You're listening to the voice of insurance. I'm Mark Gagan. What's the greatest quality of the best business builders in our industry? After putting together today's episode, I'm now certain it must be the ability to get the best out of people. Pat Ryan is a broking legend. He's the visionary who saw that globalization was going to create the need for global brokers to serve the global companies that it would create. But it's one thing having a vision. It's completely another to be able to execute on it. Today you'll get to find out how he did it. You'll meet Pat Ryan in a different context here. He's not standing at a lectern giving a keynote speech or being quoted in a press release. He's in direct conversation with me. We start by dissecting his latest major broking deal to merge RSG with All Risks and move through the art of buying and building broking businesses to consolidation at Marsh and JLT and M&A. Willis. Spitzer makes an appearance and we go into business ethics and culture, his advice for anyone joining the insurance industry, and finally what he would like his legacy to be. Listening back, what struck me was how much we laugh during our conversation. Pat has bought and grown hundreds of businesses. And this encounter proves beyond any doubt that he does this by putting people at ease and in a place of complete trust. In short, he knew how to get the best out of me. And he did just that in the same way he's been doing throughout all his career. The result is easily the best interview of the voice of insurance series so far and one that I think will stand the test of time for many years to come. Before we get started, I'm here with Rick Lindsey, chairman of Prime Holdings and the CEO of Claims Direct Access, who have kindly supported this podcast. Rick, first, thanks so much for your support. Why don't you briefly tell us about the Prime Group and CDA and what they could do for our listeners?
Sure. Prime Holdings is a holding company and we're excited to expand our claims TPA service, Claims Direct Access, which is the exclusive claims manager for Prime Insurance Company and has managed claims for Lloyd's since 1995 when we've been on the Lloyd's line slip as a risk taker. So, we plan on coming over to London and hopefully providing our partners more flexibility where we can issue Prime paper where necessary. We can support and take risk on the Lloyd's line slip and offer our superior claim service which is evidenced by Prime's own loss ratio for the past 10 years. I believe that claims is the key to success in our business. That's really the only thing we do that adds value. Obviously, you can be a good underwriter and if the claims falls apart, the underwriting is a waste of time. If you're a good underwriter, you need to balance the scale with good claims. So, again, we're excited to bring superior claim service to the Lloyd's marketplace and offer the ability to share risk alongside them as we manage the claims.
Well, thanks so much, Rick, and I'll make sure there are all the right links in the podcast notes and let's get on with the podcast. Pat, congratulations on the All Risks deal. Another fantastic deal in a very long line of big and strategic deals that you must have completed over your long career. Tell us a bit about that and then I'd like to ask you whether you think consolidation in wholesale broking has now gone as far as it can go or is there more to come?
Well, thank you Mark. And the All Risks deal was a very interesting and exciting opportunity for us. And because it was all done virtually, it was really quite different than any experience I've had. But the All Risks company was a great fit for us. And we identified that at least eight years ago. And these were good friends of Tim Turner who's my partner, the T in RT Specialty. And Tim knew them really quite well and actually identified eight years ago that someday, and we were quite small then obviously, we should really see about getting together with All Risks. And I knew of them but I didn't know them, and so we set about for me to get to know them better. So we had occasional meetings at industry events, always clandestine, and we got comfortable with each other and we were looking to see about cultural fit. And I've always believed that you start with is there a cultural fit, and if there is then you proceed. If there's not a good cultural fit then it doesn't make any sense no matter how complimentary the strategy is and what the price is. But we really understood each other after these several meetings and knew that they'd be quite a good cultural fit. We at that time were the third largest US wholesaler and they were the fourth. But we were in different markets. We were very heavy in what we call tier one, which are the top 100 retail brokers in the US. And we were represented nicely in tier two and tier three. But they were really quite a bit more sizable in that next sector. And that was quite attractive to us and to them because they wanted to have their brokers be able to move up and deal with the larger retail brokers in the US. And of course, we wanted to expand into the many thousands of clients that they had and get a much stronger position in what you would call sort of the mid-market wholesale business in the US. So from a strategic point of view, it was really quite effective. Additionally, they have a very strong program business and I've always liked the program business. It's something that we did a lot of at Aon. And people often call programs MGAs or they call MGAs programs, but programs to me are specialty industry and a specialty product or a combination of both. And they had 36 discrete programs. And RSG has 22 what we call MGUs, MGAs, which are not specially some are specialists in an industry but some are well beyond just one industry. Some are single product, some are multi-line products, but there's sort of a different underwriting format. But we thought that that compatibility was really very, very important in that carriers that worked with them described them as the most innovative program company they had ever seen. And innovation to me has always been a real goal in building brokerage businesses and a real differentiator. And so I was very attracted to the fact that in the marketplace they were viewed as the most innovative and they started a lot of these de novo. And to me that was impressive because the capital investment obviously is a lot less generally than when you make an acquisition but it shows the creativity, the innovation. So that was a wonderful fit plus expanding into the broader marketplace.
Do you think that deal is the end of consolidation? So when you first met you were number three and number four, where would you put yourself the combined group now?
Well we measure it just on property casualty because we're not in the benefits business, we're not in the life business.
Yeah. So just comparing property and casualty we're very close to Amwins who's been number one in scale and I would say probably broader in scope but in terms of scale I believe, but we don't know for sure, that we're growing faster than they are. So let's say we're tied for one or slightly below number one at number two, but by year end 2021 with the first full year of consolidation, I think it'll be pretty clear that we'll be the largest P&C wholesaler. Amwins has a very nice and quite sizable benefits business. So when you add that in the aggregate, they would be larger.
So to the second part of that question, do you think is that consolidation done or is consolidation never done?
Well, consolidation is probably never done, but it is certainly done in terms of anything very large, buying something else large. There are two sizable US wholesalers, both of which are headquartered in California, and I've never been inclined to buy a business with a heavy concentration of California business, because employment contracts for competitive issues are not enforceable. So maybe someone large will buy one of them or maybe they'll both get together. If they both got together that would be sizable. There's a wonderful company called Burns & Wilcox which is quite sizable, they're principally in the binding authority business sector, but that's a sizable business. It's possible that the three of those could get together and then they would be a meaningful scale competitor. So there is that left to be done. There are hundreds of boutiques in the US, boutique wholesalers. So one of those larger companies could start buying a lot of small boutiques and get scale. But it's not likely that there'll be a large fourth, but it could happen.
And when I say consolidation being done, do you think it's done for you? Do you think you've built every capability that you feel you would need or is there always some new boutique coming along? Because I suppose the world's always changing. There are always new insurance products and requirements.
We're always looking for businesses that bring a differentiator. As you say, there are some wonderful boutiques and we've been able to attract some of those into our company where they, for example, have a we bought a wonderful company that specialized in environmental, was a wholesale broker, but they had a different line slip that gave them some differentiating product. So we'll always be looking for those kinds of opportunities all with the goal of improving what we offer to our clients. So they're out there and they'll be newly created.
And do you see yourself more as a business builder rather than a consolidator? Do you feel that when you do some M&A, when you do acquire instead of growing your own, do you feel that you're always filling in a gap that you had?
We try to avoid just an opportunistic acquisition. We did that at Aon as well. What we mean by that is it really has to be strategic. It has to improve the overall offering to our clients. When I say opportunistic, it's you could view it as it's just a very attractive price. It gives you more scale, but you don't need that. You don't need to make an investment of size to get more scale, but the numbers are so attractive. Well, we have obviously a finite amount of capital. And so as part of our overall strategy, we have ruled out anything opportunistic. So as we would see strategic opportunities to enhance the value add to our clients, we'll always do that. But to your question about being a builder or a consolidator, some of my friends in the industry like to kid me, and maybe they really mean it, that I'm really more of an investment banker pretending to be an insurance guy, but I don't see myself that way. I see myself as a business builder. Aon was started from scratch with a single MGU and then built over time over 40 years with a heavy, heavy concentration of consolidation in the '90s. So people thought, well, he's a consolidator, but they forget all the brick-by-brick building that preceded that. And so I feel myself to be a builder. And I think that's true with Ryan Specialty Group because we've started a lot of business de novo and we've hired a lot of people to bring talent in. So we've always strived and have achieved higher than average organic growth and then blending it with inorganic growth through M&A to get very outsized rates of growth. So as you watched what happened at Aon, we were always had very strong organic growth. Even in the toughest of markets, we had organic growth that was above the competition of scale, anybody that had size. But then we blended it with this inorganic strategy. And I believed in that at the time and I believe in it now in Ryan Specialty Group and I continue to believe that for the future. We have tremendous opportunities to grow organically. And the way you create value to the investors and comfort to the lenders is you grow organically and you expand your margin. So value creation in the brokerage business is just directly tied to not overall growth but organic growth. Real organic growth and margin expansion. And when you do that, you create unusual value. And at the end of the day, we're in business to serve our clients, but we're also in business to reward our investors. And so there's not a conflict there. In fact, they're quite mutually beneficial. So I'm definitely a builder, but I look at today's acquisition as tomorrow's organic growth opportunity.
So a very big part of that building and the inorganic building at Aon was building a global network and consciously building a global broker. At RSG you've perhaps kept your ambitions more in the US, but do you have a wider ambition to build a global wholesaler?
That's a very interesting question because if I were to answer yes, which I will, it would be different than the US because the US obviously has the excess and surplus lines market where wholesale is a really defined marketplace and that's where we excel here in the US. Certainly London has a wonderful wholesale market. We have chosen not to be a London wholesaler and the reason for that is a few reasons. One is that we were concentrating on the US but two as we looked at the UK and Europe we looked more at setting up managing underwriting facilities and actually trying to repeat the wholesale business of the US. Now, we could do that by owning a London broker. And there's certainly a great history for the role of a London broker, but we've chosen not to do that and to concentrate on differentiating ourselves through managing underwriting businesses. So you'll see Ryan Specialty Group growing more in the UK and on the continent of Europe, but with managing underwriting facilities, there is the potential of playing a role that in this country you would possibly call an intermediary that just provides access to market. That is a role that I could see that we would play in both the UK and on the continent as smaller brokers need access to markets that they don't have enough volume to warrant the attention and the relevance to the larger market. So that's a form of consolidation that certainly we're looking at.
Before we get to the next question, I'm here with Zoe Bolton, the founder of Actuarial Head Hunters, Bolton Associates, who have kindly supported this podcast. Zoe, thanks so much for your support. Why don't you briefly tell us about Bolton Associates and what you can do for our listeners?
Hi Mark, thanks for having us. We're delighted to be supporting you and the Voice of Insurance. Bolton Associates recruits actuaries and analysts specifically into the general insurance market. We do not deviate from that. We work with actuaries across the industry, be they chief actuaries, CRO, CFOs, pricing, reserve and capital modeling and the genius looking to break into the market. This is what we do. If you know an actuary, we've probably spoken to them. We've all done this for rather a long time. Bolton Associates collectively has over 100 years of experience at this. And with the opportunities now in the MGA sector, insurtech, data science, and the startups, we've never been busier. If you're looking to expand or establish your actuarial and analytics offering, you should be talking to us. At Bolton Associates, we aim to be part of the market and friends to it. So we can offer our clients a real-time view of the actuarial landscape. Personally being that advisor, startup environment, etc. It's just the best part of my job and the network is really working for that. As I said, we're good at what we do because we enjoy what we do. So any actuaries, hi again or companies looking for one, do get in touch. We're all working remotely as everybody is. The market is busier than ever. And fingers crossed, let's hope we can all get back to EC3 sometime soon.
Well, thank you so much Zoe and let's get back to the podcast. A huge amount has been going on in the wider broking world in consolidation obviously on the back of MMC and JLT's deal and now the announced and agreed and now approved by shareholder Aon Willis deal. That's really made a big movement for most players to be moving to make the most of that opportunity strategically, particularly in reinsurance is where we've seen most of the fallout from that so far or certainly from the strategic movement of other carriers with ambitions in reinsurance. Insurance broking is something you know a huge amount about and it's the ultimate wholesaling I suppose isn't it? I'd love to have your take on that. What do you think's happening there and what's likely to happen and also is it something that RSG would ever be interested in doing if it was able to?
Well RSG will not be a reinsurance broker because we don't want to compete with our clients. So we have very strong relationships with Aon, Marsh, Willis. We did with JLT, Lockton, everyone but one that's in the US reinsurance broking market. It's a great business. I love that business. But I also understand that you have to pick out your niches. And I've always believed, Mark, that you can't build a viable business by competing with your clients. It just doesn't work. So, we've been very diligent on avoiding that. So we wouldn't participate in that consolidation nor would we ever participate for the same reasons in the consolidation of retail. I mean I could have gone into the business post-Aon of doing another retail consolidation. It was there to be done. Many have done it. Some had started just barely started at that time and some started after Aon and have built very sizable businesses. So there's no doubt in my mind that I could have done a rollup and built a very large newly created retail broker in the US and for that matter globally. But I didn't want to do that because first of all I didn't want to compete with Aon. If I would have competed with Aon I would have been competing with something I worked 40 plus years to create and build and that's just not in my nature to do that. They're my friends. And when I retired from there, I said, I'm not going to compete with you. I'm not going to be a reinsurance broker. In fact, you're going to become a very large client of ours because I saw the opportunity to consolidate and build a different, a differentiating business in US wholesale. So, I would never do that. But I'm not surprised at all that that consolidation has taken place with Marsh buying JLT and Aon now in the, I hope close to the final stages of the Willis transaction because they both made a lot of sense to me. It's all about serving the client. It's all about being able to differentiate yourself with serving the client and certainly Marsh by bringing JLT into the Marsh family added great value to their clients. Geographics, lots of scope expansion, scale, but a lot of specialties and a lot of wonderful talent. Now, when you do a large transaction like that, some people leave, but that's just the nature of the business. But most stay. And I felt all along that the Aon Willis deal made a lot of sense and I think that's going to be an excellent merger.
Was that ever a deal that would have been in your mind when you were really at that stage in the late '90s and afterwards really building that Aon? Was it ever on your fantasy wish list of can I buy Willis? Had you ever thought of it?
It was very much on my, it wasn't even a fantasy. In '98, in '97 we had done A&A. In '97 we thought we were going to do J&H and we were very close and Marsh, Jeffrey Greenberg was the CEO, did a smart thing and convinced the J&H people that whatever Aon offers you we will top and they got it and it was a fantastic acquisition for Marsh. And there was Willis sitting with a low market cap, lots of talent, lots of really great specialties, great history. And I had actually tried to buy Corroon & Black back when Willis bought Corroon & Black in 1990 and we made a competitive bid but the Corroon management was committed to not sell to us. It was a goal of theirs not to sell to us and Willis topped it, topped our offer. And I wasn't going to get into a bidding contest because that just isn't the right way to buy a brokerage business. And if the seller doesn't want to sell to you, they can contaminate the population enough that it puts you at risk. That's an inappropriate risk to take. Well, fast forward to '98 and along came Henry Kravis and I saw his offer and I looked hard at it and decided that we wanted to go for it. But I knew that the sellers didn't want to sell to us. But I was willing to be aggressive. But I checked with the people who were funding the very inexpensive preferred that they used in the structure and there were several US P&C companies and I didn't know the terms but I found out the terms. So several of these companies were good friends. So I called them I said what are you guys doing keeping it from you? And the economics were such that KKR only had to put up I think it was 300 million US for a 1.6 billion deal in equity because they got I think it was 500 million of a very inexpensive preferred with no equity rights, no warrants. And I said there's no way we can compete with that. But yeah, we wanted it. It would have been a great addition.
Would have been a lot cheaper then. Tax is everything.
If you were the competitive regulator looking at Aon Willis today to produce the undisputed world leader in broking across large swaths of the insurance value chain, would you wave that through?
I would wave it through for sure because you have to look at the law and you have to look at the practicality and I'm sure they are. What are the results of the merger? Are they anti-competitive? They're not anti-competitive. The insurance industry is one of the most competitive industries in global economies and it will always be that way because there's lots of capital that wants to come in on a continued basis in broking startups, in buying existing property casualty carriers or for that matter multi-line, and additionally new capital coming in to compete. So there's no shortage of competition. So it's not anti-competitive at all. In fact, I think it's like the Marsh JLT was good for the market, good for clients. I think Aon Willis is as well. So, I think it'll go through. It should go through. There's no basis in the US, but I don't think there's any basis in the EU to keep it from being approved. It's a natural evolution in the industry. And all you have to do is look at Mark, what's happened in the last 5 to 10 years in retail broking. And there are, I think it's eight companies that are a form of consolidation that are now over a billion of revenue. And I always felt when you got to a billion of revenue, you're a big boy. And I can't say big boy anymore, but you're a big person in the industry. And so there's significant competition from these consolidators. And then in the reinsurance broking business, you can watch it in the mobility of reinsurance talent. These boutiques are strong competitors to the large three. Proof of that is the talent that's moving from larger brokers to boutiques. So I just don't think that you can make a case that it's anti-competitive. If anything, when you do a large acquisition, there's a risk, a flight risk, and you always have to evaluate that. And I'm sure that the management at Aon, very astute people, Craig Case has done a great job, have evaluated that knowing that there'd be some talent that would move but recognizing that the companies together bring greater value add to the marketplace and to the clients and the prospects just as when Dan Glaser did JLT.
