Private equity’s been much in the news this week, what with the news that New York-based Cerberus Capital Management will buy more than 80% of automaker Chrysler from DaimlerChrysler A.G.
In that case, much of the talk has centered on what impact the private equity investment might have on Chrysler’s future in terms of the possible sale of Chrysler assets, job cuts or management changes.
It was interesting, then, to hear a discussion yesterday on the impact the new capital that’s been entering the insurance business in recent years might have on the way the insurance industry does business. The upshot, according to the group discussing the issue, was that the new capital coming from private equity funds and others in the capital markets generally bodes well for the insurance business.
The event was the annual Harold H. Hines Jr. Memorial Symposium, sponsored by the Chicago Chapter of the Risk & Insurance Management Society Inc., the Insurance School of Chicago and Business Insurance.
Panelists included Tom Golub, president and CEO of broker Beecher & Carlson in Atlanta; Christopher M. Lewis, vp, alternative market solutions, P&C capital management at the Hartford Financial Services Group Inc.; and John J. Waller, managing director and co-founder of Chicago-based investment bank Cochran Caronia Waller.
According to Mr. Golub, those behind the new capital are “tough” in looking to get the returns they seek on their investments and will turn over management teams until they get it. But, that can benefit the insurance industry by bringing new talent into the business, he said.
And, he added, with the data the industry now possesses and improved technology increasing its efficiency, “the industry’s really in a position to deploy capital well. . . and on the broker side I think it’s going to make it a better business.”
Mr. Waller suggested that the presence of the new capital entering the insurance industry–some of it admittedly not long-term, but rather more opportunistic in nature–suggests that insurance has finally gotten to the same point as other industries, supported by different tranches of capital, some permanent and some temporary, entering and leaving as the investment climate shifts.
“The financing of the industry over the past five years has dramatically improved and it’s better for everyone in the industry,” he said.
One area where the new capital doesn’t seem interested in playing, however, is terrorism insurance.
“Today we still don’t have a fundamental understanding of where a terrorism attack will occur, what kind of attack will occur and when it will take place,” Mr. Lewis said. “That is just not a risk that is insurable in the classic sense.”
“We have met with Wall St., hedge funds, private equity, they don’t want it,” he said.
“We’ve worked pretty hard with investment firms trying to come up with a TRIA-type company,” Mr. Waller said. “And what you come up with is nuclear waste–nobody will touch it.”
“We couldn’t find smart money or dumb money willing to take it,” he said.