Conning’s Bradford: Insurers’ Top Concerns Include Inflation, Interest Rates and Geopolitical Ri

Thanks, John. Always great to see you too. Thank you.

I am. I'm excited. It's wonderful for our businesses and for our teams and for our clients. There's so much to do, and the potential is so great. And I'm sure we'll talk about some of that, but I'm really, really jazzed for the opportunity.

Yeah, I'll go back a little bit. Conning's been here for a long time, founded in 1912, over a hundred years old, focused on serving the insurance industry. And we've been on a journey together, adding investment capabilities and broadening our geographic reach over the last 14 years while I've been here. We received an inbound inquiry from Generali about whether or not we'd want to partner with them and work with them. Kathereine Life Insurance and Cath Financial Holdings have been the controlling owner of the company for a number of years, and were not interested in selling. But together, we found an opportunity to combine Generali's investment management businesses and our businesses into a joint company going forward. So we have the partnership of Generali and Cath supporting the growth of our combined business going forward.

It is a true merger. The top-level holding company is Generali Investments Holding. That's the entity that Generali owns the controlling interest in, and Cath owns the minority 16.75% stake in, and that owns and controls all of the various asset management companies across the group around the world together. Inside that, Conning and our companies that I will continue to oversee are one of the many companies in that universe of organizations that we will oversee and operate. Generali, of course, headquartered in Italy.

Milan, correct. I think the technical headquarters is in Trieste, but the office headquarters is in Milan, and that's where I've been spending most of my time so far. And I think I'll be spending quite a bit of time there going forward. I still expect to spend the majority of my time on the traditional business, but I think it'll be a substantial percentage of my time going forward.

I'm picking up a few words here and there. Every time I go, my friends now in Italy and my colleagues are teaching me a few words, and I'm learning to sprinkle them into some of my conversations as we go.

It's one of the things that made this combination make so much sense, John, the answer to your question. Generali is obviously an insurance company. Kathereine Life, obviously an insurance company. Conning's history, a legacy of working with insurance companies. And so the people, the culture, the way we think about investing, the focus on credit and duration and bonds and risk is very similar across the different organizations, and that made the cultural aspect of the investment components of this really, really work well together. There are other things that are really different. Generali is obviously a European-based institution, and regulation and remuneration and a whole set of other factors are different in Europe than they are in the US, different than they are in Asia. But that core cultural similarity of being an insurance company, having grown up serving insurance companies, really binds us in a way that I think will make the combination a lot easier to execute over time.

We have some experience in the group of the Conning companies today with offices in Denmark, in Germany, in Luxembourg, and in the UK, if you want to call that Europe. So we've had experience with businesses that we and I have managed in that region already. This is bigger, and that is the controlling entity. So if you think about historically, European regulation is a lot more prescriptive than US regulation when it comes to risk and compliance and audit and other function, and that's good. Risk and compliance and controls are wonderful things, and everything we can do collectively to be great and better at that for the benefit of our owner and our client is wonderful. But I would say at the same time, there's an entrepreneurship that exists in other markets that if we can find a way to put those two pieces together for the benefit of our clients, we can create something really magical.

Our clients are worried about a few of the big things and then some smaller things. In Conning's most recent survey of insurance company clients around the world, the top concern for three years now running remains inflation. That's one of the number one things. What's happening with inflation, and depending on which week or month you look at, is inflation settling in, is it not settling in, is it back? This remains the number one issue, and it's a bigger issue for our property casualty clients than it is for our life insurance clients. But at the same time, the related factor is what's happening with interest rates, which is a huge factor for the life insurance industry. So these are the two front issues that are the top questions for people. And then you go down the waterfall: what about geopolitical risk, what's happening in all the different bad parts of the world, and what could that mean for the two prior topics and the economy that follows off of that. So those are the frontline issues from an investment perspective that we're hearing mostly here. We were talking about it before we came in. The election seems like an awful long way from now given some of the other concerns that people have about is inflation here, what is the Fed going to do, what's happening with geopolitics, what's happening with energy prices, etc. I think we'll get to the impacts of regulation and the inflation and the election as we move down the road.

I think that the policy implications of the election are things that certainly we're watching closely for the portfolios that we're managing. I think that the policy implications for regulation are important. Regulation, there's quite a bit happening with regulation. It's one of the more active years. I think just yesterday the DOL fiduciary rule is a big factor that'll be certainly challenged in court, due to be implemented in September. You've got regulation related to aspects of investment portfolios, you've got regulation related to mergers and acquisitions, the policy implications on that front. But then you can look at others: trade policy, the potential impact on fiscal policy are, I think, substantive when it comes to how insurance company executives think about running their business and managing their portfolio. So put aside the fun parts of the election that people like to talk about and get to the policy implications, and I think they're serious.

It's absolutely evolving, and we're a case study for that with now two insurance company owners for our business. You don't have to look very long or wait very long in the news to see the next announcement about some asset manager looking to partner in some way, shape, or form with an insurance company or vice versa. This started coming out of the financial crisis in the late 2000s, the first decade. But you've seen many examples of insurance companies and asset managers partnering together to try to create value for their shareholders and owners. And sometimes it's insurance companies wanting to generate a capital-light business model and take advantage of some of the resources they have on their balance sheet to build other businesses. Sometimes it's alternative investment firms wanting to have more permanent capital to fund the growth of their business. And sometimes it's just opportunistic. So there's a whole range of factors that are really driving this, and I don't think this trend is going to stop anytime soon. As I said, we're one of the case studies of many of insurance companies and asset managers finding ways to partner together to create value and grow their businesses more quickly.

It wasn't a linear path, for sure. It was a little bit random. We're sitting here in New Jersey, and I actually worked here in New Jersey for a chemical company for a couple of years and was fortunate enough to be persuaded by a couple of mentors to go back to business school on a full-time basis and was blessed enough to be accepted to the Harvard Business School. And when I went there, I learned about a whole host of industries that I knew nothing about: investment banking, asset management, consulting, things that were new worlds for me. And was fortunate enough to have a couple of years of experience in management consulting and have a chance to learn about these industries. And that's the period where I really fell in love with asset management and decided this is where I want to go. And what I love about it is that every day is different, whether it be a different set of client needs or a different set of market experiences. No day is like the prior day ever, and I love the diversity of that and the challenges that come along with that. This is the most non-monotonous business you could possibly pick. And right when you think you have the markets figured out, they teach you that you don't. And so I think it's really helpful to also keep you humble at the same time. It's a wonderful business to be able to work in, and I'm blessed to be able to be part of it.

As a chemistry major and I went to an engineering school for undergraduate, I like to joke with young people who ask for advice that I learned how to use a calculator and I learned how to ask the right questions. In chemistry, the scientific approach and the scientific method helped me think logically about process, helped me think logically about what kinds of questions to ask, and also to keep learning. These I think fundamental underlying elements have become part of me, and I think I apply them every day in how I think about managing our business and working with our teams and tackling challenges that we face together for the benefit of our clients.

I've been blessed, and I think this is harder for young people, but I've been blessed to have through my career mentors and friends who have, not because somebody was assigned to me necessarily, 'Here's your mentor, go off and have coffee together,' which I think is helpful, but people who I developed relationships with and who coached me and gave me tough love and hard advice, and through that helped me shape a set of management principles that I live by and use as I'm thinking about managing my teams and working with my colleagues and friends over time. And that started all the way back to high school sports and college sports and early jobs in chemical factories, all the way up to as recently as today with some of my independent directors who are still mentors and friends, challenging me and teaching me lessons even at the ripe old age that I am today.

For sure. And so I think for me, team sports was a wonderful way to help learn how to deal with people as a unit, operate as a unit for one collective set of goals. That was tremendously valuable for me early on in my life.

That there's no one single solution to managing is probably the best advice that I have and could give. People are fond of giving advice, and one of the things I like to say is, 'Free advice is worth what you pay for it.' So be careful of jumping on any one piece of advice. You have to adapt your approach to different circumstances. And I think more about having a toolkit. One of my friends and mentors at Conning taught me one of his lines, which is, 'I have a lot of tools in my bag, but a cookie cutter is not one of them.' And it's one of my favorite lines, and I think you have to apply that to how you manage and operate with people and businesses and markets and clients. There's no one approach that works everywhere.

I've read a lot of books and I've seen a lot of movies. One of the books that's a really old book that I still give to young people is called The Pyramid Principle by Barbara Minto. It's an old, old book, and it was all about communication. In our business, being able to communicate internally and externally is critical, whether it be in written form or in-person form. Whether you're a credit analyst covering a security, your ability to persuade the portfolio managers of your views; if you're a portfolio manager working with a client, your ability to explain to that client why you believe a certain position is right or not right; whether you're in sales trying to convince a client or a prospect to work with you, communication skills are so critical to being able to be successful. You can't just be technically excellent anymore, you also have to be able to communicate that. So that's one that I would point to.

I think it's harder. I think breaking through the clutter and being able to simply and quickly and briefly get your point across is more important than ever. People are overwhelmed with information, with emails, with social media, and being able to quickly get to the point, why are you telling me this, why should I care, is probably more important than ever given where we are. And that's probably not going to stop either, John, in the world that we're living in with the acceleration of technology, artificial intelligence, you name it. I think that gets harder and harder.

So right now we're working hard on, now that we've closed the transaction, a smooth transition between me and the current leadership of the business today. There's a whole new universe of colleagues and businesses that I really need to get to know. And so for me, job one, two, and three are to spend time with those teams and understand the clients that they're serving, what their goals and objectives are, what their challenges are. We've also identified from the time we announced the transaction in July of last year until we closed a whole range of really important priority growth initiatives for the combined business going forward. And so those are probably for me the two front-and-center things: one is to get to know all the new colleagues that I'll be working with and have them get to know me, but also to push on a number of really critical growth initiatives that we together in the combined firm can capitalize on for our benefit and for the benefit of our clients.

The outlook for 2024 is actually pretty good. There's a few pockets of weakness, but it's a benign period. Balance sheets are pretty strong, underwriting results are generally pretty good. You've got investment income now for the first time in a very long time at levels that are pretty attractive. So I think it's a good period, a stable period. People are reinvesting in their business. The growth of the annuity business and demand from customers has been overwhelming, and that's creating opportunities. So I think it's a pretty good moment for the insurance industry.

John, thank you very much. Great to see you.