Insurance Agenda: Exec Interview
A Different View

• Meg Green
• December 2020
• 

After a 40-year career in the insurance industry, Kevin Kelley joined Aquiline Capital, a New York- and London-based private equity firm, as executive adviser. He most recently retired from Liberty Mutual, where he was vice chairman of Global Risk Solutions following the company's acquisition of Ironshore. Before that, Kelley was CEO of Lexington Insurance Co. He recently spoke with Best's Review. Following is an edited transcript of the interview.

You've had a long career as an underwriter. What's it like on the other side of the balance sheet?

It's very interesting. Since I joined Aquiline in January, I've learned a lot. I've seen a lot. Obviously, COVID's been a big influence on all of us. Going back to my Ironshore days, we had six private equity investors, so I got to see one side of the private equity world. From this vantage point, I get to see how the sausage is made, so to speak. We're very fortunate in that we have an existing portfolio of companies. We're always looking to add to those portfolios. I'm very happy I did what I did and look forward to making a contribution.

What are you seeing in terms of growth opportunities in the industry today?

We are seeing a desire to, in some cases, invest in startups. In other cases, invest in recapitalizations. The opportunity is plentiful, but the capital markets are pretty well disciplined. The investments that will be made will be well thought out and well positioned. Therefore, it's a very good time to be an investor in the insurance business.

How do you see the market evolving?

The overriding issue, which is the result of COVID, is that interest rates look like they'll be lower for even longer than many of us thought at the beginning of the year. That will force the industry to be more disciplined because net investment income will be curtailed. As a result, we'll continue to see price increases. That will be tougher and tougher for clients to digest. You read more about captives being formed today to help mitigate those price increases. At the end of the day, the industry has to provide a return for capital. The equity market provides the judgment on how successful or not management teams are. Insurance company stocks will continue to be under pressure because notwithstanding stronger rates, performance is still pretty mediocre for the industry.

You mentioned short-term and long-term implications of COVID. Could you expand on that? How do you see it impacting the industry?

One impact, which I've mentioned before, is on interest rates, which will be lower for a lot longer. Just as importantly, customers' behaviors will change. How we entertain and travel will be different post-COVID. How we work will be different, and that will impact commercial and residential real estate values. Health care will be delivered differently. Trying to stay ahead and on top of how these changes will impact customers will be extraordinarily material. What external shocks do is they accelerate changes that were already occurring in society. Those carriers that have keener insights into their clients and listen to their clients will have a competitive advantage in trying to see how the world will be post-COVID.

What would you say the biggest challenge facing the industry today is?

It's probably the same challenge the industry's faced forever, which is talent. These kinds of market changes and adjustments do, however, produce opportunity for people as well as companies. The next generation of leadership is probably being schooled as we speak. Given some real hard experience, that will benefit future leaders of the industry. Capital is always a challenge, too, and is always very important for our business, but it's how that capital is used. That's where talent management and leadership come into play.