A former AIG executive is leading the conglomerate's
specialty-insurance foray
By Nicole Friedman
Peter Eastwood likes to say that a new insurance company he
started is "not entitled to anybody's business." He also has an
advantage that most don't: the backing of Warren Buffett.
The billionaire hired Mr. Eastwood and three other American
International Group Inc. executives in 2013 to create a new
property-casualty insurer. It marked Berkshire Hathaway's foray
into some types of commercial insurance and put the conglomerate
into direct competition with giants like AIG, shocking many in the
tightknit specialty-insurance industry.
It didn't take long for the 50-year-old Mr. Eastwood to win Mr.
Buffett's praise. Berkshire Hathaway Specialty Insurance turned a
profit within 15 months and wrote $1.3 billion in premiums last
year, making it a notable but not massive player in the industry.
It has 805 employees in 10 countries.
"I would have expected us to lose money for a couple of years,
but instead we've had a very good underwriting profit," Mr. Buffett
said. "You've got to give Peter terrific credit for it."
Mr. Eastwood's jump to Berkshire and subsequent hiring of other
AIG employees caused some tension. AIG stopped buying new
reinsurance from Berkshire after BHSI opened, in line with AIG's
effort to work with fewer reinsurers and not do business with
competitors. The two companies also agreed that Berkshire wouldn't
poach any AIG employees for a year.
Since then, relations between the two companies have improved.
Earlier this year, AIG paid Berkshire roughly $10 billion to take
responsibility for some AIG insurance claims if they run
unexpectedly high, the biggest-ever deal of this type for either
company.
The son of Rhode Island public-school teachers, Mr. Eastwood
said he struggled in high school and spent more than two years
after graduation driving a forklift in a paper-products warehouse.
It was a formative experience, he said.
"I didn't work as hard as I should have and needed to in high
school," Mr. Eastwood said. But 10-hour days in the warehouse
motivated him to become more serious about schoolwork and taught
him the importance, he said, of "showing up."
At Ohio Wesleyan University, Mr. Eastwood prioritized schoolwork
over extracurricular activities, hoping to catch up with his
younger peers. "Ohio Wesleyan took a chance on me," he said.
His first job after college was with AIG in New York, a city he
had never seen before applying. But 17 years into his tenure there
he would play a critical role in AIG's recovery from the greatest
crisis in its history when it nearly collapsed under the weight of
credit-default swaps and needed a bailout of more than $180 billion
to stay alive.
Three months after that September 2008 bailout, Mr. Eastwood
became chief executive of AIG's Lexington Insurance Co., one of
AIG's most profitable units. Many expected Mr. Eastwood and other
top executives to leave AIG, but Mr. Eastwood stayed and spent a
year traveling the world, trying to keep nervous customers and
employees from fleeing.
At the time, Mr. Eastwood worried that the departure of an
executive who had turned the unit into a crown jewel would lead to
an exodus, he told The Wall Street Journal in 2009. "Will I be the
only one left in the building?" he said at the time.
He launched a campaign to get people to stay. The experience, he
said, taught him the importance of humility with his executive
team. "It was very clear to me, very early on, that in the absence
of me getting people to stay in the organization...I wasn't going
to be successful as a leader."
But eventually he decided to seek out Berkshire, a company long
interested in expanding its commercial-insurance business. Mr.
Buffett said he hadn't found the right management team until Mr.
Eastwood and his colleagues approached Ajit Jain, who runs
Berkshire's reinsurance business.
Mr. Buffett likes insurance businesses because they generate
"float" -- cash from premiums that are paid upfront and don't have
to be repaid until much later -- that he can use to invest.
Berkshire's float stood at $91 billion on Sept. 30.
Berkshire's investment in commercial insurance coincided with a
retreat from reinsurance, as new participants like hedge funds
entered the reinsurance market and pushed prices down. These new
participants have also entered the market for commercial insurance,
weighing on prices.
"There's a phrase called 'burning your way into the market,'" or
cutting prices to gain market share, said Steve DeCarlo, chief
executive of wholesale brokerage AmWINS Group Inc. BHSI "did not do
that."
Mr. Buffett said he isn't worried about launching a company at a
time when insurers are less lucrative than they have been in the
past. Mr. Buffett called hiring Mr. Eastwood a "home run" in his
2015 annual letter to shareholders and said the 2016 letter, which
will be released Feb. 25, will include similar praise.
"In 10 years I think we'll be regarded as the premier commercial
property-casualty company in the world, and we're certainly on
track to getting there now," he said.
Humility with workers and customers, Mr. Eastwood said, was key
to the unit's progression. He sends new employees handwritten
welcome notes and zip-up company hoodies with their employee
numbers on the sleeve.
"We are not entitled to anybody's business, [and] nobody needs
to work for us," Mr. Eastwood said.
Write to Nicole Friedman at nicole.friedman@wsj.com
(END) Dow Jones Newswires
February 11, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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