticipating, let's call it better pricing, which is a better pricing in the next couple of years. You're kind of also means you're anticipating a lot of losses. Right and I wonder sometimes about kind of the relative magnitudes of that, you know, like, do does the does the does the pricing firming up actually kind of in a sense pay for the losses that have come in, or is it a net negative or could it be a net negative? I don't know if you have an opinion on that. But it strikes me as as ironic to be looking forward to losses.

Ken Brandt :

Yeah, well, you know, the saying your mileage may vary comes to mind. Sure. Answer. I think it's going to be insurance company and reinsurance company specific. So let's, let's continue to talk about the casualty market. If you were a market that ramped up your writings of, let's say, large casualty, your excess casualty over the last five years. And perhaps you set your loss ratio picks at, shall we say optimistic levels, you're in for a lot of pain. Right? If you are a market that was participating in the casualty arena, but chose to shrink your exposure over that same period of time. And, you know, perhaps you're a little more conservative or realistic on the loss ratio as well, you're still gonna have band? Sure. But it's obviously going to be a big difference between the second example in the first example, so I think it's gonna differ. I think you're right that there, you know, from playing from pain comes pleasure or whatever, there's going to be a lot of pain, but it's going to not be distributed consistently across the market.

David Wright :

And when you said experts predicting, no more broad based hard markets, tell me more about that. So So what would be argue against yourself for a second there? Right. So I think that from your, from your comment there, I suspect that you were a skeptic of that assertion. And but what is the case for, you know, let's say six months ago, for no more broad based hard markets

Ken Brandt :

well Think that I use the word expert cynically, I guess but I never believe that I think that the market has a cycle always will have a cycle. I remember years ago when they said you know a lot of articles about the cycle is dead and the cycle is never dead. But it becomes fashionable to say that at some point in the cycle because it seems to be interminably long, right. So you know, if you look at property, just as property cat as an example, property Kasmin pretty frustrating and challenging and interesting and fascinating all wrapped up in into one, we definitely don't think that the property cap rate levels, again six months ago a year ago, more adequate for for the exposures. And I think that was proven time and time again, that involves the obviously the injection of the capital markets into that product line involves a 10 year run of unbelievable profitability on property CAD and so kind of hard to get off that drug for some maybe it has a lot of dynamics going into it. But there's this seem to be a perception that in that particular market with respect to the cycle, that you know, property cat is, I think supposed to be considered a global commodity where you kind of fill your, your aggregate worldwide and take the benefit of diversification and you know, maybe there's a cat in Florida, but Japan has a good year or vice versa. And that market was deteriorating also because it was no longer being treated as a as a market. And you know, so if Florida had cat losses, Europe didn't want to hear about it. We were fine. We don't have European exposure or Florida exposures. We expect our rates to be flat or going down. Or if Japan had their loss problems, you know, the US didn't want to pay for it, so on and so forth. So became very tribal, very regional. That's not how you can run a property cap portfolio. So it affects that cycle and coming out of COVID coming out of lots of cat losses, you know, there's an argument to be made, that the retro market is been seized up. So all these things are connected, that there's a lot of trapped capital in that market. That now it feels more like it's going to be a global, it's going to return to a global commodity and a global cycle where rates have to go up again, in my opinion, really across the board on cat whether you're a con male, European, a Japanese market or US market,

David Wright :

what do you what do you think those rates are signaling you know, if you look at like some financial theory, which is you know, so I was trained as an actuary and they say your rate should be the forward looking expected cost of your of the of the claims you're going to get from any of this, this this contract, right. And that's considered with financial theory where you take a stock which like discounted value of the cash flows and Bam, that's what your stock price should be. Now, if European rates go up because of a Florida hurricane, what's the mechanism that that that? What does that was the price tell us? Does the price tell us anything? Or am I overthinking this? What do you have any thoughts on this?

Ken Brandt :

Because the price of what tell you the

David Wright :

price of European cat so so like COVID happens, European cat prices go up? What what what is that telling us? is it telling us anything? Or is there a way to interpret that price signal from like a kind of quasi academic perspective?

Ken Brandt :

I don't know if I can give you a quasi academic answer to that question. You know, all I would say is that it recognizes that the capital associated, right with the property cap market is global. It's right. You're not raising German capital to cover German cat risk. It's global capital. And so when that global capital spreads that around the globe to get diversification benefit. And there are events or large event that affects that overall return on capital, then, you know, everyone has to pay. So, remember visiting a Florida a couple years ago, it was after the 17th and 18th losses and, and, you know, I said, you know, what are your returns rate expectations? And I think the client was all genuine. I said 5% or something? And unfortunately, I think he was probably right. That's the real, but you know, and I said, Well, you know, what about this loss? What about that loss? And, you know, he said, Well, you know, that doesn't, I don't think that affects my book, you know, I want to be treated, you know, independently on my book. And obviously, he was putting his best foot forward to get a successful renewal. But that's just not how you can price a cat portfolio. Right. So I don't think that's an answer your question but but I do think Cat more than anything else is a very global market and needs to stop acting regionally, or reacting regionally to start reacting globally.

David Wright :

Yeah, I think I think actually is a great answer because it says another way of putting it maybe is to say the cost of capital goes up. And then then that seems to me to make the question sometimes have, well, what were they paying for in the first place? Right. And so I was reinsurance broker for many years. So I've been part of this debate too. So we're kind of replaying it a little bit for the audience. But I think it is interesting because you know, there's there's this you know, you're charging a whole bunch of money last year, and now we're gonna charge you more money next year, even though nothing changed with me, because your cost of capital went up. Does that mean you got it wrong? Right. So there's a certain amount of loss to the price.

Ken Brandt :

Yeah, I mean, we have not gotten it right and nor will we get it right. I mean, you are an actuary, right. So you will be the first one to admit that when an actuary gives you a loss projection, the only thing they can tell you with certainty is that that loss projections, incorrect. Higher or whatever. So So yeah, I lost my train of thought there. But But if you think about the property cat market, and if it continued to be regional, I would have that same meeting with that same client in Florida after Florida loss and say, well, bad news for you. You're gonna have to face the brunt of loss. Yeah, the thing I wanted to mention is is Yeah, you know, listen, every cat seems to be a new surprise, right? So that's hard to price in. Or if you do price, then it's hard for the market to pay that price for unknowns. But if you look at property cat from my vantage point, I mean, there's kind of three buckets of loss. There's the ones that we expect, and have experience with and try to price to the best of our abilities. So that's like wind and quake and fire, right? So we're comfortable with that we're comfortable. If you can ever be comfortable taking losses on making adjustments and not overreacting. And then there's a group of coverages that we know are in there. We just haven't been paying attention to wildfire. Right flood, you know, so coverages like that, you could write civil commotion. Right? So we know the coverages are there, there's no denying that, but how we really been modeling them correctly, haven't really been pricing them correctly and thinking about our exposures. So those tend to be strong reactions post of that, like wildfire. And then there's a third group of, I'm going to call it coverages, but they're not. And that's stuff that we never intended to cover, right. We knew the exposure existed, but it was not our intention to cover this. So therefore, we didn't price it. We didn't factor it into our overall portfolio exposures. And that's like cyber and pandemic. So, you know, it's depending kind of where the where the losses coming from that determine how the market reacts to certain extent, you get you get, you get an earthquake or hurricane, even beyond the model expectations. I think there's a more rational response, or at least a more confident response in the pricing. You get losses on wildfire and you're burning down entire towns, you get a much more, you know, vigorous response in your pricing. You get losses from silent cyber or now potentially global pandemics where you weren't expecting to provide coverage, you're going to get another probably stronger response on that.

David Wright :

So when folks are saying COVID is going to trigger a broad based hard market, then with that interpretation there might be we're going to get losses from COVID. We weren't expecting anything like COVID, who was, we don't really know where those losses are gonna come from as a result, and so we just aren't sure what we're sitting on yet. And until we figure that out, we don't know how to price it in. So we're just gonna have to pad these suckers for a while. Is that?

Ken Brandt :

Yeah, well, I mean that. I don't reject that thesis other than the Word Pad, because I don't know if you are. Right, you might be sure, sure.

David Wright :

Yeah, no, you're looking your finger and throw it in the air being like, I guess we'll do this.

Ken Brandt :

Right. So by definition, if you don't know how it's all gonna settle. It's certainly very, very difficult to price and assess. And everyone's going to have to kind of draw their own conclusions about their own portfolios, you know, and, you know, stuff like, how does event cancellation? How is that as a market going forward? I don't know. Right? I know the answer to that versus some other lines that you're just going to be able to work through. Right. And you Maybe it's prize, maybe it's coverage, you know, but probably a easier solution than other lines. You know?

David Wright :

Go finish, please. Good.

Ken Brandt :

I was just gonna say the biggest unknown or the biggest danger of the business potential exposure is been written about incessantly now, as is the business interruption on property. Yeah. And that and that's really going to have to have that's gonna have a lot of ramifications. And it's going to have to have I think, relatively early solution before we even know what the business interruption losses are. Because it's going to be a key ingredient to getting the economy's back.

David Wright :

Yeah. Well, there's this I was talking to a guy in my town here who owns a climbing gym. Right? So he's in the fitness industry, pretty empty place. Right now his business and he's, you know, going through all the things that we've read about right so payroll is all part time employees, and their All gone. And you know, he's taken out one of these loans and stuff and and he said, You know, he said the loans are a terrible way to do to do this and act this policy. What they should have done was they should have legislated payouts on the BI and then just nationalize all the insurance companies. Yeah. as kind of an elegant and I just thought of that yet I was like,

Ken Brandt :

and he voted for Bernie Sanders in the primary. You know, I don't think he did,

David Wright :

because I think he was coming. I think he was coming from I'm gonna give him Let me give him credit here. So I'm gonna say, okay, so if you think like, just superduper like just logic chain, you know, it does kind of make sense, right? Because you don't need to actually apply for something else. And you know, I don't know how much you've dealt with the government probably a fair bit since your insurance company. You know that it's not exactly straightforward all the way to get get access to this stuff. But you do know you have an insurance policy. And if the government says we're just gonna pay all the big claims for for everybody, and that's just winds up being just a cash transfer mechanism. And I think there's a lot of like, very important complexity as to kind of, well, how does this exactly work? that maybe is the reason why we haven't done it. But it was simple. And what struck me about that was suddenly, you know, in a time of extraordinary crisis, right, it's like you can just get commandeered. You know, it's a good cop pulling a gun on you saying, I need this car. Can you give him your car? And he goes, yes, after the bad guy, like I've seen in movies, I don't really happens. But yeah, in theory could happen to any asset in society.

Ken Brandt :

Yeah, without a doubt, and has happened in history. And yes, the flaw in the logic of your friend is he thinks he's commandeering some type of high performance. And he's gonna get in that car and find out he can only go 20 miles an hour. So and what I mean by that is, it does, there is some type of, I don't know, intellectual nicety the saying, Well, listen, all these businesses have generally They all have some type of property insurance. And for those that have bought businesses, interruption insurance in any form, or maybe even those that happened, we'll just funnel the business losses through the insurance companies, because they're set up for that there's a policy there, you know, so, you know, if there was someone who didn't buy any policy, well, they're out of luck. They should have bought a policy. So yeah, bad outcome. The problem is, is the extent of the losses, the the number of businesses that are involved in this the massive hit to GDP, and the ongoing need to make these types of payments, there's only one entity in at least in the United States set up with an infrastructure that can make that many payments that frequently and that's the federal government. So you can take and listen I travelers can call me and yell at me later, but you can take one of the most sophisticated largest commercial insurance companies in the country that being travelers, and I think travelers say they would have a difficult time. I think, you know, fulfilling expectations of paying off everyone's business interruption, losses through even with a government, you know, financial support through their infrastructure. That's a it's a lot bigger haul than it sounds like. Yeah. I mean, the government's designed right through social security and through tax and through all that kind of stuff. They are designed to be able to make massive payments to the public as frequently as we need, at least they're supposed to. So I still think that's the infrastructure to lean on. If you're going to go for that type of solution, where it's a it's a socialist nationalist type of solution. Yeah.

David Wright :

How about how about this idea of what a realistic like worst case or lesser case would look like over the next couple of years? We talked about what might go well, what what is a downside Word realistic What do you think could happen that ain't good for for for the market or for trans?

Ken Brandt :

I mean, let me without a doubt the worst worst worst case scenario, not just for transfer the industry is what we're kind of hinting at here and that government or legislature's retro actively push in business interruption coverage where none was intended. Yeah. To me, that's what do they call it when the meteors supposedly wiped out the dinosaurs function level event? Yes, that's an le, you know, the industry is not capitalized for that, or will ever be capitalized to take on a large portion of the damage done to GDP by a global pandemic. So, now, I don't think retroactive coverage is going to happen. But that's still not resolved. But that would be a very, very bad outcome for translating for everyone else in the industry. Outside of that, you know, I think a worst case for for us and many, many others, obviously, is that COVID losses kind of hit the higher end of some of these estimate ranges. And maybe the market has additional cats along the way. I mean, we're just entering into hurricane season as we speak. Yeah. Yeah. And you know, listen, the reinsurance market either doesn't or can't appropriately relax, react to those types of losses and exposures, meaning that we can't get enough price, because it's not realistic or we can't get improvements in structures because the market doesn't allow it or you know, whatever theory you want. The worst case scenario realistic worst cases coverts bad additional cat losses come in. And yeah, on the cat market or the casualty market, whatever market 1.2 we get improvements, but we're still looking at a low ROI scenario

David Wright :

here and it's fascinating to me about about the answers. If I think your best case and worst case scenario is, is there actually a difference of kind not really do In some type, right, and so it's like the best case scenario like we know we're going to get losses. The best case scenario is the losses are bad enough that it wakes us up. But not so bad that it takes us out. And the worst case scenario is it takes us out.

Ken Brandt :

Right? It's a simple business. David

David Wright :

is right. I mean, it's terrifyingly simple,

Ken Brandt :

really is.

David Wright :

How about different parts of the world? So the United States talking a lot about us here. I know you've got experience in many parts of the world from an insurance perspective, any any different analysis, or is it kind of similar everywhere?

Ken Brandt :

With respect to COVID, I guess? Yeah. Yeah. I mean, listen, I think that if you think about COVID, and think about, again, the business interruption exposure, that's the most relevant market changing type of exposure, I think, you know, there's differences in policy forums around the globe, and that affects how it will resolve itself around the globe. So for instance, I think it's fair to say that in the UK, Canada, perhaps Europe, we found a lot more policies than we thought existed. But we found a lot more policies where the markets were affirmatively granting coverage for communicable disease and the like, than in the US. So presumably, in those situations, you're gonna have losses, but they're going to resolve more quickly, if there's an agreement that coverage was in place. In the US, there is so much coverage. And it's been written about, but I wouldn't say comparatively, there's a lot of affirmative coverage compared to other parts of the globe. The vast majority of commercial policies in the US use isoforms and ISO wording, which in my opinion, clearly exclude the coverage. However, there's still, you know, a fair amount of manuscript POC property policies in the US and the global market that don't use ISO word and so, you know, that's where a lot of time and energy and billable attorney hours are going to go to from this pandemic. So I mean, you script wording, you know, will be unambiguous for sure. Others other manuscript policies might clearly require physical damage to trigger business interruption or might be silent on excluding communicable disease. And there's gonna be a dozen variations in between. So this is going to take a long time to play out in that part of the property market, the manuscript property market. And you know, and given the US is litigiousness, it will be probably focused more in the US. And right and frankly, a lot of those manuscript policies are in place for larger more sophisticated commercial me so they'll no doubt press hard for coverage.

David Wright :

Do you think these the so now that the pandemics happened, right, so we all have this availability bias, right, so we're all going to remember it, imagine where people are gonna buy insurance on it or something's gonna happen or to what extent and how is this insurable? a pandemic is meant to be

Ken Brandt :

yes think it's insurable. But there's a lot of work to be done. And theoretically, theoretically, actually, practically, there's been, I think, read somewhere. There's been 10 or 11 large pandemics or epidemics worldwide in the last hundred years, you know, you could build a model off

David Wright :

of it, like the hurricane frequency, you know, the really top five, making landfall probably can't be too many more than that, you know.

Ken Brandt :

Yeah. So that's, that is doable. So for starters, you know, the insurance industry and other scientific bodies, you know, got it really put a lot of effort into development of models. I mean, generally, that's when insurance place surance market solution stakeholders when there's some type of modeling of frequency and severity behind the underwriting, even if they're only credible. So, you know, I don't know a lot about pandemic models, but you know, I'm sure there's data out there I'm sure it's inconsistent and hard to get to.

David Wright :

But sure you know about it now.

Ken Brandt :

Yeah, you are gonna learn so I think it's modeling. I think also that without a doubt, if society wants the insurance industry to provide solutions that are meaningful for business interruption losses as the example we keep using our hits to the GDP, well, then it's gonna have to be some type of public private partnership. Right. And, you know, again, the private industry cannot take on that type of exposure. Nor do I think it's smart that the, you know, various governments around the world just take on the exposure wholesale, I think when you, you enter into a partnership and you have a solution that goes through the private market, the private market has the ability to, you know, seek price discovery. Tailor coverages provide incentives to mitigate and avoid risk. All those kind of good things come from the private market, not necessarily the public market. I think a public private partnership, whether you want to call a prayer, you know, whatever, I think that's going to be a part of it. So you get that you get a lot of work put behind pandemics. You know, I think it isn't terrible. But I think it's gonna have to evolve over time.

David Wright :

How about evolving kind of political climate here? So we're no protectionism. And it seems to me like a really pretty big story is that there's going to be less international movement of people capital business than before any any thoughts on that how it might impact your business?

Ken Brandt :

Good question. I mean, listen, I guess for the for I don't know how long of a period time there's gonna be less movement of people, not because of protectionism unless you define protectionism. I don't want to catch a virus on a plane. Yeah, individual protectionism in terms of the classical definition of protectionism, Listen, I I'm a free trader. So you know, my personal position is that in terms of how trade affects business, including the insurance business, I'm definitely a free trader, I don't like protectionism. I don't like trade wars. I think the more easily capital product and people are able to move around the globe, the better. And the better it is for business and therefore kind of as a dyed in the wool capitalist, the better it is for society. I know globalization even before the pandemic, globalization is definitely not in vogue anymore. Yeah. And I understand the politics behind that sentiment. I also understand that the world just can't run on business principles. And at times real world conflicts emerge and measures such as sanctions and trade barriers and other protectionist measures are put in place. But in general, to your question I you know, I believe the freer the trade, the more opportunity there is for insurance to grow and for insurance to provide better solutions and protect society against loss. But it you know, it's a it's a real thing as you point out

David Wright :

Do you think anything's gonna change like anything like 10 years from now? What will be different about the insurance insurance industry?

Ken Brandt :

Well think about 10 years ago, the insurance industry looked like it does now. I mean, I think it's been changing a lot with technology and globalization and all the rest of it. So I think 10 years from now, it will definitely change in terms of, you know, how it changes specifically related to the effects of the pandemic or crisis? I'm not sure I'm clever enough to think about that thoroughly. But work environments, I think you're gonna have to change for sure. And, you know, I'm kind of fascinated fascinated by thinking about that. You know, if you're a business like Treasury, you can probably go really far and creating mobile at home work environments and not lose out on productivity or results. No, but you do lose something I was I was talking to one of our insurer tech customers last month in the middle of the crisis, and we were talking about, you know, how's operations going and a lockdown and he says, oh, there didn't go great, you know, or productivity is high or operations are doing well, he has all kinds of KPIs that measure that. And then he said, but you know, I don't have a KPI for creativity. And that's important for his business and the the ability for humans to interact in in place or in a room or even at the watercooler kind of thing. So you were losing that and I'm worried about that. I thought that was an interesting thought. So it's gonna be interesting. I, you know, I think they're definitely regardless of in our region's industry, there's gonna be a lot more at home work environment. And I think that's fine. I mean, our particular company, and we're based in New York in our second largest locations in London, so it's a real life. Real Time challenge for us and you know, we're actively working with our employees in thinking about how we can create environments where we can still come to the office and collaborate, but allow a lot of flexibility for people to work at home. Should they need to, or they certainly in the short term, if they don't feel comfortable coming back to work, so it's gonna be it's gonna be an interesting thing to look at it. Listen, it's easier.I think it's an easier situation for reinsurers over massive insurance companies, right? I mean, and I can't imagine how they're approaching the issue.

David Wright :

Because they just they have people concentrated in offices, and it's,

Ken Brandt :

I mean, I'm dealing I'm dealing with 650 people. Yeah. Now might be in 25 different locations or whatever and you know, but still 650 people and we're all you know, we're not heavy file intensive, it's all online. So we can go a long way if you're an insurance company that has 10,000 people, right? Obviously, that's a quantum level more of more difficulty in terms of making sure your operations are, are done well, and also, you know, even for us, you have to think about going down the road, you're probably gonna have to hire different types of people or people with different traits going forward. You know, what one of the things that the good the bad or, or the good and the interesting is, you know, when everyone's locked down at home, well, it's the experiment is on right, can you individual work at home, we have the technology for you in terms of communication and computers and iPhones and videos and all that kind of stuff. And and does your at home work environment? allow for that? I mean, we're on video conferences all the time, as I'm sure you are. And I've been on video conferences where clearly the one of our employees In their laundry room, because they have a small apartment in New York, so they got what they got to do, and other people are, you know, sitting outside by the pool. So, you know, it's, it's gonna be an interesting dynamic and what we've discovered is, it's good because people have got to kind of forced their ways into how do I create an effective work environment for me at my home, and people are getting through that. It's interesting in that you kind of discover what people you have in the company that really struggle with technology. Interesting, right? And it's not just necessarily you know, the old guys like me. I mean, it's it's more random that some people have comfort with technology, some people love technology. And some people you just thought maybe by an age group all Yeah, they'll be fine. You find out that man, I know that I you know, so all that's gonna change in terms of how you train your people, how you hire people, so it's really going to be a very interesting thing writ large across the globe. Look on

David Wright :

any patterns, you're noticing other patterns other than people who just can and cannot figure out, you know, you and I had a laugh at the beginning of this conversation, but picking up the technology that we're using right now. Any other patterns of workplace productivity that you've noticed, you know, if you could give some advice to yourself two months ago, or three months ago, what would you What would you say about just keeping folks as productive as possible? As environment?

Ken Brandt :

You know, I, I don't think we have an issue. I can't speak for any of the companies. I don't think we have an issue with productivity, I think we'd not listen, we don't have a KPI perfectly. That's not the type of company we are. But I can just tell you that we know this for a fact that our productivity as a team, global team has never been higher. I mean, if we had a KPI through the roof, yeah. And we just know that but there's a real downside to that. Right. And that's more what we're focused on, that people are because they're working on a note at home environment. You know, It's hard for me to get these words out of my mouth, but they're probably working too hard or too long. You're not taking, you know, breaks, they're not taking days off. Mike's Aparicio, was just talking to me yesterday. And he said, and I he's totally right. He's gonna really insist that people take, you know, I want to know what week you're taking off and turning off everything. And just getting ready. I think that's right. So I think productivity is, is not the issue because of our, the way our business is structured, and reinsurance the way our company is at Treasury. And because of technology, it's more how do you get people to get that balance? Where they're, they're productive, productive, but not really burning themselves out? Hmm.

David Wright :

You mentioned London. And, you know, I spent some time in London earlier in my career and much more face to face place, right. I mean, Lloyds, and but also the legacy of Lloyds, not all the companies that you're trans isn't. I don't think you guys have loads in here. You didn't anyway when I was there, and yet you meet people more often. And that's, that's it, you know, there's places gonna suffer more. I'm wondering what if you have a theory for kind of like, what that might do anything? Will it be found to have been all an illusion that, you know, they can work from home just as easily as we can and now?

Ken Brandt :

I don't know. Not not being English. You know, I've been in the London market enough. I remember years and years and years ago, when I was in London, we stupidly moved our office outside of Lloyds from the first floor to the fourth floor. We'd like lost 50% of our submissions, because brokers are unwilling to get in an elevator. It's a it's a really, obviously, historically, as you say, face to face market and that's really important. I wouldn't know how they're gonna adapt. I think that face to face market is great. So many ways, that's why I love going to London. And I would hate to lose that. On the other hand, it's very expensive. And, you know, that's been a perennial problem in Lloyds and other places. And so I would hope that, you know, once we get through this pandemic, once there's, I don't know, some type of reasonable protections, and, you know, mitigators put in place where you can actually get in a room with people and transact. You know, I would hope that Lloyds will lead the way on how to do that.

David Wright :

It seems to me, so as a broker, I there's this article of faith, I guess, that you want to get in front of people, and you want to talk to them about about this, and you have this much more richer exchange of information. I mean, that's just like, psychology of humans, right? When you're when you're in person, you know, the body language, the new ones, all this stuff, right. And the question that kind of sits in my mind here is what does that gain you? From a productivity standpoint, or how, how does that affect your loss ratio? Or your expense ratio? Or? I don't know. I mean, you're saying it's more expensive. But you know, is it more satisfying? And therefore, what are the benefits and and having an IR for we're going to lose those benefits can. And so do we care? Right? Yeah,

Ken Brandt :

I think we do. I mean, I think they're, you know, like in everything in life, there's pluses and minuses to every business model and situation. And I think that face to face engagement is important, right. I mean, I do think you work through problems easier. I think you come to successful outcomes more. I think you tend to make more definitive decisions when you're sitting with someone in a room with a goal of making a definitive decision versus on phone. So I think there's, there's a lot to that. I also think, harking back to my earlier comment about our insurer tech customer, I think There is creativity that we have to protect and nowhere has been more creative in the insurance industry than London, and I'm sure some of them might, you know, might be a little more creative over a pint of beer, you know, or at least being in the same room with people then than on a video conference. So I don't have the solution to that, but but I think I would hate to wholesale lose that. I think the benefit to having more remote. And again, video conferencing using technology is is on the expense ratio. So there, but that's the problem, right? You can't really quantify creative benefits to loss ratio, and business outcomes. You can quantify the fact that you're not going to any industry conferences this year, right? I say x millions of dollars, right? So you don't want to get too carried away and and let the accountants run your strategy. You know, there has to be some type of balance.

David Wright :

Yeah, so you can't put the accountants in charge for a bit. There. mean they're I mean, at least by proxy in charge now, right? So they're shutting everything down, expense ratios are going down, what solicitors carries on for whatever, I don't know, year, two years, five years, 10 years, 20 years, well, how does it fail? What happens? How does what fail? How does this this regime right now fail? Like if we don't ever go back? Right? So it's all remote, no relation, you know, the relationship still there, right. But you only only what you can create online and over the phone, and creativity is, you know, whatever you wind up with, with that, what, what is the negative outcome that stops that from happening? Other than charismatic CEO saying too bad, we're switching back, you know, if the accountants really are in charge, they will never switch back unless they're forced to. Right. Yeah. Which would force them?

Ken Brandt :

I mean, not picking on the accountants, I'm sure they would want. What would force them you know, that's the thing about insurance, the benefits of insurances, you don't get runs on the bank and people buy insurance. It's a critical product for the whole Sure, if, if in a science fiction world, no one could leave their home. For the next five years insurance is still going to be providing products. And yeah, you know, the services are going to be a little different. And I think ultimately, the product development might be a little different. might not be as quick or as creative. But I'm not sure. Kind of macro. You know, like staying at home as added 10 points, your loss ratio, we got to get back to New York and London. I don't. I don't think that happens.

David Wright :

But let me let me try it. Here's, let me try an idea. Just kind of thinking as you were talking, honestly, which is, maybe right now what we're doing is we're spending down relationship capital. We spend a lot of time together, we've developed these relationships with folks and it lets you collaborate effectively, and pandemic starts and you stop all that relationship building. And now you're kind of, you know, managing these relationships through a straw right through online and You know, it's harder. And so eventually, you just start getting along less with people, and maybe more conflict in the workplace, maybe less employee satisfaction people burn out, you know, you mentioned Mike, they're talking about that, like, what are the effects of burnout on an organization? I'm not really sure to be honest with you.

Ken Brandt :

You know, your comment about central to your comment about relationships is a real important one, certainly in reinsurance. You know, I can't tell you and I and I know this holds for everyone. I can't tell tell you how many deals we might do based on trust, right, that a terrific broker, partner or customer calls you to say, listen, we got a problem here, or we have an idea. We really like you to support this. Etc, etc. There's no data to go on. There's you know, or the data looks really bad. And you just have to trust that they're executing in a different way or whatever the case may be. And, you know, if we're honest if someone calls me who I really don't know, I'm less likely to agree to that. And someone who I've been with golf with, had a couple beers with worked with, you know, one personally, over the years, those kind of tough placements are creative ideas, I think generally get done between people who have a really good familiarity with each other and have a high level of trust, this may be go go wrong, but if it goes pear shaped, you know, you won't leave me on the cold. You know, if you lose some or a lot of that down the road, because you just don't know the people, personally, that you're working with that. Yeah, that will definitely have a negative impact. For sure.

David Wright :

Now, you you, I think, live on the west coast, is that right? Yes. And so you've that which is not really an insurance center, you know, compared to certainly new New York, which is where transport is headquartered or London for that matter. It's an

Ken Brandt :

insurance headquarters in my house.

David Wright :

Right. Okay. So now that you've been hoping this for a while with with these related issues for some time, what can you teach us about making it work? Because

Ken Brandt :

I, you know, I can't I listen, I've prior to translate work for ge. And GE was very good. He's done a lot of things wrong, obviously. But I used to brag that and work from Jean, I'm a little ashamed. But one of the things that I think they they were progressive about Is it because it was such a large company. there was all kinds of opportunities to work remotely. And this goes back 20 years. And so it kind of grew up in an environment where you didn't have to be at the office, you could work from your home or you had employees who didn't live near a Metro Center and they were working out of their home and you just work these things out. And so, me and actually a subset of people Treasury I've been doing this for 2025 years. And you just you kind of, I don't know, it becomes organic to you, that you take the opportunity that when you're with people, like at a conference, you have to really reconnect or you know, at a cocktail party or a Christmas party or you know, whatever the case may be, because you're not seeing those people Monday through Friday, right? So you might only see your colleagues you know, three, four times a year so you kind of make the most of it. You know, when you have the opportunity, you obviously work again the technology you work hard you work, technology, hard to make sure that you're connecting with your actuaries and claims peoples and every everyone else to make the right risk decisions and all that so it's, it's, there's no magic pill to it. But a big part of what's worked for me and people like me at our company for the last 20 years is definitely There is a mothership to go to. I work from the west coast, but I'm, I'm in New York a lot. And I have an apartment in New York. And that's important. It's, you know, as a manager, you know, very difficult to do a an effective management job if you aren't seeing your people and meeting with them and engaging with them and your customers. So, you know, I don't, I think the most important key to a mobile work environment is that you have the opportunity to not be mobile, and go to that home office or go to that major office and interact with people. I mean, that's really important.

David Wright :

How about the technology is it's evolved over the course of your remote work history, certainly been an explosion of innovation on that in the last period of time, and probably we're going to see a lot of it in the next few months. Anything that's been kind of really transformative over over your career and easier.

Ken Brandt :

Yeah, mobile technology is made everything phenomenally easier. I mean, when I started doing this, I used to have a beat. You know, page or whatever, and that seemed like that was pretty cool. And then then of course, you know, so the phones and you had your flip phone versus one you get the Nokia flip phone and then, you know, oh my god, what's this blackberry and you know, and then the iPhone and Android kind of just wiped everything away. And so the the, the mobile technology wave the ability to really fly anywhere with your iPad and have everything from all your work emails and files, and movies and books all you know, in a nine by 11. tool that's that's changed everything you can be connected and, and you can have access to all your important information wherever you're at. And so that's huge. And I think what COVID is doing is now it's going to push, I think improve technology work technology at home. So you know, I don't want to work on my iPad. At home, I want to work on my desktop and I want to have an effective teleconference speaker and I want, you know, strong Wi Fi and I, you know, whatever the case is, whatever the tools that we need, I think that's going to probably, and video conferencing, you know, I think that's going to improve and be adopted fairly.

David Wright :

Do you have any routines that make this easier? this remote work that you're you rely on you develop over the years?

Ken Brandt :

routines in terms of work? Not really. I do you know, because I've been doing this a long time and out on the west coast and to your point, it's not really a hub of returns or insurance. I've always had a pretty effective at homework office. That's always been important to me. So when COVID had people like I said, we're scrambling in their laundry rooms to create some space and get a Wi Fi signal I always had, you have a separate building a separate area on my property. I can come here, and it's a regular office, and I have everything I need. And I think there's a handful of people in our company who are similarly situated. And I think what COVID does is it, it shows people who think that they're going to probably want to, if not have to work from home for extended periods of time, they have to create that kind of environment within their own homes some way. And so our company is going to provide them whatever they need, but I think larger these types of industries that serve those types of products are gonna, gonna have to improve and they will improve their product offerings,

David Wright :

and how about with, with respect to like relationships, I think of this, as, you know, one of the things that I try and do is keep in touch with people in order to do that, you know, as you pointed out, if you're running across them all the time, especially in London, then you you, you know, happens naturally, you just talk to them, right? But if you're trying to keep in touch with people, you know, maintain those relationships you're talking about, and maybe it's as simple as you look for folks at a conference because you're at you're a part of your it's sort of served up to us. As an industry. We're kind of thrown into throwing each other too. Gather all the time. And you know, you just said go with the flow still let the kind of I don't know, the culture carry us forward seems to be a lot of that.

Ken Brandt :

Yeah. You know, there's a lot of not business wise but important to the business. You know, we're doing a lot of things socially, online together. Groups of employees, groups of brokers, some customers, you know, we have groups who do peloton challenges all throughout the week, and God knows why they do that, but it looks like they're having fun. We have we have a bunch of kind of movie buffs in our company. And we've kind of stolen the idea from Bill Simmons. You know, x ESPN famous broadcaster who has a podcast called the rewatchable. And what he does is he him and his crew To up a movie, you know, like once a week and like Jaws, right and, and they'll go through the movie, they won't play the movie, but the podcast will be all about jaws and we'll have all kinds of trivia and what happened and all the rest of it. And that's kind of fun to listen to. So we've we've had someone in our IT department who's created our own rewatchable Club and and that's that's a lot of fun, right? 30 people 3040 people sign online it's all video they've been assigned to movie to watch like a kind of virtual book club. So there's a lot of that stuff going on. It feels like it's fun. It's it's good for the morale it's good for the connectivity. Doesn't feel permanent to me, though, right? replacements while you're locked in place. So you know, these are hard questions. How if if the future is more at home, in our industry, how I don't think you do replace the benefits of these in person engagements, I just think it's impossible. So we're going to have to see how it works out.

David Wright :

Yeah, I mean, I remember reading some a piece about New York City that was written after in like 1921 1922 right after the Spanish flu pandemic, which was real bad, right? And saying, oh, New York's dead, right. And nobody will ever want to live there work there because of the flu. And, you know, up until six months ago, that's like, laughable. But we're seeing similar things again. And although I think it is probably the case that society would never have locked down without remote work technology, right, we would have just had to write it out. I don't think they locked anything down. Or maybe maybe who knows what they did. I actually don't know what they did in the Spanish flu. But, you know, we made it becomes easier when a lot of people can actually work from home to actually make these kinds of take these measures.

Ken Brandt :

Yeah, no, I agree. And I also agree with your your analogy. I mean, I do think there's a enormous resiliency to kind of humankind and its need to socialize get beyond these kind of things. And so, you know, you can get quite depressed, watching news channels and only reading worst case scenarios all the time, which we tend to do and insurance and reinsurance. And, you know, I'm not going to be surprised if, you know, whether you want to call it a V shaped recovery or not, you know, whether that happens or not, I do think that, you know, society will get through this, and we'll get through it, you know, as strong if not stronger, because of the need to socially interact with each other. And capitalism is a very strong force that, you know, can work through these things, and I think our industry will, will be no different.

David Wright :

So we're actually gonna run out of time here, but I want to tie back in closing, to the sort of original idea of looking forward and thinking about how we pull through this, and wondering, actually, you know, I've got this this sort of idea that I like to think about, which is just the The idea of people assessing their risk based on how risky the last, you know, five years were right. And, you know, now looking back, certainly next year, looking back is going to look pretty bad. You know, do you think that that it? Do you think that that's actually going to change how people buy insurance buy reinsurance, like, should investors be excited about this? And, and, and, you know, insurance executives as well.

Ken Brandt :

Yeah. I mean, I guess I'll go back to my original answer in the first question. I, I'm fairly bullish. I think it's good to be in reinsurance right now. Yeah. Say that. And I haven't been able to say that for some time. And it's not just a crass. Oh, I think I'm getting more prize. Yes. I just think that there's a lot of, there's going to be a lot of appropriate measures taken across a broad spectrum of product lines and regions that improve the risk return calculation for the end. History. And so whether you're talking about property cat or casually us casually, there was already a fair amount of momentum building and a lot of this. And like I said, COVID is just going to push it forward, I think harder and longer. And, you know, to another questions I, you know, I don't think will overreact. There's always that, you know, potential that you overreact, that you, you build an entire return model based on $100 billion COVID loss and comes in at 20 billion. It's never going to be that clear. But what is clear is going into COVID. You know, certainly on reinsurance, we were not getting appropriate returns for the exposures we were taking on. And but it was building momentum to get better returns. And I think what COVID does is it allows us to actually get appropriate returns.

David Wright :

So one thing one thing strikes me actually about the line of the thinking is that you haven't really talked about supply and demand in your reservations here. And so which I quite like as a framing because to me I mean there is I guess there must be something like dumb capital but I think people over rate that answer that said there might be a class of 2021 yeah right startups or at least side cars or gosh knows what who knows who's raising capital A lot of people are right Allegheny issued a bunch of bonds, your parent company, so maybe the capital will be pouring into the industry. Is that

Ken Brandt :

always a fear? Yeah, right. But you know, listen, I mean, look at I know it's early. But if you look at the like the Florida property cat renewal in June, which is kind of a bellwether for a lot of things. You know, rates went up significantly. coverages were limited and a lot of cases, there was a host of shortfall requests on concurrent terms. Kind of no one really showed up this kind of blump, that type of improvement. Right? And I mean, there, there's a couple markets out there that could have shown up and said, right, we're all in and kind of dampened all those improvements and it didn't happen they could have. But I think they saw it too, that that, you know, we got to get better returns on that particular product in that particular region. But listen, that's the epic challenge of industry, there are no barriers to entry. And capital is going to go where capital is going to go. And we've, we've kind of benefited and suffered from that all at once in our industry. But but we'll see where that capital goes that capital might not be interesting, interested in going into an industry with cyber and wildfires and pandemics and and the threat of legislative rewrites and they might just say, Let's buy some more equity. You know, Because the equity markets rebounding, so it's not no but you're right. We didn't really talk about supply and demand, but there's always the prospect of, you know, a class of 2021 happening.

David Wright :

Indeed, what my guest today is Ken Brandt. Ken, thank you very much.

Ken Brandt :

Okay, thank you, David.