One of the major issues facing a startup insurer, reinsurer, or bank is the chicken and the egg problem of not being able to become licensed or raise capital without a management team and not being able to afford a management team until the financial institution is licensed and the capital is raised.
Since most executives are unwilling to take a career risk when the outcome of a capital raise is uncertain, a startup often resorts to hiring executives who are unemployed, because they are often desperate enough to work cheaply. However, the best people are usually employed and hiring the unemployed at the outset may not augur well for the future of the financial institution once it is operational.
In order to convince the best executives to quit their jobs and be part of a capital raising process, a Sponsor may have to offer compensation guarantees that can often exceed $25 million in order to offset the career risk if the capital raise fails (the top three executives in Third Point Re quit their jobs and were paid $29 million in its first year of operation, with significant additional guarantees for future years).
A startup insurer, reinsurer, or bank can sometimes employ part-time or interim executives, who are worthy enough to obtain a license, raise capital, get the financial institution operational, and generate profits. However, finding the right combination of executives on an ad hoc basis who are able to pass regulatory oversight with the experience to launch a startup with compensation that is largely performance driven is very difficult.
Our startups use our Operating Partners to address this chicken and egg problem and significantly reduce execution risk. Each Operating Partner has a high-level of experience in insurance, reinsurance, or banking and is willing to serve as part-time or interim CEOs, CFOs, Non-Executive Chairmen, and/or Non-Executive Directors for our startups with most of their compensation performance based. Furthermore, our Operating Partners can also offer ongoing underwriting services for some of our insurers and reinsurers and loan origination and loan servicing for some of our banks.
Nine Bermuda reinsurers that have raised more than $4 billion of startup capital through a 144A offering or an IPO, and four did so with a part-time, interim, or no CEO and/or CFO (our Operating Partners were involved with four of them). The most recent one raised $175 million via an IPO listed on the NYSE with a (very) part-time CEO and an interim CFO. If the story is strong enough and the capital markets are receptive, Wall Street can raise significant amounts of capital for either a startup or early stage insurer, reinsurer, or bank.
Thus, a number of investment banks that like the concept of Structural Alpha and are familiar with our Operating Partners, have agreed to this chicken and egg solution, provided that they like the combination of product strategy, investment strategy, and our Operating Partners.
When the CEO or CFO is an interim executive, he or she will be expected to help find his or her full-time replacement within 12 months of its Series A round and become a non-Executive Director (although some might like the startup and its Sponsor enough to quit all other activities and become full-time executives).
Our Operating Partners
Joe is the founder and serves as the CEO of TCI. He started the first investment bank in Bermuda in 1990 when its insurance industry was in its infancy and helped finance most of it for 15 years (it is now the second largest insurance market globally). Joe then moved to Switzerland and began to found, co-found, and advise on numerous Startup insurers, reinsurers, and banks based on a combination of proprietary product and investment strategies. Most of the capital has come from the hedge fund and asset management industries. He holds Series 24, 27, 7, 4, and 63 licenses with FINRA. Joe served as a U.S. Marine in Vietnam as a Force Recon patrol leader and an infantry company commander in Hue City during Tet. He earned a BS in engineering from the U.S. Naval Academy, an MBA from Harvard, and also holds a Swiss passport.
Matt serves as TCI's CFO. He first worked for Mr. Taussig when Mr. Taussig was CEO of Interactive Data in 1988. Matt did financial forecasting for the launch of Greenlight Re and SAC Re. Matt also served as interim CFO for Dossier, a Startup health care data company backed by IBM and Walmart and chaired by Craig Barrett, the former CEO of Intel. He later spent four years as the CFO of Tau Investments, a private equity firm whose original investors included Jerry Yang. Prior to that, he was the founder and CEO of Hartford IT, a software development firm whose clients included General Electric, Pfizer, and the State of Connecticut. Mr. Graves earned his CPA while still in college at the University of Hawaii and has a Masters in International Taxation from the University of Hartford.
Paul is based in London and spent six years as the Global Head of Prime Brokerage at HSBC. He helped build a business that later accounted for 40% to 50% of HSBC’s Global Equities Revenues, serving 90 mostly blue chip clients, and was ranked #3 in Europe for equity strategies and market share by assets (“neck and neck with Goldman”) by EuroHedge in 2017. For eight years prior to HSBC, he was at Citadel Investment Group, where he initially headed their financing operations, ultimately becoming the COO for Europe and Asia and the CEO for Europe. He earned a BE in Mechanical Engineering from University College Dublin.
Hugh Hill is a New York City based attorney, regulatory expert, and financial services professional focused on national and international legal systems, cross-border finance, and compliance, particularly for insurance and reinsurance. He has practiced in New York, London, and Washington, D.C. with Hogan Lovells and Dentons. He has also served as a director, officer, and internal and external counsel for multiple companies, including a New York licensed insurance carrier and several multi-billion dollar PE entities. Hugh is admitted to practice law in New York and the Southern District of New York, is the Managing Member of a NYC SEC-licensed broker-dealer and has his FINRA Series 24, 7 & 63 licenses. Hugh earned his BA from Bowdoin College and his JD from Vanderbilt.
As an undergraduate at Harvard, Chris was selected as a Kleiner Perkins Engineering Fellow. He later became a venture capitalist for Accel Partners, where he sourced investments in DJI (the world’s dominant drone manufacturer) and DataGravity. Chris has worked on the development of many of TCI’s proprietary product strategies with Mr. Taussig. He earned a BA in Applied Mathematics and Computer Science from Harvard University and will complete his MBA at Wharton in 2020. He is also fluent in Mandarin, Cantonese, and Spanish and holds U.S. and Mexican passports.
Jim is a consulting actuary and lecturing professor at Clemson University with over 30 years of actuarial experience in the property casualty industry. He served as Chief Actuary for Greenlight Capital Re for 2½ years and spent 10 years at XL Capital, Bermuda’s second largest (re)insurer, rising to become its Chief Actuary. Jim has also served as an actuary with Milliman & Robertson, Ernst & Young (Bermuda) Aon, and Tillinghast/Towers/Perrin. He is an Associate of the Casualty Actuarial Society, a Member of the American Academy of Actuaries, and a Member of the International Actuarial Association. Jim earned his BS from the University of Illinois.
Gary has been involved with captive insurance management for 32 years. At Risk Partners, he is responsible for 30 captive insurers and developing insurance solutions for large commercial clients. Until it was acquired, Gary was the President of USA Risk, the world's fourth largest captive manager with 10 offices in 6 countries. Prior to entering captive management, he spent 5 years as an auditor in Bermuda with two of the big four accounting firms. Gary has also served as an expert witness in ten court cases and has been published numerous times. He is active in industry affairs having, served on the boards of the National Risk Retention Association, the Hawaii Captive Insurance Council (Treasurer), and the Tennessee Captive Insurance Association. He is currently on the Government Affairs Committee of the National Risk Retention Association and on the board of the South Carolina Captive Association. Gary holds an Associate of Risk Management from the Insurance Institute of America, is a Chartered Accountant, and has a Bachelor's degree in Accountancy from Glasgow University.
For 20 years, Doug has been a professional COO/CFO for technology based startups (blockchain, cloud streaming, cybersecurity, robotics etc.). He led capital raises for seven of these startups totaling $143 million from numerous venture capitalists and companies such as Sony and Accenture. He also forged strategic partnerships for some of the startups with companies such as HP and Microsoft and one was sold to Walmart. Prior to 1999, Doug spent 7 years at Nations Bank (now Bank of America) and 5 years as a salesman for IBM. He has a BS in Marketing and MIS from the University of Virginia and an MBA in Finance from the University of Texas at Austin.
Vernon is based in London and serves as CEO of Teepee Holdings, a Managing General Agency with £140 of gross written premium across litigation insurance and trade credit insurance. He also has significant experience in multiple classes of the insurance, deal origination and structuring, Protected Cell Companies and captives, and insurance broking. Vernon is a former director of a number of brokerages at Lloyd’s of London. He spent 3 years at KPMG where he served as a consultant to clients such as UK Government (where he led the Nuclear Power Industry and Insurance Programs), numerous captives, Avon, RSA, AXA, IGI, Aviva, Independent, Shell, and multiple oil and gas companies. Vernon also launched a successful health insurance company and was tasked with the takeover of AXA Wealth for Resolution Re. He is a Fellow of the Chartered Institute of Insurers, a Certified Insurance Practitioner, and was appointed Freedom of City of London within The Worshipful Company of Insurers in 2018.