295 - The Dynamic World of Reinsurance: Opportunities, Challenges, and Future Aspirations with Northern Re's Anthony McKelvy

Welcome to Listening with Leaders. I'm Doug Noll, lawyer turned peacemaker. I teach executive leaders how to listen to emotions rather than words so that they can become the leaders everyone wants to follow. And I teach those same leaders how to be authentically present, available, and connected to their families despite being insanely busy. I have learned that we are 98% emotional and only 2% rational. Learning how to listen to emotions is, in my experience, the foundational skill of life. Stick around to the end of the show and I'll reveal how you can be on our next guest in 15 to 20 minutes. So let's get started.

Anthony McKelvey, welcome to Listening with Leaders. You are the, the co-founder and managing partner of a company called Northern Re or Northern Reinsurance. I think, is your brother a co-partner with you? Is that right?

He is.

Family business. Welcome to the show. And I'm really interested in learning more about you. And reinsurance is a hot topic these days. So interesting business you're in. Tell us a little bit about your backstory.

Sure. Yeah. I actually started in more traditional reinsurance, which to your point, more and more people are hearing about now with everything that's going on in the world, but Started my career at a company called Willis Re, which is now known as Gallagher Re. It's the large insurance entity Willis, and it's their reinsurance division. Spent a couple of years there, moved over with a small team to a company called Guy Carpenter, which is a Marsh subsidiary, and it's their reinsurance brokerage division. What we were doing there was primarily working with insurance companies as well as underwriting organizations within the insurance industry to find them risk capital, brokering the transactions between those entities, the direct writers, and then reinsurance companies. And that also includes private capital that was entering the reinsurance space at that time, about 10 years ago. In 2018, moved up to New York to lead risk capital, or effectively doing a similar role to that I was at GC and Willis, and doing that for an insurtech company called Boost. There at Boost, we were building, and, and they still are building an MGA platform, managing general agency platform. So we were providing technology solutions, we were providing product solutions, and we were providing risk capital solutions to anybody that wanted to plug into our stack and sell insurance for themselves, whether you were an embedded platform, real estate, or cybersecurity, or you were a sophisticated insurance entity and you just wanted to plug and play a new product. That's what we were doing there. Worked there for about 4 years and then set out with my partner, as you noted, and my brother in August of '22 to start Northern. I'll talk a little bit about the genesis of that. As I mentioned, we, we had worked together actually while we were at Boost. He was leading product and strategy. I was leading the risk capital side of things, and we were coming up with what we wanted to do next. We kept coming back to reinsurance capacity being a big problem in the marketplace. And as I mentioned, I had quite a bit of experience in that realm, had worked a lot with private capital that wanted to enter the space. And so we set out to essentially build Northern, which is a, a bridging of that gap between investors and reinsurance as an asset class.

The people that invest in reinsurance would be like hedge funds and private equity people, things like that?

That's exactly right. Yeah. Hedge funds, private equity, family office as well has found it quite interesting. Other opportunistic investment groups. It's a low beta asset class. So obviously the, the correlation to broader financial markets, it can be quite low and it's diversified, can generate nice cash flow over time, and it can be quite tax effective as well. So there are a lot of different motivations for it depending on kind of who you're talking to. There's also varying degrees of knowledge within the sector, right? It's quite niche.

I can imagine this can be a very complex, sophisticated area of both finance and insurance and risk. So what exactly does— you get your capital, I get the capital, you get private capital coming in. And then what's your— are you actually doing reinsurance yourself or are you brokering it or what are you doing?

That's right. So, so at Northern, we're responsible for really end-to-end bringing that capital into the market. What we do is we go out and we source transactions from insurance companies. Effectively, what we're doing is buying their liabilities. We price those liabilities, we structure terms around them, and then we execute on those transactions and we manage the flow of funds throughout that process. There's quite a bit that kind of goes on in the middle, but we're responsible for everything in between.

And I'm just curious, we've had a lot of disasters in the last couple of years. Is that affecting your business?

Great question. Northern is unique in the sense that we do not focus on property catastrophe risk whatsoever. We focus on a segment of the market that's known as casualty. We refer to it as higher frequency, lower severity. Loss events. So these are things like auto and general liability, professional lines, things where the frequency of these events, car crashes, slips and falls, are highly modelable. They generally occur the same amount of time year over year. And so it gives us quite a bit of comfort around the volatility of those portfolios of business.

Got it. So you've been doing this now for a long time. You have this company, Northern Re. Let's, I guess you're moving into your third year now. Roughly.

Yep, that's right.

What's getting—

what gets you excited to go to work in the morning?

What's motivating you?

Oh man, it's— there's something new every day. And I think at this stage in, in our life cycle, what's exciting to me is, is starting to bring on really good talent. And so we're, uh, at the point now where we, we've got the budget to go out and, and bring in different people for various functions. One, it's identifying with my partner and, and others on our team where we do need that help, right? And then going out and finding that talent. And quite frankly, the fun part is bringing them on board. You can see from sort of day 1 to day 30, just the lights go off in their head. And these are smart individuals. And so it takes them a bit of time to get going. But when they do, you can really see the lift they have on the business pretty quickly. So that's been an exciting part of our journey, I'd say really the last 6 months and what I'm looking forward to over the next many years.

I, I've interviewed a lot of entrepreneurs who've done startups and they say almost to a person, they say the most important consideration when you're a CEO of a startup or a new business is if you're thinking about scaling, you've gotta hire people who know how to hire people.

Yep.

And if they don't, if you hire people that they may be technically really good at what they do, but they don't know how to be leaders themselves and they don't know how to hire people underneath them, you'll never scale.

And that's a great point. And we, I think we view this as a fairly lean organization over time. One, because Peter comes at it from more of a technology lens. He was at Uber for a long time and has always been on the tech side of things. So he's really ingraining that in the culture, which of course keeps kind of employee headcount down. But also that's a focus for us is maintaining a lean organization. So to your point, bringing on folks who are just then looking to hire additional people under them and not roll their sleeves up. That's something you got to look out for. It's something you got to vet.

So tell me what your typical day looks like.

Yeah. So no day is typical. I will say that.

I can imagine.

Yeah. But it's pretty seasonal with our business. So we have periods of heavy growth or heavy opportunity where a lot of my days is helping what's known as our Chief Underwriting Officer to triage deals, to work through the underwriting and the pricing of those transactions, communications with investors on those transactions, and ultimately seeing those through to execution. That can take up a pretty significant share of my day, really from the periods right before January 1st. So we're entering that right now, and June tends to be a busy period for that as well. Following those periods, what I tend to focus on is learnings from either the prior quarter or the past 6 months and trying to set the stage for, for the subsequent quarter and thinking when I can even further ahead than that. So it's working with Peter on what initiatives are we going to be focusing in on? Where are we going to be dedicating resources? Where are the hires we need to make? Working a lot with our external consultants, which we have many of, to try to manage process, right? It's a lot of operationalizing the business at this point. I think we've been successful in bringing in capital so far, and we've been successful in deploying it. So now it's about making sure that from a technology standpoint, from a process standpoint in operations, everything is flowing smoothly in that way. When we're hopefully continuing this growth trajectory, everything is manageable and built in such a way that we can scale.

You got to pay attention. I'm sure you're dealing with massive amounts of money for the ordinary person and keeping track of all of that. Because that's really important.

No, no question. I think there are technology solutions and platforms that we've brought on. Compliance is a big part of this and we work with entities who are beholden to the highest level of compliance in financial services. And so that's something that we had to get a handle on very quickly. It's working with people who have experience in that realm. And I think we've been fortunate to have partners on board in our early days that have been a resource for that and, and we've grown up together in that sense.

Anthony, what do you think it is that's unique about you personally that you bring to the table that makes all this work?

That's a, a great question. I think, and what I've noticed about myself is that I have a, a fairly high risk tolerance. And so I think when in, in anyone's entrepreneurial journey, taking that leap is you always remember that, right? And it's an incredibly momentous decision. It is not one that's taken lightly, especially as you get older and you have things like a family and, and folks that rely on you. But I think in my mind it was justified because of how much preparation and how much work we had done to get to that point. And ultimately the, that calculator in my head that was saying risk and reward, it had finally gotten to a point where it had been pushed over the edge and I don't think that calculator works the same way for everyone. I was fortunate and lucky that things have worked out since that pivotal moment, but that's not to say it was necessarily the right or wrong decision. It was just how my brain was wired. So I think that's definitely a big part of it.

Yeah. So it sounds like you were, you spent a number of years learning and growing personally, and then finally realized you were at a place where you can make that big decision. And probably make it successful.

That's right. And Peter and I had spent a lot of nights and weekends working through this concept and working through the diligence of it and making sure that everything ticked and tied, not just from a numbers standpoint, but conceptually and the relationships that we had. And so we had, we'd done a lot of the legwork to get to that point and not easy, right, to come home from one gig and start working on another.

Nope.

That's what it takes, at least if, again, if you want to have kind of that high degree of confidence when, when you make the jump.

So what, what's it feel like for you to now be a co-founder partner in your own business as opposed to working in somebody else's large organization?

Yeah, it's, first of all, it's great. I think I do well with accountability. I do well with responsibility. And so I've been able to manage that and I think I had some experience in my other shops, obviously Willis and GC, part of very large organizations, but was always a part of a very small team within those organizations. And given the role that we were in, we were on an island. And so we were used to being scrappy in that sense and used to eating what we killed. And Boost, obviously a very small company when I joined, I think I was the 7th or 8th employee. When I left, we were probably 40 or 50 and we were almost a Series C company. So I, I had some training in that respect, but at the same time, I, I knew that I wanted to eventually wake up and go to work for myself, as many people do. Getting there is not all it's cracked up to be, but I think overall the feeling and the pride that brings me makes it worth it.

So I want to pivot to listening a little bit. This show is called Listening with Leaders because I think that the one of the most underrated skills in leadership is learning how to listen to other people and not just listening to gain information and ask questions, but listening to validate people so they feel heard and valued. And I'm just curious about how you learned how to listen. You wouldn't get to where you are today if you didn't know how to listen.

Yeah, very good point. I, I think any good leader would tell you that they had many mentors along the way, folks that they looked up to, folks that spent the time to talk to them individually and to teach them not necessarily about a particular job or skill set, but just how to be the best version of themselves. And I definitely think that I was not— that was not missed on me. So I had every step of the way folks in my professional life that I felt were there. And I think Personally, I have that as well, not just with my partner and brother Peter, but I have two other brothers as well, older brothers who I look up to and always have looked up to, and the folks that they've become today, I admire them quite a bit. So I was fortunate to have a few that were built into my life, ones that kind of fell into my lap professionally. So I think that's, that's critical.

So having good role models is helpful. Have you had opportunities to learn when you weren't listening so well?

Hmm. Good question. Yes, I have. I think that there have been times in my career where things have not worked out around me, but not necessarily particular to my function or a business overall, but whether it was a particular project or initiative that, that failed. And I think that when I look back on those and, and I, I remember observing it happening. I think that inaction on my part was a contributing factor to those missteps. And at the time, justified it because it wasn't my function, it wasn't my initiative, it wasn't my project. I had my own things to worry about. But when I think back on it now, and especially having the ownership and, and of the small team today, I would hope that the folks who work for me would pick each other up, even if it wasn't directly in their wheelhouse. If they saw somebody.

Yeah.

So how do you inculcate that in your team?

It's a good question. I was just, so we were onboarding someone this week and I just got off with him and I was telling him that the onboarding process to date has really been trial by fire and we get everyone involved in everything their first few weeks, right? Whether it's their function or not, we want them to learn the ins and outs. Of the business, and we want them to spend time in each of those functions so that they can see, you know, what it is these other folks do. And hopefully there are in the future ideas and collaborations that can occur between functions that ultimately will be valuable. And we tend to have somewhat regular meetings, and they could be around specific technologies or specific initiatives where we have folks come together and talk freely about that from finance, from underwriting, from data, from structuring. Just to spark conversation, right? And maybe something doesn't come out of it, but in the event that folks can at least see the other perspective and see that other role, I think that's, that's a win.

How do you manage, how do you manage differing perspectives or conflicts that people have differing opinions?

Yeah, it's a good question. I'm a big believer in meritocracy of ideas, right? And folks being able to not just share those ideas, but challenge each other on them and, and hear different perspectives. I think that coming to conclusions on things and not having any degree of, let's call it, animosity or resentment for being potentially on the wrong end of that argument, that's important, right? And I think by fostering a positive culture, by getting to know each other on a deeper level, and all, all of that is helpful to having those more constructive, sometimes difficult conversations and arguments. And at the end of the day, multiple perspectives will come up with most of the time a, a, a better outcome than a single perspective.

Yeah, absolutely. And I think that's important to encourage diversity of ideas so that you get in your decision-making process, you have as much information as you can possibly gather within the time you have to make the decision and hopefully go through a decision process that leads to a good outcome. And a lot of people don't understand that. A lot of people avoid conflict and they avoid divergence because it's uncomfortable. It can be uncomfortable.

Absolutely. And I think with a, of course, a degree of respect, I think that honesty is an important aspect of that as well as just getting better and having that layer of constructive criticism doing that regularly. I think it's an important part of the evolution as you as a human being and absolutely. Actual sense.

So where do you see the company going in the next 10 years?

Oh, 10. Wow.

Yeah.

That's a big number.

It's a big horizon, but that's a big horizon.

Yeah, I think so. Right now we're focused on bringing in more capital. We're focused on continuing to deploy that capital. I think we see the market opportunity right now to be enormous in our space. And it's growing quite a bit. I think there's, a lot of data out there that, that demonstrates that, which is exciting. I think that's specific to the US, but also when we talk about 2, 3, 4 years down the line, there's certainly room for global expansion.

Wow.

I think the market there is still maturing with respect to working with entities like ourselves, but we want to be a part of that education process. We want to be a resource for those companies abroad that ultimately could benefit from this type of capacity. When I think about that kind of time horizon, it's certainly that global expansion. I think there are other business units that are very complementary to the existing one, not just for us as Northern, but also to our investors and to our counterparties. And I think that's what we need to consider in all this. And as we make decisions as a company is how will this better serve the folks that ultimately are utilizing the infrastructure, which is of course, the insurance companies and the underwriting entities, as well as the investors.

Right. Well, one more question before I let you go. This really fascinating business. Anthony, what's one thing about yourself that we would never know about unless you revealed it to us?

Man, on the spot. I am and always have been an avid video game player.

Oh, okay.

Counter-Strike. I played World of Warcraft as a kid. All types of strategy games. Uh, we've got a really good crew from, uh, my hometown that still gets on Sundays and we all play together. My brothers are in there too. It's a nice way for us to all stay connected. And yeah, I think, I think I've learned a lot from my gaming days.

Good for you. Good for you. That's fun. I, I don't think of the 300 guests I've had on this show, I don't think anybody's ever said that they were a gamer.

Right.

But this has been a great conversation. I know that my audience really appreciates your time, so thank you very much, Anthony.

Sure. Thank you, Doug. I appreciate it.

Absolutely.

Doug Noll here. Thank you so much for listening to Listening with Leaders. If you are a successful executive leader who would like to be on this program, please visit podcast.dougnull.com/podcast. If you got something out of this interview, would you please share this episode on social media? Just do a quick screenshot with your phone and text it to a friend or post it on the socials. If you know someone that would be a great guest, tag them on the social media to let them know about the show and include the hashtag #ListeningWithLeaders. I love seeing your posts and guest suggestions. We are regularly putting out new episodes and content. To make sure you don't miss any episodes, go ahead and subscribe. Your thumbs up ratings and reviews go a long way to help promote the show and mean a lot to me and my team. Want to know more? Go to my website, DougNoll.com, or follow me on LinkedIn, Facebook, and Instagram. That's @DouglasEnoll. Thanks for listening, and we'll see you on the next show.