Sailing Through the Choppy Waters of the Hidden Economy
WHY YOU SHOULD CARE
Because an intensely competitive spirit lies behind success in any field.
By Steven Butler
When I sit down at the desk opposite Bryon Ehrhart, the first thing I notice are four quarters in a straight line, perpendicular to our line of sight — my first clue to the precise mind at work. Then, when I start asking questions about his career, he tells me — to the day — when he joined Coopers & Lybrand, now part of the giant PricewaterhouseCoopers, as an accountant in 1986. He also recalls, to the day, in 1994, when he joined the company that he’s since helped build into the largest reinsurance broker in the world, with $1.5 billion in revenue, compared with $30 million when he started.
Today Ehrhart is CEO of AON Benfield Americas, which he joined in the wake of the devastation to the insurance industry in Florida caused by Hurricane Andrew in 1992, and by the Northridge earthquake in California just two weeks before he started. “I made a career bet that it would be interesting,” he says. Indeed, with the precision with which he lines up quarters or remembers dates, Ehrhart figures out how to methodically conquer his chosen world, whether it be insurance or sailing (more on that later). “Winning is addictive,” as he puts it.
Mother Nature has an age discrimination policy against sailors, and I’m running up against that.
Reinsurance? It’s one of those essential organs of the world economy that maybe you’d rather not think about, like the liver or the kidneys, and one you don’t have to think about so long as it’s busy cleaning up gunk. Insurance companies issue policies to cover risk, from automobile accidents and natural disasters to a financial meltdown. But in order to avoid getting pulverized by an unforeseen disaster of huge proportions, insurance companies take some of that risk and sell it to a secondary market of reinsurers and, increasingly, to hedge funds or pension funds in search of a higher return on their investments. Pension funds, for example, were able to pull in a return of nearly 10 percent in the past decade on hurricane bonds. Of course, that higher return comes from a bet that hurricanes won’t blow down too many houses.
That’s what Ehrhart and his company do, find buyers for those secondary risks. And the entry of hedge funds and pension funds into the reinsurance business, dubbed alternative capital, has radically changed the game for AON and everyone else, sharply driving down rates — by half in two years — and sending Ehrhart scrambling to find new risky stuff that someone’s willing to insure for the right price, like mortgages, or variable annuities, where promises made years ago might be hard to keep in today’s financial markets. You can price and sell most any risk so long as you can measure it precisely enough, which is where Ehrhart made his mark in Aon, running the analytics division of the company for years.
Despite his penchant for precision, Ehrhart’s not a stuffy guy in the least. Tall, athletic and youthful at 51, he wears a trim slate-blue suit with a striped tie — and a sports watch for our meeting at his New York office. Master of the universe during the week, he’s a hockey dad on weekends, driving his middle child, a 12-year-old son, to as many as three games in the Chicago area. This dyed-in-the-wool Midwesterner is up at 4:45 every morning, for a half-hour, 6-mile trek on the treadmill, and also takes another sports obsession — sailboat racing — quite seriously. Ehrhart owns a 63-foot racing yacht named Lucky that won the 2015 Transatlantic Race, from Newport, Rhode Island, to Cowes, on the Isle of Wight in the U.K.
But that competition — with 15 men, on four-hour shifts, clocking in at eight days, 21 hours, 34 minutes and 4 seconds — could prove to be his crowning achievement in the sport. “Mother Nature has an age discrimination policy against sailors, and I’m running up against that,” he says. So it will be back to golfing, which, of course, he’s also played competitively. Ehrhart is plainly going to miss sailing, which he calls a microcosm of business — of teams working together intensely. “Almost every race I come back with some insight into group dynamics,” he says. “You like to win, and form a great team of people who know what they are doing.”