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LeadersEdgeMagazine.com 1
As if he hadn’t proven
enough already by building
one of the most successful
brands in insurance, Kevin
Kelley, then CEO of AIG’s
Lexington Insurance Co., set
an ambitious goal as his 50th
birthday rolled around in
2000: Having run two previ-
ous marathons, he vowed to
complete 10 more before he
turned 60.Preparing for even one 26.2-mile
race is a time-consuming affair, but an efficient runner puts that training time to good use. The weekly long run, stretching from 10 to 18 miles or more, offers ample time for a busy mind to wander, to hatch new ideas, to mull over problems and to imag-ine how different scenarios might play out. And so it was on a long training run through the countryside near his home on the South Shore of Massachusetts, shortly before the Philadelphia Marathon last Novem-ber, that Kelley finally decided to end his 33-year career with Lex and take an offer to start anew with Ironshore, the flashiest in the class of Bermudian startups formed after Hurricane Katrina.
“It was a very difficult decision,” Kelley says, during an interview in Boston. “But one of the things you learn in business is that your instincts are unique and you have to trust them because, if you don’t trust your own instincts, then whose are you going to trust?”
It took Kelley 4 hours, 24 minutes and 48 seconds to cross the finish line in Philly, having completed, at age 58, nine of the promised 10 races. Two weeks later, on Dec. 9, he was introduced as Ironshore’s new
Kevin Kelley moves from Lexington to Ironshore and quickly makes his mark.
Move like a Sprinter Think like a Long-Distance
Runner
By LESLIE WErSTEIN HANN
September 2009
Photo by Frank Curran
LeadersEdgeMagazine.com 2
The Pro-File By leslie WersTein hann
CEO. Launched in early 2007 by robert Clements and other insurance veterans with $1 billion in capital, Ironshore wrote $236.2 million in direct premiums in 2008.
With the fortunes of AIG—and the financial fortunes of its employ-ees—falling deeper into the abyss, Kelley’s decision to quit was not terribly shocking, even for a loyal com-pany man. Still, you have to wonder why a CEO whose track record could land him just about any insur-ance job would join a young company with a fraction of the capital, a sliver of the products and a shadow of the influence he left behind. After building the proverbial 800 lb. gorilla, how would Kelley adapt to a company that was more like an 18 lb. gibbon? Brachiating through the trees, gibbons may shake a lot of branches, but they are surely more fun than fearsome.
The Six Billion Dollar ManAnyone with doubts about Kelley’s ability to thrive in this environment might first consider his roots. When he started at Lexington in 1975, the company wrote less than $60 mil-lion in premium, according to A. M. Best Co. During his 21-year reign as CEO, Lex grew from $918 million to more than $6 billion—all the while spending less and earning more than its competitors. Long before he built Lexington into the dominant surplus lines insurer and AIG’s largest and most profitable domestic unit, Kelley cut his teeth in retail, learning about hard work and thin margins while doing every conceivable job in his father’s liquor store near the family home in West Bridgewater, Mass., a few miles south of Boston.
“Size to me is irrelevant, and man-agement’s management,” Kelley says. “I actually like smaller companies because you have a greater impact on their culture. you don’t have to
modify or rebuild a culture in a company that is young and raring to go.”
Before accepting Ironshore’s offer, Kelley insisted on the freedom to shape the company as he saw fit. “He told me that he understood accountability but that he wanted to be sure, in any position he took, that he was actually, as
he put it, driving the bus,” Clements recalls.
In just a few months, Kelley has put his own indelible stamp on Iron-shore. He reduced its catastrophe exposure; added new lines of cover-age, like environmental and excess casualty; formed joint ventures; and negotiated major reinsurance deals. He attracted $200 million from GTCr Golder rauner, a private equity investor, and a $100 million vote of confidence from existing shareholders. He went on a hiring binge for high-caliber talent, almost doubling the company’s headcount. The day after Kelley became CEO, his No. 2 man and presumed suc-cessor at Lexington, Sean Kelly, fol-lowed.
“My decision to leave AIG was a separate decision from my decision to continue to work with Kevin,” says Kelly, who started out running U.S. operations and was promoted to Ironshore’s president when founder Bob Deutsch stepped aside in March. “The way he goes about the busi-ness is the way I like to approach the business, and this new opportunity to build Ironshore along with this team is, candidly, a lot of fun.”
The way Kevin Kelley tells it, trading dominance for agility is a smart move for these times. He believes that, having witnessed the collapse of financial behemoths, wary business executives will want to spread their risk among a greater number of insurers. “Big blocks of capacity? That’s yesterday’s environ-ment versus tomorrow’s environ-ment,” Kelley says. “Being nimble, having experience and energy, in my view, trumps scale and size. Nimbleness, flexibility, creativity are the characteristics of tomorrow’s winners.”
A cynic might consider such pro-nouncements purely self-serving, coming as they do from a man now swinging a much smaller bat. Wasn’t it only last year that Kelley, in his Lex-ington office a block away on Summer Street, trumpeted the fact that Lex had tripled capacity for commercial prop-erty risks to $1.5 billion?
A lot has happened in that year and a half, but even Kelley acknowl-edges that most brokers have yet to embrace his theory. “I think the more enlightened brokers see the need for clients to diversify their coun-terparty risk,” he says. “As a con-sequence, brokers and clients want to find room for us to be on their programs not because of who we are today, but because of who they think we will be tomorrow.”
JuMp STarTIronshore’s future, as Kelley outlines it, is not very different than the one envisioned by its founders. Iron-shore started out aggressively writ-ing property business in catastrophe zones when post-Katrina capacity was scarce and prices were high, but the long-term plan was always to build a highly focused specialty underwriter operating from diverse platforms. Deutsch launched busi-nesses in Bermuda and the U.S.
early on, and eventually Ironshore got its hands on a Lloyd’s syndicate. But with Kelley in charge, Deutsch says, Ironshore has leaped at least three years ahead of plan. If Deutsch is sanguine about being asked to step aside, it’s because he still owns a siz-able stake in the company.
“Bob Deutsch did a great job starting the company, but he and the entire board recognized that the opportunity to get Kevin Kelley would put Ironshore on a whole different trajectory in terms of its ability to produce a superior return for the shareholders,” says Michael O’Halleran, executive chairman of the Aon Benfield reinsurance broker-age. “Attracting Kevin and his team was a major coup.”
Kelley is recognized not just for his vision and leadership, but his granular understanding of insur-ance fundamentals, his well honed instincts, and his commanding respect from clients, brokers and reinsurers. “It’s a combination of qualities that you rarely find in one package,” Clements says.
It’s also a combination that attracts talent. At a time when most com-panies are shedding jobs, Ironshore grew from 170 employees when Kelley started in December to more than 300 in July. A month after the arrival of “Kelley & Kelly,” Joe Boren and John O’Brien from AIG Environ-mental launched Ironshore into that business.
While the head office remains in Bermuda, U.S. business is the engine driving Ironshore’s growth. With new people constantly squeezing into the office on Boston’s High Street, Kelley is scrambling for new locations.
Fast on the heels of Boren and O’Brien, John Murphy of AWAC (by way of Lex) signed on as worldwide head of global property, and two days later Geoffrey Smith of AIG started Ironshore’s excess liability business.
• l
l Hespent33yearsatLexingtonbeforemoving.
l Inshortorder,he’sjumpedthreeyearsaheadonIronshore’sbusinessplan.
l Heleadsbyexample,saysHankGreenberg.
FaST FocuS
LeadersEdgeMagazine.com 3
[ pro
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The Pro-File By leslie WersTein hann
September 2009 Leader’s Edge
Steven England, Jordan Gantz and Jim Dowdy revved up the U.S. dis-tribution engine, and Susan Kostro launched a program underwriting facility. Tim McAuliffe and Ben Beauvais took on the U.S. specialty casualty business; Anthony Mammo-lite and Edward Mazman joined U.S. property; and Andrew Archambault signed on as head of reinsurance.
It comes as no surprise to Kelley’s old boss, former AIG chairman Mau-rice “Hank” Greenberg, that so many people would tie their fate to his.
“Kevin has the qualities that lead-ers need to have. you have to have the quality that people want to follow you,” Greenberg says during an inter-view in the Park Avenue office of his company, C. V. Starr. “They not only admire you, but they respect you, and he, like all good leaders, leads by example. He doesn’t ask people to do what he won’t do. A good leader also has energy. you can’t, in the competi-tive world that we operate in, be one who is running on two cylinders. It doesn’t work. you also have to have
imagination; you have to be creative, innovative.”
JuST Say noWhile there’s no guarantee that Kel-ley will repeat his Lexington suc-cess, Ironshore’s prospects improved the minute he walked through the door.
One of the first orders of busi-ness was “de-risking” the company. Ironshore now offers less capacity on catastrophe-exposed property and buys more reinsurance. It also diversified into more casualty lines, so property represents 40% of Iron-shore’s business, down from 80% when Kelley started.
Several moves demonstrate how Kelley has adjusted his playbook to a smaller capital base. Tapping his connections, Kelley forged alli-ances that vastly expand Ironshore’s underwriting capabilities. When he saw a demand for excess casualty coverage that Ironshore couldn’t meet alone, Kelley approached his old boss with a proposition: How
about Ironshore and Greenberg’s C. V. Starr create a joint venture to offer a $75 million excess layer to organi-zations that already have $100 mil-lion in coverage. Greenberg didn’t blink. “There was no doubt in my mind about it because I have confi-dence in his judgment,” he says.
Ironshore also capitalized on Kel-ley’s relationship with Berkshire Hathaway’s Ajit Jain and other reinsurers to give the fledgling environmental business a necessary boost. Boren negotiated an exclusive arrangement, in which every Iron-shore environmental policy with a term longer than five years is written on A++ rated paper from Berkshire subsidiary National Fire and Marine.
“Kevin has a very clear vision and understanding of where a company like Ironshore can position itself,” says Lockton CEO John Lumelleau. “The longstanding relationships and credibility Kevin built are serving Ironshore very well.”
Do The righT ThingKelley’s credibility stems from his knack for seeing risks and opportunities that other people don’t. During a shortage of hospi-tal malpractice liability coverage, Lexington came to the rescue with a creative coverage form and excess limits. With his track record and deep respect from underwriters, he could test the waters on new products while ceding most of the risk.
reinsurers also back Kelley because he uses their products
consistently and strategically, rather than jumping in and out of the mar-ket. “In some cases, the reality is that you could buy less reinsurance in the short term and get quicker bottom-line results, but it may not be in the best long-term interest of the overall health of the company,” O’Halleran says.
Kelley won admiration from poli-cyholders when immediately after Katrina, Lexington advanced full policy limits—$50 million, in some cases—rather than waiting for claims to be documented. “you have to have an instinct about the right thing to do,” he says.
Warren Perkins, Jr., vice presi-dent of Boh Bros. Construction Co., recalls the impact of Kelley’s leader-ship when the exodus of insurers
from New Orleans threatened to scuttle major rebuilding projects. After Lexington took the primary layer on the builders risk project for restoring the city’s convention cen-ter, Perkins says, other carriers were willing to follow.
Left unsaid is that, not only did these moves win admiration, the steep premium generated healthy profits.
While many people highlight Kel-ley’s leadership and skill, he often defers to his team. “No one individ-ual carries the day,” he says. “I view my role as generally setting strategy, looking for pockets of opportunity and motivating people to try to make the most of those opportunities while continuing to ask the appro-priate questions and continuing to be focused on driving the appropri-ate results.”
A key lesson he learned leading one company for so long, through hard markets and soft, is that “you have to deal with the reality that’s in front of you, not what you wish to be there.” Sometimes that means increasing exposure, and other times it means pulling back. “The trick is to be able to do both—to be able to grow when the opportunity is there and shrink when it’s not,” he says.
Knowing when to turn the spigot on, he says, is much harder than knowing when to turn it off.
Kelley says he’s made his big-gest mistakes when he ignored his instincts. Case in point: AIG’s troubled entertainment business. “I had to be asked three times to take that assignment on, and while I was smart enough to decline it twice, I was not smart enough to decline it for the third time,” he says. Kelley suspected the business attracted people who cared a lot more about celebrities than underwriting. “Consequently, it was always under-priced, and when business is chroni-cally underpriced, it will always perform poorly.”
Greenberg observed how Kelley’s business instincts evolved over time. “Timing is everything—knowing when to take on risks, even before or when others are reluctant to, when pricing is right, when courage is lacking among others,” Greenberg says, allowing that a certain amount of luck also comes into play.
“Kevin possesses many of those
Career: CeO of Ironshore since December 2008 after 33 years at aIG’s Lexington Insurance Co. Named Lexington’s presi-dent and CeO in 1987 and chairman and CeO in 1997.
aGe: Turning 59 in October
FamILy: Wife, maryellen, of almost 33 years; three daughters: meghan, 27; maura, 24; and Katherine, 19
HOme: Norwell, mass.
r&r: Vacation home on Cape Cod and trips to Italy
BaD CaLL: Booking the Boston Sound—instead of a British band making its first U.S. tour—for a concert he organized to raise money for his Catholic high school’s senior class trip. The band he passed on: eric Clapton’s Cream.
GOOD WOrKS: Board of Trustees of Caritas-Saint elizabeth’s medical Center in Boston, Big Brothers of massachusetts Bay; Cardinal Spellman High School in Brockton (notwithstanding the aforementioned screwup); advisory Board to the Dean of Boston University School of management; and Board of Overseers of WBUr in Boston
[The
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ley
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K
evin
Hu
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Kel
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The Kelley family (from left), Kelley, Maura, Meghan, wife Maryellen and Katherine.
The Pro-File By leslie WersTein hann
qualities, and he honed them over a number of years. you begin to develop a sixth sense. you know instinctively when something is right or wrong. That’s what separates a great insurance executive from just an insurance executive.”
liFe in BalanceStanding almost 6 foot 2, Kelley cuts an imposing figure. His humor is dry, his manner no-nonsense, his competitive streak fierce in the office and out. (Boren says he treats the golf course like a battlefield.) If his temper flares now and again, he says, it’s because he has a passion for the business. “I care about perfor-
mance, and I sincerely believe that people are more capable” than their performance sometimes suggests.
Kelley’s commitment to running marathons provides an apt metaphor for his long-term commitment to just about everything important to him. He’s been married to his wife, Maryellen, for almost 33 years, never left the Boston area (though he spends a lot of time on the road), and remained loyal to his now-successful red Sox through decades of disap-pointment. (At an AIG meeting after 9/11, Kelley took a ribbing from the guest speaker, Joe Torre, who had, by that time, managed the yankees to four World Series wins.)
Kelley’s interest extends to the families of his colleagues. He often asks Boren about his sons, one an insurance broker, the other an actor. “Kevin will always say, ‘you have to tell me when he’s going to be on that show.’”
Kelley has three daughters of his own, ages 19 to 27. “He has a wonderful family, and he has not neglected them regardless of the pressure and time it has taken in his business life,” Greenberg says. “Not many executives have been so fortunate.”
Greenberg suspects that it was a similar sense of loyalty that made it difficult for Kelley to leave AIG. “I
think he was hoping, as others have, that things would settle down and the company would regain its momen-tum,” he says. “Unfortunately, that’s not what’s been happening. At some point, you lose heart.”
Hann is managing editor.
Published in Leader’s Edge, September 2009. “Copyright of The Council of Insurance Agents & Brokers, Leader’s Edge. All rights reserved.
Under license of The Council of Insurance Agents & Brokers.”This file is for web posting only; may not be e-mailed or used for commercial reprints.
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