‘We’re not in business to subsidise stupidity,’ says Jim Stanard as he reflects on 50 years in risk

Jim Stanard is one of the risk transfer industry’s legends and true entrepreneurs, and has made an indelible and lasting impression on the industry.

After an early career with the Prudential in the US, Stanard followed mentor Paul Ingrey to found F&G Re in 1983, initially as a unit of USF&G. Later, he joined the parent company to help with a turnaround scheme before being tempted by the opportunities in the reinsurance space in the aftermath of Hurricane Andrew.

That led him, in 1993, to form RenaissanceRe on Bermuda. Despite being one of the smaller startups of that period, the company went on to become a pioneer in the development and application of catastrophe risk models and achieved an almost unparalleled record of profitability. By the time he left in 2005, the company’s market value had increased from $140 million to more than $3 billion.

At this point, and with that track record, many expected him to retire. However, Stanard again confounded the market by partnering with another industry veteran, Rod Fox, to form a new reinsurance broker: TigerRisk Partners, which is now a top five reinsurance broker globally.

In 2020 he stepped down from TigerRisk and, through his venture capital business Pelican Ventures, he masterminded the buyout of Ariel Re from Argo. He remains chairman of Ariel Re and has ambitious plans for its future.

In some ways, however, his career in reinsurance is currently taking a back seat in his life. In recent years, Stanard has found the time to return to one of his original passions: music. In October 2020 he released his second album, “Color Outside the Lines”. He also somehow finds to the time to be a trustee of the Bermuda Institute of Ocean Sciences and a director of Habitat for Humanity International.

In a Fireside Chat on Intelligent Insurer’s Re/insurance Lounge, Stanard reflects on everything from his music career to how he tumbled into the re/insurance industry, what he has learned along the way, his pride in some of his achievements and the importance of a good mentor.

Tell us more about your career in music.

I spend more time on music now than I do on business. Before the pandemic stopped live music, I was enjoying playing live at local bars and coffeehouses. I spent a lot a lot of time doing that.

I’ve always liked music. I grew up in the 1960s very interested in music and hearing Bob Dylan, going to Woodstock and enjoying the scene. I played guitar back then, but then I put it aside and life got in the way.

I challenged myself to get back into it, to see how far I could take it. The first thing I did was get some good instructors. I was very fortunate to find some great mentors—for me the most important one is Kip Winger [of rock bands Winger and Alice Cooper].

Winger is also a classical composer, with a Grammy nomination for one of his classical pieces. He is an incredible musician who has helped guide the steps I’ve taken and encouraged me to do the albums. I couldn’t have done it without his help and encouragement.

I do realise that being a professional musician is very hard. The money they make, especially now with streaming, is not that good. I feel I dodged a bullet by not taking that career path.

My music is informed by my life experiences, and I write about things I’ve learned in life along the way.

How did you end up in the insurance industry?

I wanted to be a maths major, but I didn’t know that there was anything you could do with a maths major besides teach maths. Then I heard about this amazing career called being an actuary, where they would pay you to take exams. That was a deal I couldn’t pass up.

It is a great industry to move into. Both my kids are in the business—I didn’t encourage them to go into the same thing as their dad but after the financial crisis it was hard to find good jobs and there were opportunities in re/insurance.

I feel lucky to have had a number of very good mentors. The first was Paul Ingrey, who I met at Prudential Re. Paul brought me to USF&G Re. I was pretty scared about that, but I had a lot of confidence in him.

It was the best decision I’ve ever made. I got to see how to build a company from scratch. That gave me the confidence to do it again at RenaissanceRe.

Another important mentor was Norman Blake at USF&G. He brought me in to help turn the business around. That was a large public company and I learned a great deal from Norm. It was very hard and I was getting burned out. When Hurricane Andrew happened I knew I had to go back to reinsurance because the opportunities were there and I knew how to do it.

Did you imagine that RenaissanceRe would become so successful?

No. I didn’t know how long we would be able to go in the context of market conditions, as I knew we weren’t willing to write business when the prices weren’t adequate. So I really wasn’t sure. We went into it hoping that we could build a franchise, but not sure that we could. We thought it may have only been a window of opportunity.

As it turns out, I was fortunate to attract some top people who helped me build it. There was Neill Currie, Bill Riker and others and, a couple of years into it, we realised we had something that we could build to last.

We started using risk modelling technology. It was very crude then but it was a lot better than not using it at all. That gave us a huge advantage, even if it just kept you away from doing the most stupid deals in the market. The market was very inefficient so you needed only a modest edge to beat it.

We felt we had the edge with the modelling, but we were also very focused on marketing and being client-focused. I had come from a primary insurance company. I knew how primary companies viewed the reinsurance market, what they wanted, and how to treat clients with an appropriate value proposition.

We weren’t going to offer capacity at stupid prices, but we said: “we provide continuity”. Once we got in, we’d stay on at our pricing. Paul used to say: “we’re not in business to subsidise stupidity”.

Finally, we were very disciplined about capital management. The wealth we were creating was for management, and a lot of capital was expensive, so we wanted to use as little as possible.

We were the smallest of eight cat companies that started in that period. There was almost a competition for who had the biggest capital base. In contrast, I wanted to have the smallest capital base because it was costing me a ton of capital. We built our capital through profits: that’s how we grew the company from $140 million to a market cap of more than $3 billion.

I’m proud of what we achieved. My biggest legacy, I believe, is that the company did very well after I left. I was trying to build an institution that wasn’t just about me, that has a culture that could keep going through management changes.

How did TigerRisk Partners begin?

I did contemplate retirement, and I took some time off, but I decided I wanted to stay involved in the business. I liked it and thought I had something to add. My first foray back into the business was when Jeff Greenberg invited me to be involved with his private equity fund, Aquiline.

Then Rod Fox came along. He was a free agent because he had just sold a company for Hannover. We formed a partnership and did a few smaller ventures first, but we wanted something bigger. It’s funny: the grass is always greener. Rod wanted to go into the reinsurance business; I thought a reinsurance broker would be easier.

He cautioned me and I must admit it was quite a bit harder than I expected. I had not realised the barriers to entry in the reinsurance broker sector. It’s easy to start an underwriting operation, but in contrast, very few brokers of significance have started since we started TigerRisk.

We were disruptive in some ways. Any time you start a business, there has to be a competitive advantage. But we were never trying to disrupt for the sake of disrupting. In many ways the most important thing is the culture of the business, respect for the client and the value proposition you offer.

We were smart and creative—we were the first broker to act like a direct market. We used modelling in a very sophisticated way and we were very disciplined about capital management. But it was also about building the culture and having fun when you come to work in the morning, and to ensure everyone in the company understands what the plan is and what you’re trying to do.

I stepped down last year to focus on other things. I love TigerRisk but, basically they didn’t need me any more.

How did the Ariel Re deal come about and what are your plans?

The Ariel acquisition was a deal done by Pelican Ventures. We saw the market opportunity and then the company came available. It looked like a good fit. It was a tough deal to get done—it was the first time in my career I’ve been involved in an acquisition that was a competitive auction, and I’m not doing it again. But we won and I’m very happy with where we’re heading with Ariel.

Ariel started in 2005 and was always a very successful cat underwriter, but it has suffered from having a sequence of owners. The goal now is to build a premier reinsurance risk manager. We have a platform at Lloyd’s and we will be writing catastrophe reinsurance and some other speciality lines.

Our goal is to be top quartile in terms of results for our capital, and in the bottom quartile in terms of expenses. We want excellent quality underwriting but a cost-effective basis for capital.

For me, a hard market is a window to be able to start a business. The hardest thing for any startup is getting the business in the first place. Our challenge is that we have a window where we can get business but we want to build an organisation that can operate successfully, through both hard and soft markets. We have the advantage that as an existing organisation, we have more than $500 million premium already, so it’s not as though we’re starting from scratch.

The re/insurance markets have changed since the 1970s, 1980s and 1990s when there used to be wild swings in pricing. I think the band of hardness and softness is somewhat narrowed because underwriting is more disciplined. At the same time, the availability of capital won’t let the returns get too high.

What lessons from your 50-year career in the industry would you offer?

Well, 50 years is a long time in the industry. It’s funny: some things I thought would have changed, haven’t. Some of the problems we were dealing with in the 1970s are still there.

The industry has increasingly converged with Wall Street. It’s become much more sophisticated from technical modelling and capital management points of view, which seems natural because it is a financial business. There’s no reason it shouldn’t be acting like other financial businesses.

But there are other exciting challenges ahead. The expense ratios have to come down—you can’t have a financial intermediary taking 30 cents on the dollar. Forces will drive expenses down.

The other thing is that data will become increasingly important. There is so much data now available that can be used to assess risk and ultimately be used to market the product. Although there are regulatory and privacy challenges, those will be solved.

My advice to people starting out in the industry would be to find a mentor to learn from. And if you’re in a place where you’re learning, don’t leave. When you’re not learning any more, leave.

The other thing is that the more organisations I am involved with, the more I realise how important culture is. Getting the culture right is absolutely necessary for success.

To watch the full Re/insurance Lounge session click here.