The Not Unreasonable Podcast
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The Not Unreasonable Podcast
Turning Around Two Reinsurers with Joe Taranto
Joe Taranto is one of the most successful reinsurance executives in the last 40 years. He has turned around and taken public two reinsurers who even today are very prominent and successful companies: Transatlantic Reinsurance Company and Everest Re, the latter of which he spent 20 years leading as CEO and 10xing the firm over that period.
Joe started his career at AIG, a firm that has produced some of the most important leaders in the insurance business, Joe among them. We learn what is was like working there, Joe's turnaround experiences, his strategy and philosophy of management and leadership.
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Welcome to the not unreasonable podcast. I'm your host, David Wright and actuary insurance broker. This is a show of interviews with people who have something to teach us about managing our businesses and ourselves. There's a lot to learn out there, folks. So let's get to work. The show is brought to you by beach, right work and have worked my entire career. We are a global reinsurance intermediary. And we pride ourselves on creative thinking, deep analysis and client service. Those three qualities are actually intimately related because you can't spend the energy digging deep into a problem unless you really care about the client. We find that when you really do understand the problem, the solution becomes obvious even if it seems a little bit unorthodox to the outside world at first, then Nature of insurance is to take solutions we know and trust and try to force them on to the problems of the day. We just don't settle for that. You can see further at BGP com. In this interview, we talked a bit about the insurance cycle without actually really discussing what it is reinsurance people are just completely obsessed with it. And for good reason, vast fortunes have been won and lost during these cyclical turns. Hard markets are times when prices are rising in the market for pretty much every insurance and reinsurance product shrinks. In those times, some companies can generate extraordinary profit margins. Others fail, of course, which is the point there's lots of uncertainty. Our markets are pretty rare. So the norm is for the market to be what we call soft. And it's maybe an amusing observation that insurance companies like to complain about the soft market because in those environments, they actually have to compete with each other. When we're thinking about reinsurer. A strategy is simply to write business in a hard market and don't write it in a soft market. That is a bit simplistic and unsatisfying. So one of the themes of this show is to better understand what real strategy is, Joe, of course does a great job on that question when I asked it in our interview. If you enjoyed the show, please subscribe in your favorite app rated on iTunes. And you can also sign up for periodic short updates on content I produce including these shows at web trough web. Dr OUGH comm slash sign up. Without further ado, here is my conversation with Joe Toronto. My guest today is Joe Toronto, chairman of Evercore. Joe was CEO as well until 2014, having been in that role for 20 years growing the company from 500 million to about $6 billion in premium volume. Joe started his career as an actuary at AIG in 1975. Joe, welcome to the show. Thank you, David. So I'd like to actually we'll start a little bit kind of near to the end of, of your CEO ship. Now you were CEO and chairman, and you stepped away from the CEO role, which is a kind of retirement, I guess, semi retirement maybe so certainly you still have a full time job there. But I heard a piece Advice which was attributed to you. And the advice was that if you don't retire by the time you're 65 you're never going to retire. And I'm wondering if you think of it as a retirement and obviously for for somebody you know as accomplished as you are, you're no doubt a very hard and dedicated worker and you know, required a lot of sacrifice through your life. So how does it feel to to actually step away a little bit from the grind and what made you want to do that? Not everybody does. Right?
Joe Taranto :It's interesting to hear that quote come back at me and it's it's it's accurate. I met somebody once that was retiring. And they told me that they wanted to retire before they were too old to retire. And I had to think about that for a while as to what that meant until I finally got it. That if you go too long, at one thing, you kind of just don't know anything else. And so having had a wonderful, active career, I finally just wanted to give myself a chance to do some other things. But staying on as chairman was perfect for me because it really is semi retirement that gives me a chance to continue with the company and with the friends I have and do a lot of the parts of the job that I used to enjoy doing, at the same time freeing me up to do a whole lot of new and different things.
David Wright :And where you were you were building up a bank of things you wanted to do through the time. I mean, there's a mental kind of process as well as a you know, it was for more sponsibility as I'm even looking forward to or apprehensive.
Joe Taranto :I think for every person, it's different. For me, there was some apprehension because I'd worked so long and so hard at what I'd done and enjoyed it, that I knew wasn't going to be simple to fill my time because the way that I used to fill my time and where if there was a whole bunch of things that I wanted to get into, they were still empty spaces in the beginning and I kind of figured that would be the case. But as time has gone on, I've learned how to fill in those spaces with more and more enjoyable things, but still keep the the stuff within the world, the business world that I like to do active
David Wright :What would you say are some of the things you take the most satisfaction from? Because I think about one of the one of the challenges that surprises most certainly surprised me through my progression was, how hard it is to manage and build a business. You know, looking from the outside, you sort of imagine, oh, I could do better than that guy. I'm going to get in the chair, you're like, wow, this is pretty tough. And you've had a series of management roles. I mean, you've been in management, as opposed to kind of on the ground set and actuarial work or execution for for Gosh, 30 years or so as you took the helm at Treasury? What did it feel like when you when you kind of ascended into that role of CEO ship then, you know, within a transatlantic and finally how to you know, tackle the problems for the first time?
Joe Taranto :Well, I I'd say first of all, it's more like 40 years and management, but it's been great and you know, when you get into what's most satisfying, obviously the the success and and the building process and you know, being able to show for investors For every the rest of the world that you've made money and you've achieved goals is wonderful. But for me, I think just dealing with the people was always the most satisfying. Building a group, the camaraderie, the team, the spirit, enjoying successes together, seeing some young people develop where you knew they had tremendous potential, and just bringing them along, to me, forming those relationships. That was just so satisfying, so enjoyable.
David Wright :You know, one of the things I observed a little while ago, I think, was that there was quite a lot of industry leaders that emerged from that actuarial department at AIG in kind of late 70s. Let's say, I wonder if you feel the same way. And if that's the case, what was it that was going on there? Was there somebody who was an early leader there that developed many, many of you in your generation, or was it you I know you manage that department as well, perhaps you can take some credit.
Joe Taranto :Well, there was quite a few of us that did very well, from the actuarial department at AIG and from other departments at AIG, AIG was rather unique in and of itself. But yeah, Steven Newman was the guy that hired myself and a bunch of the others at AIG. He went on to do very well. Brian Cooper was one of the people that interviewed me and was involved with hiring of me at AIG. And we work together and became and are still very, very good friends. But it was a great atmosphere. It was a place where you got tremendous responsibility if you deserved it. It was a place where actuaries weren't just actuaries, if you will, they were considered business people. And they really were expected to help with the business and grow the business and, and they were used by Hank Greenberg and others in ways that many other companies just weren't using actuaries in those days. So it was a great education, and it was a great place to start our career here.
David Wright :What would you say would be a different way that actuaries are used differently than at AIG, as opposed to someplace else?
Joe Taranto :Well, I think in those days, and I'm going back to the 70s. Now, when I first started, actuaries were most involved with reserving many of them weren't even involved with the the pricing side. They weren't involved with reinsurance placements. They weren't involved with the business decisions. They weren't involved with Capital Management, I could go on the list really does go on. And AIG was one of the first places to say, well, we have some bright people that can, you know, think about the business side as well, perhaps in quantitative ways that other people aren't. And they have a great education here, let's put it to use. And frankly, a lot of the people that Hank hired in those days were people that were not just good academically, but had some street smarts as well. And he just saw a way of if they can do it, and I can put them to use in this business world in a very practical way. Let's do it.
David Wright :What was the what was I'm trying to kind of figure out what the difference might be about that culture as opposed to another one because, you know, maybe maybe you don't have too much insight because you work there. And then the only other companies, you've been part of a company that you've built. And so obviously, you're trying to create something in that environment. I mean, how aware were you about what might exactly have been different about the culture there, as opposed to other places?
Joe Taranto :I don't think I was that aware, because I started as a pretty young guy. And at one point, you know, it was a pretty intense place. And years later, people would ask me, Well, how do you work at this place? It's kind of a crazy place. And I would say, well, you mean, every other place isn't like this? So I just didn't know. But I ended up embodying many of the aspects of the culture at AIG. Let me talk a little bit about the culture of AIG because I do think it was rather unique. First of all, you learned about accountability there. If If you could do your job and do it well and do more you will give him more responsibility, but if you couldn't do your job, you were gone. And there was direct talk there. If you messed up at something, you said, You messed up at it, and you fixed it, and you got it right. And if you didn't get it right, the next time, you were gone. There was total focus. There was no fuzzy mission statement. You know, we knew what the goals were, be the best, grow the business, be profitable. And it was maybe the best meritocracy that that I've ever seen in the way of a large company. If you could do more, you were given more. You didn't have to wait until you were gray haired and 65 years old to get a very senior job. I was given the CEO of transatlantic re when I was 37 years old. I was put in charge of the actuarial department when I was 33 years old. This was just the way it was it was let's do what makes sense. The company was growing beyond belief. I start in 1975. It's a peanut of a company. Nobody even knows what AIG is. And I leave 19 years later, and it's the biggest, strongest, most powerful insurance company in the world. For 19 years, that's just an incredible change. And it made for tremendous opportunity that for those that had the ability and the desire
David Wright :Well, well, I wonder what does everything comes with a cost is one of the things that you know, I've learned in life and so I mean, having a culture in retrospect is obvious that it was a good idea, right? So I mean, built an enormous company in your new things you're saying seemed to me to be self evident. Of course, you get people who are good, something, some more responsibility, allow them to grow, because that's going to grow grow the firm, but there must be a downside somewhere I guess you have to fire people. And that's unpleasant, I'm sure. And I wonder if there are people who who are senior people who sort of felt that was their opportunity in were felt frozen out some dissatisfaction. I mean, how, what are the kind of the political costs internally or What's, why aren't more companies like that? Maybe when you're putting this?
Joe Taranto :Well, look, yeah, sometimes you'd move too hard, too fast. And you'd find it might be a mistake. And you'd have to take a step back and regroup. I would say many companies today, just and companies going into the future are not going to ever replicate that model. In fact, that model seems somewhat insensitive, right. And frankly, the world is, I think, becoming more sensitive to people's needs. So maybe it just worked for a time and perhaps some ways on the human side, at times, it didn't work. And frankly, that will it did lead to some good people leaving throughout the years. But for that point in time, in terms of growth, you can just look at what happened for the company. I mean, the return to shareholders for that period was absolutely outrageous. And I will say while you were working in this intention, environment you felt proud of it, you actually were made to feel like you were the elite group. You were the navy seals, you didn't want to work at any other company, you were outdistancing all these other companies by light years. And and frankly, when I did go to visit some other companies and get to know other companies, they seemed very sleepy to me relative to AIG, as crazy and intense AIG was. It was fun. We enjoyed it. And we work 24 hours a day, seven days a week. We were constantly on the go. So it was very exciting. And that's really a lot of what was behind the culture. Not to mention the intelligence and the good people the top that that led to the growth but yes, you don't get that kind of turbulent change without some downside.
David Wright :it didn't change who you were only were you somebody who was just very naturally attuned to that kind of environment or do you feel like you get that that helped to form some of who you are and Other parts of your life,
Joe Taranto :it did to a degree that when I went into that environment, you know, I grew up in the streets of Brooklyn. So there was a certain amount of that that I might have understood. But at times, it actually seemed kind of harsh and a little bit too much for me, I did learn that people have to do their job. And if they're not doing their job, and they're not getting it, right, it's not a good thing to keep them there forever. It's not good for business. It's not good for the person either. So there were a lot of business principles that in the beginning struck me as a little bit harsh and cold. And although some of them I came to see as perhaps the way to, you know, meaningful needed, but I will tell you this when I left to do my own thing, which was going to prove re which became ever history, I actually did sit down and say, Okay, what are all the good things that that I liked about AIG that I think are good for success and what The things that I would change and this certainly were some things that I would change and I thought part of it was on the human side.
David Wright :Yeah, I'm definitely gonna come back to the pre transition because it's fascinating one. I wonder though, if you if you remember, the first person you had to let go, and and what kind of guidance you might have been given in that environment saying, okay, it's Joe's turn, here we go step up to the plate. Here's what you do, Joe?
Joe Taranto :Well, pre read was a very intense situation, and it's in its own right. Let me take a step back and tell you how that formed. Prudential had this organization. And it had been, you know, a failure in terms of profits, and it never made a profit at the law. It had hemorrhaged money year after year. And so they decided they wanted to get rid of it. And the only reason it stayed alive is because the mothership kept putting money into it and finally decided that they didn't want to continue to do that. And so they decided to actually do an IPO and put it out into the market. The trouble was no one in the market would ever buy a company that was losing money hand over fist year after year. So they ended up doing a contract with me. And what was kind of good about that for them was I had a very good track record at transatlantic in terms of building a company making it profitable, taking it public and continuing to have the stock go up because it was doing very well. So the theme on the IPO became to investors don't look at the past because the past proofread, doesn't count. Look at my past, and that will be the future. Well, that all sounded very good. But that wasn't really going to happen with the same culture and the same people that had been they're doing what they were doing. It was a mutual company. It wasn't even dedicated to making a profit. I think most of the people thought losing a lot of money was a good thing, because you were giving policyholders more money back. So when you think about that setting, it was in need of radical change. And frankly, I would say the majority of the people there weren't going to be part of the future that became Everest. Many did adapt. And frankly, everybody was given a chance, an education as to what they needed to do to move into the new world. But I knew from the outset that a lot of people would be fired. And indeed, in just the first three to six months, quite a large percentage of the Pru Re people were let go
David Wright :wow. And one of the sad ways of that plays out is you know, when you first turn up that they're scared, right? And so you have to manage the psychology of that, don't you? on the scale,
Joe Taranto :they were on edge. And for good reason. And and at the same time, I didn't have to be direct and candid about that there was reason to be on edge of people would not make it in this environment.
David Wright :Yeah. Why did you do it? I mean, it's, Hey, Joe, we got this big money, move money losing business. I actually found it. I found an old New York Times article, when I was doing some research for this that said that Pru Re at the time was the fifth largest reinsurer in the United States if I have that, right. So although 500 million doesn't seem like a lot these days for reinsurance, it must have been a significant player at the time was that
Joe Taranto :it was a significant player in terms of the amount of business it did. It was also a significant loser in terms of how much it lost every year. So it had some size to it, but it needed an awful lot of, of change. You know, in our business volume is the easiest thing to get profit is the hardest thing to to get So that they don't coincide. I did it because it was really my opportunity to do my own thing. Yes, transatlantic was, was public. And yes, I was the president and the CEO, but AIG still owned 49% it was, you know, very involved. This was a chance to really go out. Be the chairman and the CEO. Really take the company from the start, build it from nothing and try to make it into something. It was a it was a tremendous opportunity. That Prudential offered to me. They thought I was the right person for the job. Frankly, I thought I was the right person for the job, even when I came into transatlantic and 86. transatlantic had only done business with AIG. So I had to create a whole new company at transatlantic I had to take it to the outside world. I had to build a staff I had to make a profit But then I took that one public and kept it going very well.
David Wright :Why was trans re floated, why did AIG float 50% of that?
Joe Taranto :Well, AIG owned 49% of transatlantic back to inception, it had 51% other partners. And candidly, those partners didn't do that well, in the in the beginning of the partnership, I came in 86, and it was a good time to come in the market was was hardening. And I had a and it only did business with AIG. So I took it into the outside world, I hired a staff. And by that time, I think the other 51% were willing looking to get out and they weren't going to cash in at a decent return because now it was a few years of hard market, they get the IPO bounce. And, and so that 51% wanted to exit, the IPO seemd to be the best way to do that, AIG continued to hold its 49%. It was a great education for me running transatlantic because now I was going to be running a public company. I was going to be doing an IPO with the help of Goldman Sachs. I had to worry about the whole company, the taxes, the investments, you know, the ratings, everything that comes with running an entire company. So it was a great great, great education for me, but in many ways what I did it transatlantic was what I had to do at Prudential re but it was even at another level where I felt it was more my baby. It was tough to leave transatlantic great. I formed a great staff. We were good friends, we were successful. But for me, this was the ultimate going to pru re and everest re and it's proven to be it's even been more my baby than than transatlantic was by by a lot and in Being a great decision
David Wright :at transatlantic you were in. So I guess at the start lots of business, all the business was from AIG. It was partially owned by AIG. And you said that hadn't done so well. So I guess it was pretty good deals for AIG. And so part of that turnaround process would have been giving slightly less good deals to AIG. Would definitely been a part of that. Right. So raising rates that would have put you I would imagine some tension with the AIG organization who was getting a pretty good ride on transatlantic's back for a while before that, if I could put it that way. And suddenly, you want to stop the train was that tough message to deliver?
Joe Taranto :Well, yes, and No, you're right. It all started with AIG has this good business, let's share it as a partnership. It didn't work out as well, initially, as everyone thought, and in part that was also because it was the early 80s, late 70s. It was a lousy moment. Well, nobody did well in that in that timeframe. And that certainly was was was was part of it. But yes, as you got into it, you found be it. As a private company or as a public company, given this, this connection to AIG in terms of ownership in business, it was complex, keeping everyone happy. The outside partners later the investors, AIG, and just making sure that it was the right thing, whether it's private or public in terms of the decisions that you made, so there were some complexities to that. But we worked it out and made you kind of just went to what was the greater good and what is good for investors once we went public and what's the right thing to do? So we there was some navigating in that in those waters. It was cleaner and easier when it was Pru Re and Everest
David Wright :and so the Prudential mothership put down a pretty significant protection to get the business off its books right as a stop loss there which eventually you bought the company that give written you the stop loss that Gibraltar re I guess it was called. I read I read I'd grab that The annual report, the initial annual report that said that I think it was 386 retrocession. errs behind every three at the time when when it was taken public found in the notes and I was just like, mind boggling to me. Wow, that's gonna be Lloyd's I would think but what was there? Was there a big tangle of stuff you had to just unwind from older business or some question relationships.
Joe Taranto :There was a lot of history and there was some question about the history and you're right. Prudential did put some some safeguards in place some protections in place to help with the IPO. So otherwise, it was a bit of a maze that I think investors would have found Aneesh and getting involved with and, and this just made the IPO go a lot smoother.
David Wright :And how so. So you're sitting on a business there now and there's a it's the it's also the raid after Hurricane Andrew in the Northridge earthquake and so significant events unto themselves as bestest is, is is there and it's going to come back a few years later in the late 90s. Not as bad as it was in the 80s. But how was the environment? Then at the time to the other point to make, of course is in the late 90s. It was kind of this legendary soft market, which people many times draw kind of parallels to today, or they happen to that for a little while now. So I'm not sure you know how accurate that would be. But how did you What did you want to try and do to grow that business, then? That must have been pretty tough, and it was
Joe Taranto :a challenge. I took over brewery in 1994. I spent most of the next year reorganizing, hiring, changing, changing the culture. By 95. We were ready for the IPO we did the IPO was 100% IPO Prudential completely exited the market in 95. And 96 was nothing great, but as you pointed out, it got a lot worse 90 790-899-2000 Those were all terrible years and then you had the World Trade Center. I think, really, our mindset was to stay out of trouble. In those years. We really cut back in Are casualty writings, we were always looking for something that we could make a little profit on, there really wasn't much to make a lot of profit on it. We were clearly on defense in those years. But that served us well. And and when the hard market came after it was ignited by the World Trade Center in 2001. We were quick and happy to take advantage of it. And we really put the pedal to the metal in 2000 123, and so forth. How did
David Wright :you how did you know how much you were going to write then? This is one of the things that's interesting to me about hard markets and soft markets is everybody complains about who can make money in stock market when the market turns they also complain, you can't make money, right? But just because the the terms have changed, right? So now it's like, oh, my God, he's blowing up and there is no right price. Here's the key signal, right?
Joe Taranto :That was part of what took place. Then in those severe cycles. You're absolutely right. Things blow up in 2001. And now you have companies that and management's that are just a exhausted by the losses and all the troubles that they have to deal with. And they suddenly become convinced in many cases that certain businesses unraidable. You, as you said, you can't get the right rate, even if even if rates are up times 10. Maybe that's not enough. Let's get back to basic underwriting, let's cut back the book. They don't recognize just how much change has taken place and is continuing to take place and they don't do the math and the project projection to say now is the time to really do well. In fact, you have a lot that's what creates the hard market is so many people saying I better do less business. You know, I better be exceedingly careful in what I'm writing. And, you know, I think we looked at it completely. The other way is, this was the time where rates relative to exposure look fantastic are never going to get better. And, and and shall we can do exceedingly well. Let's go for it.
David Wright :And you made it you made an allusion there to those kinds of hard markets and soft markets. And so the implication there have been you think things might be a little bit different now these days, but I'm wondering if you could lay some context. I mean, how many how many hard markets do you think you've seen in your career?
Joe Taranto :Well, I we saw that the 8586 kickoff, and I saw the 2001 and 2002 I mean, there was something going on and perhaps 77 but I was a youngster. I didn't really appreciate it. Right. I wasn't in a management role where I really was part of it. So it really was the one in the 80s and the early 2000s that I've seen and they were very severe turns precipitated by horrible results that preceded them. And and the case 2001 World Trade Center on top of it,
David Wright :and and these days, things might be different. Do you think?
Joe Taranto :I think things are different today. I think that I think companies are much better in measuring what rates should be involving actuaries with the pricing side of things. Having rate monitoring systems, having risk people and risk committees and having the board involved in terms of where things at and how much risk should we be taking much better data to sort through to try to figure things out. So it's not that mistakes won't be made. It's not that money won't be lost. There's also plenty of capital right now in the business. And there's plenty of capital ready to move into the business if it needs the capital. So when you start putting all those things together, it says the cycles will be less severe. There may be pockets of up and down, but the up and down won't be as nearly as severe as what it was in the past.
David Wright :What do you think about there's a, there's an I don't know what you call it, an irony. Maybe That I observed amongst public company CEOs and you've been wanting to run recently. So maybe you can let me know if you think about this, where it is a common complaint to come to us to say, there's too much capital in the business. And the there's a, so this is causing rates to go down, we can't make money, it's very hard to make money. But people who run companies have the ability to give capital back and yet none do, right. And so, or you know, that you buy shares back, but the scale of that isn't usually enough to really change the marketplace is designed to not be in fact, and so you would love for everybody else to hand their capital back, you know, massive dividend or sell your company or something like that. And some do, I suppose so. But everybody kind of, it's like a prisoner's dilemma sort of game, right? So you want other people to move first and you can hold your capacity and ready to move in the marketplace when it corrects, and the competitive nature of the business seems to prevent, prevent any kind of market from going any direction other than softer.
Joe Taranto :Well, I think there's actually been more capital, give back And perhaps what you would scope out there. Everest has probably bought back 30 or 40% of its capital in the last five years. And we're very happy that we've done that. We bought it back at prices where it's much higher today than what we bought it back at. So it's been good for investors. And the industry has certainly had more in the way of special dividend and capital buyback than it has. Historically. You're right people sometimes maybe end up with more than than they might need. Although when it comes to ratings and the unforeseen, sometimes a bit more is a good thing is a good thing to have. I think what I'm referring to is capital flows into the business more quickly than ever, whether it's from hedge funds or pension funds or alternate sources, that's on the sidelines ready to come in. If there was some severe opportunity that's more what I was referring to that will limit it Severe opportunity, at least going for a long time.
David Wright :What do you think about one of the one of the stories that I like to tell myself anyway about that capital being much more liquid is that it's really technology enabled. And so many things are you mentioned the point about measuring rates better. And all these things allow for more remote management of process. So you can get a roll up of the cat modeling of it all of an entire book of business, and an investor can look at that, or a pension fund can look at that and say, here's the portfolio average, but you couldn't do something like that 3040 years ago, I'm wondering what you think about call it the technological improvements or changes in the business? In particular, I think cap modeling has been a big one, although I think that you're right to point out that on even on casualty monitoring of rates and, and and monitoring what other people are doing and electronic kind of highly skilled fashion has been incredibly powerful. Do you When did you first notice that things were starting to change? And were you skeptical at first, because you know, hard market underwriting it's hard to underwrite. It doesn't matter what the model says right? it to a certain degree. They're always wrong. I think that psychology is maybe retreating a little bit in the face of all this technological advance. What do you think?
Joe Taranto :Well, I think it's been changing for quite some time. I mean, I look at the last 20, 30 years or so it's just been kind of incremental throughout that period. And I think it's a good thing. I think it it, it can be overused, you are right, that sometimes models become what's believed to be exact science. And it is far from that. When you get to cat modeling, it's, you know, people place a lot of bets on on what some of these models predict will happen. And all too often we find out that they're far from accurate. I mean, we can look at models very recently in terms of what happened in Houston and and in flood losses that just, you know, those models are now being updated to include perhaps so what They should have beforehand. So I think you still need a certain amount of underwriting judgment, I still think you need a certain amount of common sense. We've always referred to it as upside downside, I think you still need a certain amount of understanding that models don't embody everything. There's always the unknown. There's always something that you didn't think about. So you have to infuse that into all of this technical advanced as well.
David Wright :And how do you one of the other another tension that I, I think about a bit and it's reinsurers in particular is it's so hard to know what's going on, I mean, everybody has a model in their head, I mean, you have an informal model as much as you have any an underwriting model the strategy, strategic model, one would say is underwrite when the markets hard and don't so much right business when the markets soft and, and that's a model to in some way. It's hard to define some of those terms sometimes, but it takes a lot of skill. And it takes a lot of judgment. And so I think the best firms and I think Everest is definitely one of these has a deep kind of culture of collaboration. But this, you know, I find that interesting is perhaps a contrast to the culture that you grew up in, which maybe was more competitive amongst people. What do you think about that observation?
Joe Taranto :I think you're on the money. I mean, AIG was a different time. And I think AIG and maybe the industry thought the primary purpose was to write business. And and even if problems ensued, as you wrote more and more business, you'd work your way out of the problem. You'd still have the more business and it would just lead on to you growing more business. And so somehow, meeting monthly production goals was really the mission. And you're right at Everest, we have a culture where it's about profit. You have to be very disciplined to do that. A lot of companies talk about it, but they don't do it. It is natural for underwriters to want to write more business to want to be the biggest writer out there to want to be King of the Mountain to want to be important to clients and brokers. But at the same time that has to be constrained by what makes sense. And what risk Do you want to take? And are you getting the right rate? So discipline is an awfully, it's a vital part of what you need to do, especially in today's world. Furthermore, I think what happened in the in the 80s, and the 70s, and even in the early 2000s, where you're going to have this great hard market to bail you out. If you get in trouble. Well, that's just not the case anymore. You have to figure out ways to make money in today's market. Today's market to me, there's no hard market coming to bail you out. You have to be better than the pack. You have to watch your expense ratio. You have to have barriers to entry to what you do. You have to be able to do what you do better than most everyone else does it. That's the way to do well in today's world.
David Wright :At the same time you do have some kind of growth. Pressure every company will every public company will if you can drink yourself into oblivion that can happen and has happened periodically, where a company just isn't isn't doing anything the stock market the stock analysts like and so they go, how do you how do you balance? How do you balance growth? How do you grow? How do you how do you grow if you know the culture needs to be disciplined because it has to be because you can blow up, you don't want to do that. So the second worst thing is, is you know, just sort of atrophy and do nothing, I suppose, like, how do you grow in a marketplace like this? It's it can be difficult,
Joe Taranto :but I think you still have the mindset of you clearly want to grow, you're going to look for all the options and alternatives that will allow you to grow. It may mean going into new areas. It may be new investments, it may mean mergers and acquisitions. But you never give up the the goal of trying to certainly make it bigger, but at the same time, you're realistic about it, and you're not going to grow into something that's dumb or too risky. And so maybe you have to cut your capital back to to keep The ROI is to be good Ray's ROI is that you, you need to have, maybe you have to go into pausing a little bit longer, because there's no great opportunity at this time, but you think there'll be something more down the road, you continue to look, you have to keep that right mix of trying to move the football down the field and growing. But knowing that in some environments, you can do that in a radical way, in a big way. And sometimes you just can't. So you just have to be restrained about it.
David Wright :I think that there's been a lot of angst about the casualty market in particular, which was super hard and kind of, you know, early 2000s and it's more or less than softening ever since roughly right. And, and there's lots of hand wringing about Oh, now we can't you know, I mean, company's been pulling in and out at marketplaces for 15 years now right? Always thinking over the here's the bottom can't possibly last longer. The Reserve cycle is gonna change I remember reading those articles that were sounded very plausible to me. Anyway, five, six years ago, and Nope. Didn't happen. What happened? Like what didn't happen, I guess is a better way of asking that question. How, in what way? Were you surprised about the market progression since then?
Joe Taranto :Well, I don't know that I was surprised. I mean, the the the casualty market, as you said, you know, 10 and 15 years ago was a very robust market. It was great. It has had a slow erosion, kind of almost every year since then. It has found itself in recent times, very thin in terms of profit margin, if any. Why am I not surprised that it changed? It didn't change? Well, you know, it wasn't so awful that people were being killed or going out of business or getting big chunks of monies disappearing because of what they'd written. Certainly select segments have been, maybe on the claim side to things were a little bit more benign than the world thought it might be. But yeah, we're kind of at an interesting point right now where it does need to change rates need to go up. And the market to a degree needs to correct itself. Which is something it's never done just based on logic, right? It's always been based on on fear. And it doesn't have fear going for it right now.
David Wright :Is there any historical analog, has there ever been ever been a time like this? Maybe it's the late 90s, without 911 or something. I mean, what, what, what?
Joe Taranto :I think in some ways, it is actually unique. I do think each market has to figure out just what it can do and what can't do. And as I said, to me, it's a new paradigm. To me, it gets back to just doing what you're doing more efficiently and smarter than what the rest of the world is. Because I think if you just do it on average, you're not going to have very good returns.
David Wright :What would you say would be the point in your career Where you first started thinking about sales about selling things? Because that's when you're a CEO. You're either selling or hiring more or less. Yeah, big roles you're doing there. Wait, when did you first get? Well,
Joe Taranto :it wasn't an actuarial I wasn't selling so much then. Right. After actuarial, I went into National Union, because I wanted to get into the underwriting side. And I kind of asked Hank Greenberg to put me in a spot where I'd get that education, National Union was was the area of AIG that sold directors and officers liability, professional liability. And I went there in 1984. Was, the market was soft as could be but I was able to be there in 85 and early 86, where the market was changing dramatically, dramatically, dramatically. And talk about a change in the world. I mean, I saw the D&O product in 81, 82 with the world thought it was the greatest thing since sliced bread because you wrote all this premium and there was never had a loss. And then by the end of 84, the world thought this is unwritable nobody could write this product, let's get out of it. It's not you can't do it at any cost claims came in, well, rates went down. Suddenly, in 85, it was changing again, we were getting probably at one point 12 times the rate that we got in 84. But we stepped it up per month. That was January, twice, you know, and February three times is trying to find where the market suddenly Yes. And every CEO and risk manager was coming in to beg us to write the D&O we've clearly went from very, very soft market to a very, very hard market, but I was still the actuary there, meaning that I was still doing the math and I was going back and saying, okay, we ran, you know, maybe 200 combined in 1984. But you know, what, if you raise rates 10 times that you kind of change the policy form. I think that makes for a pretty radical change. This is the time to sell. Let's write everything that we can we can write so I think I've perhaps appreciated it quite a bit there. And then as I said, I went into transatlantic in 1986. And I knew this was the time to really write as much business don't frankly, don't get too hung up on the underwriting. A lot of old school underwriters still wanted to screen a lot of the business and only write 10% No, it wasn't time to write 10% it was time to write quite a bit of business.
David Wright :There is an interesting comment you made there where you said, you went to Hank Greenberg, and you said, I want a new experience. How did that conversation come about? How did you What did you What were you thinking at the time? You felt? I mean, obviously, you had access to him to be able to ask that question, and he had the wisdom to grant it to you. But what Tell me more about that?
Joe Taranto :Well, it got back to AIG. And I think, you know, my desire to grow and fill out and the fact that I'd seen other people before me, including Brian Duppereault, I mentioned who had gone on to underwriting at that point in time and and many of us had done well. In that area, and you had to have your replacement ready to fill in for you, which, which I did. But I think it was just part of the broadening out process that was underway at AIG and I, Hank was the one responsible largely for that process. So it was a pretty easy conversation. And it worked. Well, I got two years of a great base coating of underwriting at National Union and so when the job transatlantic came along, I was much more ready for it.
David Wright :And how and how did you get pegged for that job?
Joe Taranto :That transatlantic? Ah, well, it was the, the fellow that was running transatlantic at the time left to go to another company. And it was a problem. Everything was a problem in 1985. And I was over in London, I was doing something. Hank called me up and said he wanted me to do that. Typically at AIG, normally, it's not much of a conversation you'd normally just when Hank Greenberg calls you up and wants you to do something, there's only one answer to it. But we did actually talk about it. And I was very pleased to take it on even though I knew it was a challenge. I will tell you this it introduced me more to the reinsurance world. I had been a buyer in National Union, but now I was a seller. And it worked out great, because I ended up loving the reinsurance business. It was a whole different world than the insurance side. Suddenly, I think the actuarial side, I could use it a lot more in terms of quantitative analysis, because I'm not doing policy by policy. I'm doing thousands of policies. I love the fact that you could do big deals. I love the fact that you could do it with very few people. I love the fact that it was relationship oriented. Suddenly, everything I'd learned in actuarial underwriting and In the streets of Brooklyn just seemed to work perfectly. And later on a few years down the road, I mean, Hank did asked me to come back to the insurance side to for another task. But I was able to kind of convince him that the best place for me was in the reinsurance he
David Wright :you didn't just say yes to that phone call.
Joe Taranto :No, I didn't just say yes to that one. And that was a little more of a strange conversation. But luckily, it went my way.
David Wright :Yeah. And I don't imagine too many conversations go somebody else's way. With with Mr. Greenberg, you know, he is, if you don't mind just dwelling on that for a second. You know, he's he's got this reputation, right of, of being a tough guy. Yeah, I'm wondering, I'm what ways you misunderstood because, you know, I look at what he built. I mean, that's, I mean, he might be one of the most successful businessmen of all time, honestly. And, and so you don't get that way by being this kind of one dimensional cartoon character, you know, sir, yelling at people or something. And there must have been, you know, obviously, you were felt nurtured there in a certain way. culture was was kind of tough. How does what does the world not understand about Hank Greenberg?
Joe Taranto :Well, yes, he was tough. I mean, the world knows that he was tough as nails. I mean, there's no two ways about it. I think most of the world knows that he was brilliant. I don't think you should be able to look at what he did and achieve without being brilliant. And probably the world knows that he was just dedicated and as hard working as expected that of everyone that worked for him. Perhaps what the world doesn't appreciate is he was incredibly perceptive. So yes, he was very, very demanding. And yes, he was very tough. And you've probably heard of some of the scare stories of how tough but he wasn't necessarily the same way with everybody. There were some that were he thought that was the way to motivate them right or wrong. And there were other people that I think he realized, you know, You have to treat them a bit differently, they're not going to respond to, to that kind of in your face toughness, they respond to other things. And and so actually I have to say I had a good relationship with him many people did have a good relationship with him where he respected to some degree what what you wanted to achieve it had to all work within AIG and it had to work for him as well as you. But yes, some people actually had conversations with him.
David Wright :Right? And he hasn't retired and doesn't look like he will that I wonder about what well of motivation just just as seems to be bottomless with somebody you know, like that and kind of back to back to the initial conversation we had, you know, what, what, what what what do you think makes somebody tick who just won't stop because I think that I can't imagine retiring myself to be honest with you. I love working and I find my life gets I spend more time thinking about, you know, how do I do more things and continue operating, you know, at a high level of quality with all of them. And I just kind of always want to do more. And and it seems that maybe maybe Hank also always wants to do more. Do you know what, what, what is it?
Joe Taranto :Well, you're absolutely right. Hank never understood retirement. And even at AIG when people would get to be 65 or 70 and retire. He just didn't understand it. But what it's like how could you what what are you going to do? And and this is so enjoyable. And here we are taking over the world. Isn't that fun? And we had many people at AIG that were 75, 80. We had a couple of people that were mid 90s. And they were still working and and very senior people and he was very happy about that. So you're right. I believe he's going to be 93 in May. I think I have that right. And he's still putting on the suit and tie going into the office every day and going Russia and going to China and and, and doing his thing and he loves he just doesn't want to do anything else.
David Wright :And there is a there's this meant to be you know the a lot of incentives that he to keep people around and lock them lock them in golden handcuffs not kind of thing there was a TV star entity. I mean, it was a remarkable kind of structure that organization built to keep people there. It must have been tough when you left that for you and for the organization.
Joe Taranto :Well, I was part of that structure, yes to star partnerships, CV star. It was a unique setup. It was golden handcuffs, if you will, where you could do exceedingly well. But you did have to stay with the company and you had to stay with the company until you were at least 65. And frankly, at the end of this structure, you left everything on the table if if you left before 65 so for someone like myself in their early 40s When I left, it was, there's a long way to go. And and, and I did leave a lot on the table, but I was also going to more quiet. And as I said, it was a chance for me to spread my wings and do my own thing the way I thought it should get done. So I just made the decision to leave all that on the table. But it was a unique structure that that many people bought into and many people just spent their careers there.
David Wright :And did you ever hire anybody out of that? I mean, or did you make you know, make a break with your past and did anybody from the old transferee come and join you eventually at Everest,
Joe Taranto :I did hire some people from Trans Re. And Hank wasn't too pleased. As I used to say or still say I said, you know, you don't leave AIG, you defect from it because all of a sudden I was the competition. So we had a strange situation for a while, but ultimately, we worked back to a good relationship.
David Wright :And so, you know, as you're building every story, what what did you What were you trying to find? What were you trying to do? Tell me more about that that experience when you're hiring people and what are you looking for? And what's an ideal reinsurance underwriter or, you know, support staff for you?
Joe Taranto :Well, I'll start with the underwriting side, it's certainly somebody that has some common sense. And it's certainly somebody that can analyze risk, and you have to do it just not only in terms of the rates, that's certainly part of it. So you have to have that quantitative side. But you also have to understand the business of business and what your underwriting and the terms and conditions and you just got to be able to put all that together and frankly, if you're a reinsurance underwriter, you got to be able to negotiate and talk to people and and, and try to get more to your side of the ledger. At the same time, I do it in a way with people that you know, kind of like You and and enjoy dealing with you and feel good about having you on their side and their partner and want to continue to do business with you for a lot of years. So it's a very, it's it's a it's, it's a tough set of criteria that you want for for somebody and and we had some great people at at transatlantic and we have some great people at Everest.
David Wright :And there's also an insurance company at Everest, every streaming service, really, but there was an insurance company and that's that's become more prominent more recently, but, you know, following your time, did you did you? What did you use the insurance company for is reinsurance primarily. And that's always been my view of the main focus of that organization until again, a little bit more recently, maybe. How did the insurance company fit into the strategy?
Joe Taranto :Sure, well, our transatlantic our main focus was exclusively reinsurance and transatlantic, which has been continued well by Bob Ehrlich and Mike Sapnar there, it continues to be pretty much exclusively reinsurance ever. Certainly, the main focus historically had been reinsurance. But as you know, perhaps three or so years ago, we've decided to build a first class insurance operation. And Dom Addesso, our CEO, hired John Zaffino who's who's doing just that, and building an excellent organization. But I think getting back to why it fits in with what I'm saying about cycles and and competition and, and the future of the insurance and reinsurance business. For me, don't depend on some big windfall coming down the road because the market is going to come your way and you're going to realize it and the rest of the world won't and capital won't come in and the world will be your oyster that I think that's a silly way to to plan your future rather build companies that are first class that have first class people that really have first class strategies and and are far better than the average. And, and if you do that, you'll be a winner in any kind of market, you'll do better and better markets. But that really is what the strategy is in, in insurance being highly specialized with highly skilled people and doing it in a way that among the elite
David Wright :Hmm. And you know, growing is always gonna be hard an insurance business even in no circumstances, what would what would you say is, is a first class strategy maybe I don't know if if you can distinguish that with a second class strategy. I'm interested intrigued by this idea of strategy in our business only because so much of your there's not a whole lot of control you can exert, right? Quite a lot of what is there is what's given to you. And you're kind of picking out what you can observe in the marketplace and trying to just make good decisions. But I don't know if that's strategy so much or if that's just good tactics. I don't know what you think about that distinction.
Joe Taranto :Well, I think you got to put it all together I'm going to company is 1000 different decisions and things that go into it just you know figure out doing try to do everything better and then that'll become your strategy. But let's start with something simple like expense ratios. I mean, you certainly don't want a company that's you want to be streamlined, you want to be efficient you want you it has to have it roll but if you don't want it bureaucratic, if you want to be able to move there are tremendous differences from one company to the next just there Well, I would say some have a big competitive advantage over others that that really spend where they need to spend and don't spend where they don't need to spend and and have the right culture to keep things as I said, not bureaucratic. But then beyond that the right people have the right specialties. I mean, some lines of business that that we have are just it's hard to be particularly specialized and different but other lines of business. I think the quality of the people really makes a huge difference.
David Wright :Now one of the things that's definitely happening out there is consolidation is driving larger organizations not happening reinsurer, insurer and broker side for that matter. How do you stay not bureaucratic, when you double the size of organization, I mean, your efforts will no doubt be much larger in terms of the number of personnel there. The the, there must be some amount of, I don't know, a feeling of needing to know what they're all doing. And anytime management wants to know something, they must create a bureaucracy to manage, you know, to manage the flow of that information. You only talk to me once, how do you how do you stay small as you get big?
Joe Taranto :Well, I think it's very important to to stay not bureaucratic. You know, when I took over Prudential re, we had, oh, I think something like 800 people and a few months later, we had 450 bow and when I went To the IPO, one of the questions that I would get is, how in the world can you do what you need to do with so many less people? And my answer was, we're going to do 100 times better what we need to do, because of the way that we're structured today, we don't have nine layers that we're has to go up and down the chain to figure out what the answer is to, to an issue. We don't have countless committees that dwell on things forever. We have a culture that's flat, and and and flat is good. Flat makes us more efficient. It makes us smarter, it makes us better and it's just the right people that are handling things. So that's, I think, what you want to be and yes, as you get become a bigger organization that becomes more challenging to keep that but I think you always want to keep that at your core
David Wright :was AIG flat?
Joe Taranto :AIG was remarkably flat. It prided itself on its expense ratio, and it had the lowest expense ratio in the business. And it was incredibly flat for an organization of that size.
David Wright :And so obviously, that you're taking inspiration from that experience. Is there is there some kind of wonder about you mentioned accountability earlier on as one of the key values of AIG and again thinking this idea what's the downside of this I mean, I'm not people must screw up you know, if you have if you don't have the bureaucracy, bureaucracy I think it was designed to insulate insulate any kind of organization from making mistakes right so we're gonna put a lot of eyes on this and and let the bureaucracy stifle innovation because it's also going to stifle bad ideas which a lot of ideas or bad ideas right so about more bad ideas one would think would get through. How do you deal with failure in an organization that's flat with lots of accountability, accountability, sedition, maybe just fire them? I don't know what you think.
Joe Taranto :Well, no, you're right. I mean, AIG sometimes would go fast and furious, and and at times, that would work out and the times that wouldn't work out and had to be fixed, repaired, changed. Perhaps people had to be changed as a result of that you had to get the whole formula, right? It's, it's, it's by no means simple. But I think, you know, for us at Everest, it's it's wanting to make decisions not wanting to have committees kill everything and innovation and, and play everything so safe with non decisions that that's just not the way to run a company. But at the same time, you want intelligent people making intelligent decisions and and and even though they may get some of that wrong here and there, you want people that you know, we're going to get it right most of the time.
David Wright :So So now that's changing about the marketplace these days, that you need good people making good decisions, of course, and we're kind of running low on time. So I'm wondering if maybe we can suggest what you think is different about about that. So what are the intelligent people need to do? differently in the coming few years, you know, as they they might have in over the course of your career, say over the last 10 or 15 years what's what's changing?
Joe Taranto :Oh, I wouldn't know that that part is changed so much. I think that's still collaborate with people that that you that have a lot to offer and use common sense. I mean, I wouldn't say that part of the world is something that's really changed.
David Wright :It's what what has changed then, what is what is what is different about about the environment that we're working in now?
Joe Taranto :Well, I think I said some of it, you certainly have more data at your fingertips, you have more input to everything. You have sharper competition, you have less cycles that are going to bail you out. You have a lot of things that are different, and recognize that it's different. It's a different game, and you have to be prepared to play this different game differently going forward.
David Wright :My guest today is Joe Toronto. Joe, thank you very much for joining us. Thank you. Thanks for listening to today's conversation. If you enjoyed it, please leave a rating and comment in iTunes. It helps others discover the show. Go to web troff web at RGH comm for the show notes and other content by me. And if you want to join my email list to get notified when a new episode of The not unreasonable podcast becomes available, you can sign up at web Croft comm slash sign up. Thanks again.