T
he October issue of Intelligent Insurer examined the dynamic of corporate longevity in the reinsurance industry. This is particularly relevant in relation to the European market, home to several of the industry’s biggest reinsurers—and
also the oldest, with the likes of Swiss Re and Munich Re clocking up more than 100 years of corporate history.
It is also very relevant in relation to the rapid change taking place in the industry. As Richard Foster, executive in residence at Yale Entrepreneurial Institute and a specialist in the subject of corporate longevity, pointed out in that issue, corporate longevity has as much to do with luck as it from economies of scale—both factors true of reinsurance—is one of the greatest indicators of a company’s ability to survive for a long time.
Until things start to change, that is. Under these circumstances, even big companies committed to change and innovation often struggle to adapt quickly enough, compared with more nimble, newer, competitors. This thesis should act as a word of warning to many incumbent players in the industry.
ACROSS THE ATLANTIC Things are different in the US—at least in the sense of the length of reinsurers’ histories. While it seems a well-known fact that Berkshire Hathaway can trace its roots back to a textile manufacturing company established in 1839, in fact, the business had little involvement in anything approaching risk transfer until much later. It bought National Indemnity Company, which can trace its own roots back to 1940, in 1967.
This is about as old as it goes for US reinsurers. Everest Re goes back to 1973 as the former reinsurance arm of The Prudential. TransRe was founded in 1977. Toa Reinsurance Company of America began business as a separate company in 1982 (before this it existed thanks to a strategic alliance between The Toa Reinsurance Company (Tokyo) and The Mercantile & General Reinsurance).
While these companies are relative infants by the standards of some of
Europe’s senior players, they might still wish to consider for a moment just what it takes to stay the course as a company in this day and age— especially in an industry grappling with many new entrants and new ways of transferring risk. Some might even call insurance-linked securities (ILS) in this context a disruptive technology.
PREDICTING LONG LIFE Vicki TenHaken, a professor of management at Hope College, has done comprehensive research into this matter. In a paper called Building Endurance: common practices of companies in business more than 100 years, which she produced with Makoto Kanda of Meiji Gakuin University, Japan, she sought the qualities that help companies last longer.
TenHaken can also starkly illustrate that the lifespan of companies
globally is diminishing rapidly. Her research shows that the average age of companies on the S&P 500
Index dropped by nearly 50 years since the 1950s: the average age of a
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company in the S&P 500 in 1958 was 61 years; this decreased to 25 years in 1980, was just 18 years in 2012 and 15 years in 2013.
Today, less than 1 percent of all companies operating in the US are more than 100 years old.
So what is it that allows some companies to defy the odds? In an attempt
point was a country renowned for its corporate longevity: Japan. Several of the oldest known continuously operating companies in the world are Japanese, with seven having been founded more than 1,000 years ago. She then tested the same theoretical model on companies in the US that have been in operation for over 100 years.
MODELLING LONGEVITY Her starting point was a study done in Japan by Iwasaki & Kanda in factors old companies believed gave them a unique position leading to their longevity.
These factors were the management of corporate identity and culture; the management of core strengths; the management of business relationships; the management of employee relationships; and the management of community relationships.
Based on this theoretical longevity model, a survey containing 125 questions was developed using a Likert-type scale. This questionnaire was sent to the 7,000 privately-owned, small- to medium-sized companies in the Chuo ward of Tokyo, Japan, to see whether the older companies did, indeed, engage in the practices described in the model. To test the framework for its cultural relevance outside Japan, the same survey was also sent to 282 US companies over 100 years old.
engaged in by younger companies and second that such values and were their Japanese counterparts.
to do with building long-term relationships with their constituents—with employees, with business partners, and with their communities,” she says.
She says in the paper that such values and the idea that a company has
a competitive advantage through the development of close-knit ties with a broad range of internal and external constituencies”.
“The old companies practise a mutual learning form of stakeholder
its stakeholders to understand each other’s needs, combine resources, of shared value has recently been described as the next evolution of capitalism.
November 2015 | INTELLIGENT INSURER | 17
SHUTTERSTOCK / ANASTASIA TVERETINOVA
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