Todd Hart on Managing Hedge Funds, Reinsurers and Insurers

Todd Hart (mp3youtube) has had the following jobs: political campaigner, investment banker, hedge fund trader, hedge fund portfolio manager, private equity investor, reinsurance company CEO, insurance company CEO and stay at home dad. I’ve seen Todd in action in all kinds of capacities from the lofty heights of deal finance to the gnarliest systems issues in personal lines insurance and I’ve always admired his level-headed attitude in what otherwise might be very difficult situations.

You can be smart and hard working, and Todd is both those things, but to me he is more of a model for *how* to be smart and hard working. In the interview I want you to listen for evidence in the more universal qualities that set Todd apart: curiosity, optimism and a fundamental decency especially towards people that work for him and with him.

One of the things I really wanted to ask Todd was whether management is different in hedge funds, reinsurers or insurers. It is not:

TH: It’s not just capital. You think about your resources. You’re doing resource allocation period. Whether it’s time, it’s people. Attention. Money. A lot of what you’re doing as a manager of anything is you’re allocating. What do you think the most probably outcome and most beneficial use of those resources.

So yeah I guess there is a universality across those things. If you’re running a fund, your biggest resource you have, besides time, which is always your biggest resource. Capital is a huge one. But it’s no different than if you’re running a reinsurance broker, how are you going to spend your time and whatever precious resources you have and not spend and increase your margins.

DW:  How about Risk Management capital allocation and those kinds of functions, those kinds of domains of expertise. Any thoughts on contrasting those between the capital markets and the insurance/reinsurance world?

TH: It’s all basically the same principles. Measure. Keep it simple and measure. I’m sure there are folks who are doing very sophisticated jobs you know when we were putting together our own tools it’s really simple stuff, what are your PMLs what are your limits.

DW: What’s the worst that can happen.

TH: What’s the worst that can happen. I think one of the big differences between the insurance and reinsurance world is the sum of limits you write relative to your capital. You do not want to be publishing that.

DW: a definition of Leverage.

TH: but then if you turn that around equate it to you know you own the Equity slug in a CDO it’s not dramatically different just a question of what capital do you have ahead of you. So we had a lot of conversations around you know what is your limit and that’s why reinsurance works pretty well for a fund because they want to know what the absolute downside is. I do too, and everybody should. For an insurance that’s really the amount of capital you have provided but the leverage is pretty dramatic. It’s actually quite dramatic at a reinsurer as well but in insurance it’s just off the charts.

Todd on systems:

DW: is there a example to come to mind where you know like I made this mistake and then this was the outcome and now I would make a decision later. I don’t know how specific you want to get.

TH: I think as an executive you know we made mistakes around not being firm enough on staying in that customization and configuration zone.

DW: What’s the temptation to leave it. Why do you not? Because everybody probably realizes that on some level right?

TH:What seems to be the interaction that I saw and I would push back on if I saw it again is that ‘we’ve always done a business flow this way we’ve always done it this way and I want the system to mirror our business flow right’. In some circumstances I saw, with a modification of business flow which would have made no material difference you don’t have to redo everything. Part of that is that a system implementation is as much a cultural issue as anything else.

When I walked in to the company we’re in the process of transitioning one system to another and I thought it was not going well and a lot of.. I think I was probably more sensitive to making sure the business Parts the business users were happy and then the technology people were making them happy and so when we went to the second question around technology and I think that lingered through where is I probably should have pushed back a lot harder on the business folks say look, the technology can’t do that and it would be too expensive to create that way.

It’s all about a balancing act. A lot of lessons to learn but you don’t learn these things until you actually make mistakes.

DW: this reminds me of high school football. So my coach.. he was alright, our team was not that good. One of the things he said, which was good, was he said to design the playbook around the team you have as opposed to take the team and force them onto some plays they can’t execute. You have limited talent.

I think what’s interesting about this is that sometimes truths are universal and sometimes they’re not. In this case they’re not because in this case of a system that you actually do want try to redesign the team around it. Swapping a play out in a football playbook is cheap. Changing a system is not. And maybe if there’s a weakness in insurance executives or any executives is that they don’t understand the cost of system changes and so they underestimate them.

TH: Yeah, I think that’s universal.

Folks, there is so much more. I haven’t even given you any quotes on management! Todd is probably the best manager of people I’ve ever witnessed in addition to being one of the best negotiators and strategic thinkers in insurance. And in the show we hear about his strategic thinking and management style but also why American Airlines called him to see if he was ok, what it was like failing in a hedge fund, what a good business opportunity looks like.

You will learn from Todd Hart!

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