The secret of Kramer's success

Far from the storms raging in the Caribbean, it is a calm, balmy morning in Lime Street. I sit in the bustling offices of Atrium, waiting for the architect of its ongoing £193m merger with Ariel Re to appear.

Don Kramer, chief executive of Ariel Re, is a man all too familiar with risk. Wearing a crisp, blue shirt topped with white collar and pink tie, he is one the better dressed luminaries of the industry.

He is also one of the most forthcoming.

In an archetypal New York accent he opens our discussion with a recital of The Cautious Man, a poem suggesting that missed opportunities are the curse of potential. It is, like him, a child of the Great Depression.

Kramer’s journey into insurance has taken the most unlikely of routes. He studied speech and theatre at Brooklyn College before attending New York University to pursue an MBA. He soon found himself on Wall Street, where he would eventually become a partner with a local firm.

He briefly joined Moody’s as a clerk, before leaving to become an equity analyst. He quit in 1975 to found Kramer Capital – a firm that made its name helping ailing reinsurers.

“We’re in the only business where we don’t know the true liability,” he says. “We guess it.”

During his career Kramer has demonstrated a talent at guessing well. He has founded five reinsurance companies, starting with Oppenheimer Re in 1974. Ten years later he created NAC Re, which he later sold to XL for a billion dollars.

In 1993 he ‘retired’, but the next day, he founded Tempest Re, which later merged with Ace, where he became vice president.

Having announced his retirement again in 2005, Kramer returned later in the year with the start-up, Ariel Re.

Even by his own admission, Kramer says the timing couldn’t have been better. “I’m a hopeless manager. I’ve been in the right place at the right time.”

Despite such modesty, he has much to impart on the subject of management. “Have an ethical compass,” he argues.

“Make sure you are trusted. When you ask people ‘How are you?’ you don’t want them to answer with ‘OK.’ If they trust you, they will tell you how they really feel.”

His feelings on the immediate fall-out from recent hurricanes Dean and Felix are clear enough. “We’ve had two perfect storms. High intensity, high velocity, justifying the risk. But they missed completely.”

This follows on from a benign 2006 season, which he describes as a 1 in a 100-year non-event.

High-price Acquisition

Having outlined plans to grow the Ariel business in and into different segments, including directors’ and officers’ (D&O)

liability, Kramer put his money where his mouth was and purchased Atrium two months ago.

Atrium’s high-priced acquisition has sent something of a stir through the market, but it was not the first move of its kind, with Validus’ acquisition of Talbot in May.

“We looked at Talbot. It is a good model, and it is one of our biggest investors.”

In the meantime, Montepelier Re and Bermuda life insurer Sagicor have planted their seeds in the Lloyd’s market, while Canopius – and its £250m price tag – continues to be the subject of interest from would-be Bermuda predators.

Down the line, Kramer thinks that more mergers will ensue; whether or not they will involve his company remains to be seen. The money is there, but the question is price.

At any rate, the business case for the Atrium merger has been well documented. It is a deal predicated on growth, on broadening the underwriting and product bases, and allowing the business to move into specialty lines.

“There was a very cautious man who rarely laughed or cried
He never won, he never lost, he never really tried
Then one day he passed away, his insurance was denied,
They claimed because he never lived, he never really died.

Denis Waitley - The Cautious Man

“Moving into Lloyd’s adds another arrow to our quiver,” Kramer says, adding that with no overlapping there will be neither redundancies nor an adverse affect on the company’s financial rating, despite some speculation to the contrary. “We’re in a liquidity crisis. It’s amazing we’ve achieved this.”

Though Atrium has tripled its profits to almost £45m in the past year , Kramer has no illusions about the prevailing business climate.

“We’re going into this deal not expecting to have a booming market. We have topped up potential liabilities.

“You have to ask: ‘What’s bringing prices down’? The rating agencies want insurers to diversify. Casualty was in decline in 2005, but Katrina masked that. Then we had the magic period of 2006.”

Thus it is in the context of diversification that the merger of Ariel Re and Atrium should be seen, as opposed to the conventional interpretation that it is part of an insurance power struggle and shift between Lloyd’s and Bermuda.

“Lloyd’s is different. Yes, it has compliance issues, but it isn’t falling behind.”

Lloyd's market access

It is Lloyd’s history which has given rise to its now vibrant business climate. “I still have the sterling from my ill-gotten gains at Lloyd’s,” he jokes.

“[Lloyd’s] just about self-destructed. But look at the platform that emerged. Lloyd’s gives you access to markets, including the Orient and the EU, that otherwise you wouldn’t have. You get gearing, and you get a derivative rating. ”

He points out that the business at the core of the Bermuda market is not the same as Lloyd’s. “Bermuda excels at high volatility business. Taxes may be low, but prices are passed on to all people. Imports, for example, are expensive.”

It is on the otherwise innocuous Atlantic island that Kramer’s other passion, dance, has also sprouted roots. He runs the Bermuda Dance Foundation, and recently cut a rug with actress Catherine-Zeta Jones on <i>Dancing with the Stars</i>, Bermuda's answer to <i>Strictly Come Dancing</i>.

Most of the island’s leadership is involved with the funding of the initiative – including the Bank of Bermuda, and the Premier himself. “No one turned me down,” he says enthusiastically. No doubt he is used to that. Commenting on the political scandal that shook the island in the spring, Kramer is defiant: “As a place to do business, it hasn’t been hurt. We have enough enlightened self-interest to make sure [the market] is regulated.”

He insists that Bermuda’s status goes beyond low rates of tax, and says the relevant regulatory stakeholders, including the FSA, have a presence, and are involved. “You have flexibility. There is ease of entry for businesses that start-up overnight. Easy entry means that self-correction is swift, which also means that competition is high.

“Where and what business in the world could start on 1 January and be making tens of millions by 31 December?

“Earlier this year there was a $11bn (£5.5bn) shortfall in the market between supply and demand. Within three months, we placed everything.”

But Lloyd’s too has its strong points. Kramer points out that for all the applications for membership the corporation has accepted, many more have been turned down.

“Anyone who comes to Lloyd’s must bring value. They have to add something. We don’t want pirates, and we don’t want more of the same.”

He argues that the question of capacity being flooded and the soft market is characteristic not of Lloyd’s itself, but of the capital markets at large. In short, it is nothing new.

Saving the last dance

Indeed, for a man who turns 70 in November – and has repeatedly witnessed the high and lows of the cycle – one wonders what Kramer hasn’t seen. And so I ask him if the time for the last dance is nearing.

“I’m long in the tooth. But there a few things to get done. I don’t want to do what Hank Greenberg did, and stay too long.”

Judging from the scope of the challenges that lie ahead, and his keenness to remain at the heart of things, that may yet be some time. He has a rendezvous at one of his new Lloyd’s boxes.

As he stands he says, with a typically disarming grin: “One of the reasons I have been a success is I have never been allowed to underwrite a single piece of business.”