Michael D. O'Halleran once asked one of his mentors what an accounting and economics major should do with his life.
"Look at business insurance," O'Halleran recalls the mentor saying. "It's not knocking on doors from a life insurance perspective. It's solving the large complex needs of companies around the globe." O'Halleran followed his mentor's suggestion in a big way, eventually becoming part of the leadership at Aon Re from it's beginnings in 1987.
O'Halleran, 58 years old, came to Aon Re by way of Employers of Wausau. While working on a facultative deal between Wausau and General Re, the head of General Re's Chicago office became interested in O'Halleran. He offered the promising young executive a job in Chicago office.
"The choice was a no-brainer. I was looking at an opportunity at going with the most sophisticated side of the insurance business. I've been in reinsurance ever since," O'Halleran says.
The next step in O'Halleran's budding career was starting his own boutique brokerage firm with a group of partners until it was sold to Alexander & Alexander, then one of the largest U.S. brokers. Following the sale, O'Halleran became national head of treaty operations for Alexander & Alexander.
That lasted until Aon founder Pat Ryan ran into O'Halleran's brother on the football field of Loyola Academy in suburban Chicago where their sons were playing high school ball."By chance, is your brother Michael O'Halleran?" asked Ryan.
"Yeah, but how did you know about that?" O'Halleran's brother replied.
"I've heard about him in the reinsurance world and I'd really like to meet him," said Ryan.
A meeting was arranged and O'Halleran quickly signed on to Ryan's then far smaller but growing brokerage operation. "He was electric," says O'Halleran, referring to Ryan. "He was entrepreneurial. And he was based in Chicago which was something I dearly wanted."
That was back in 1987 and O'Halleran's been at Aon ever since.
A self-described sports fanatic and a big Chicago White Sox fan, O'Halleran talks team and teamwork all the time. He's also an avid golfer and has been married for 31 years to his wife Kay. He has a son in high school and a daughter in the consulting business.
Sports are at the core of O'Halleran's management philosophy in the sense that's he's a great believer in team play. O'Halleran was part of the team that started Aon Re which today has become the largest reinsurance broker in the world. Risk & Insurance® Editor in Chief Jack Roberts interviewed O'Halleran in late July, in anticipation of the fall reinsurance meetings in Monte Carlo and Baden Baden. Here's what O'Halleran had to say:
Q: How is the reinsurance business different today than when you started Aon Re?
O'Halleran: The most dramatic change, quite candidly is the movement from the direct market to the broker market. You go back in 1970 and really into the mid 1980s and there were five or six purely direct underwriters. They had a dominant position in the treaty space, particularly the treaty and facultative markets. Then the risk and reinsurance intermediary worlds awoke to becoming the advocate for the client because they had to be on one side of the transaction or the other. Direct then was probably 60 percent-40 percent, direct to broker. Today it's probably 80 percent-20 percent, broker to direct. Clearly the reinsurers' business plans have changed. In fact, their goals are to become more broker than direct over the next decade. That's a big change.
Q: Anything else with the reinsurers?
I think the other big change is where capital is distributed from. It used to be U.S.-London-Europe-dominated reinsurance market. The advent of Bermuda has made a big difference. The U.S. reinsurance marketplace has dwindled a bit.
Q: What about the reinsurance brokers themselves?
I think the level of sophistication is something that has really changed dramatically. I would say the reinsurance business in the 1970s and 1980s and even into the early part of the 1990s was more of a transactional business. Today it is a lot more consultative. Certainly the business demands huge investment in analytics, catastrophe modeling, actuarial services and rating agency capabilities.
We are obviously the advocate of the client in that regard. We perform all those activities, but we also advise them in terms of their reinsurance needs might be including advising them on capital markets needs. It's really a lot more sophisticated and therefore the price of entry is that much greater today.
The concentration of brokers is dramatically different today. We had one big dominant broker back in the mid-1980s, that being Guy Carpenter. We had very good smaller firms but the problem with the smaller boutique firms today they can only really provide transactional capability because the cost to build out the services platform they need would make it economically untenable in today's marketplace. So now with the domination of the players at the top end of the range, the shift of revenues to people like ourselves has been quite dramatic.
Q: What's different about the reinsurance business?
In reinsurance, first there are a far smaller number of people in the business. Second, it has always been global business and the fact that you needed global capacity to serve your clients. And the third thing is there is culture within a culture among reinsurance people.
Q: What is the reinsurance culture?
O'Halleran: Having been in the business for over 30 some years, I don't care what time period you want to look at, it's a community of people who basically all know each other. Now there are some exceptions. And as we became a more global business, there probably were a few more exceptions. But there is strong degree of professionalism and respect within the community for each other regardless of whom you work for.
I don't think you find that in other aspects of our business, at least not to the extent that you find it in reinsurance. I respect our competition. They're good and we have to recognize that we have to be better. Clearly I have never made it one of my sales points with clients to sell negative things about our competition. I'd rather sell what is positive about what we can do for them.
Q: Certainly Monte Carlo and Baden Baden have been part of the reinsurance culture for decades. How do they still fit in?
O'Halleran: What Monte Carlo and Baden Baden have become, more and more particularly in hard markets, are places to negotiate. They are a common place where you can get a lot done very quickly. In softer market conditions, they are probably less so but I think they serve a purpose.
They probably aren't as high profile as they once were but it doesn't mean they don't have purpose. It is good to get together and discuss issues once a year, to build new relationships and to find ways to become more creative for your clients. By the way, it is a track meet that requires endurance.
Q: What about the state of the market. How would you assess it currently?
Effective with the July 1 renewals, I wouldn't call this a soft reinsurance market. The reason was that the July renewals were significantly more difficult than prior renewals over the last eight quarters. The reinsurers are evaluating their return models. They are looking at the primary rate. And they're saying this isn't as exciting a market.
Can it get me the returns I need? Keep in mind that reinsurers are as impacted as anybody with their investment return portfolios. Those returns are not very exciting. In fact, they're challenging. So, they have to make their money on underwriting results. We saw a very different market in July than in April or in January. There is an attitude within the reinsurance community of we're going to get what we need and if we're not going to get what we need, we're not going to write the business. I think that's a discipline that's almost universal in whatever market you're talking about today.
September 1, 2008
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