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We’ve got to be the ones to make the investments and try and crack these new-age risks, which are all going to be on our doorstep within a decade. Think about the risks that come with these Amazon drones, or driverless cars or the potential for radiation risk from cell phones. If you think about long-term differentiation coupled with all the tactical issues that James has comprehensively covered, it becomes a dynamic challenge.


Rhoads: You have to play to your company’s personality, characteristics and DNA. You need to think about ‘what makes us unique’, as we all have a slightly different approach to the business. Getting the insurance and reinsurance operations better linked up and the departments working together to try to find new ways to grow the business is what you have to do right now to survive.


Is the time right for a rise in M&A, and what are the challenges associated with doing so?


Few: If you look at the minimum size needed to be credible it has been rising for my entire career. It used to be $100 million, then $250 million, then $500 million—we all have to recognise that there is a minimum and growing size needed to be relevant. Once you are big enough to be relevant, then the debate about M&A ought to switch to ‘is this going to be accretive to our shareholders, is this going to be a better value proposition to our customers?’.


These two considerations ought to be the first you make; if scale is still your consideration once you’re already big enough, ahead of these two points, we’d question whether there is value in M&A.


However if an M&A opportunity existed, which did lead to a genuine opportunity to increase the value to shareholders and customers, then we all have a duty to look at those opportunities. In order to make M&A successful you have to take certain risks—it tends to be riskier to go through M&A than pursue organic growth. For M&A to work, it has to make sense financially and strategically—it can’t just be for scale reasons.


Rhoads: I agree with James. There’s strategic and financial M&A. 18 Bermuda Finance | 2014


“The issue is that sometimes you’re cutting those expenses when you really should be investing in innovation.” Lou Gutzwiller


Losing sight of what your shareholders want is a mistake; the focus has to be on ‘are the motivations right?’. Before Markel bought Alterra, Markel didn’t write reinsurance and they didn’t write large account retail insurance business.


We brought two product lines to them that they didn’t write before and that are accretive to shareholders, so it was both strategic and financial when Markel bought Alterra, which is sort of the trifecta in the M&A area. On top of all that, you have to have willing and skilled parties at the senior management level.


Few: In the Markel-Alterra acquisition there were obvious strategic benefits which I think were clear to the world and did make a lot of sense. If you’re in an M&A scenario where it’s not a cash deal, it’s mostly a stock deal, then the value of the combined entity is a critical part of whether that’s actually in the interest of shareholders or not.


Berry: In the short term, obviously execution of the transaction itself is absolutely pivotal. However when you’re looking to keep talent and maintain strategic alignment two years down the line, if you don’t get cultural alignment within the company building from the outset, ultimately the marriage may fall short from what it could have been.


This, combined with the integration of your intellectual horsepower, has to happen, otherwise it’s principally a merger of balance sheets and then a myriad of other issues come into play and the probability of success in the long run can be materially challenged.


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