Moving From Corporate to Capital: The Axcelera Formation Story

What drives the need for capital? Sometimes it is a fortuitous event—a weather-related catastrophe, a business crisis or a change in law. Other times, it is something entirely different: a new product and the opportunity it creates. Axcelera was the latter. 

My search for capital for a start up was predicated on our success at AIG in the specialty lines space and transactional liability space.

We identified a business broker/intermediary in mid-1999 who worked with us to put together a business plan and five years of financial pro formas that they could take to the private equity markets to solicit interest in the idea. They were immediately able to find interest with two insurance linked private equity groups: Swiss Re/Securitas Capital and Marsh & McLennan/Trident II.

The intermediary arranged for me to meet with both sets of interested investors, both of whom had worked together in the past. Rob Stone of Securitas was a Harvard educated principal there. He was a delight to deal with and very much sold on bringing the investment across the finish line. After signaling his interest in moving forward, the intermediary set up a meeting with Trident, Marsh & McLennan’s private equity fund.

I drove up to meet Bob Clements who was the head of Trident and former President of Marsh & McLennan and former Chairman of MMC Capital. I met Bob at his office in Greenwich, Connecticut. I was a little apprehensive because I had never met Bob before. 

Years earlier, in the mid-1980’s, I was handling a large claim arising out of Marsh & McLennan’s $165 million loss from the unauthorized trading in government bonds by a corporate treasurer, Chester A. Gan, and a bond trader, Dorothy Conway. Richard D. Post Jr. as VP/head of the investment group was fired as a result of the incident as well. Dorothy Conway had purchased $2 billion worth of long-term government bonds on margin without authorization. As interest rates rose and the face value of the bonds fell, they were liquidated for a $165 million loss, and shareholder class and derivative suits followed.

Hank was trying to set up a meeting between me and Bob Clements to discuss the claim but it never came to pass in 1986. In any event, Hank warned me, “This is a really tough guy, Mike. He is a wild, blonde-haired, deep-blue-eyed  guy who is very tough to deal with.” Hank had a lot of respect for the guy but also a little bit of fear. I had never seen that in Hank before.

It was with those thoughts in my mind that I waited in Bob’s office in Greenwich some 14 years later—not to discuss the bond claim, but to ask him to finance our business plan for Axcelera.

I did not know what to expect from this wild-haired, wild-eyed, crazy Canadian, as Hank had once described him to me.

When I met Bob in his beautiful Greenwich office, I was immediately impressed. He was a tall, good-looking, well tanned, casually but elegantly dressed personable business executive. We spoke for about two hours and the meeting could not have gone better. I genuinely liked him and vice versa. He, like Hank, was provocative, intelligent, and in quest of new business opportunities. He was fascinated by my success with representations and warranties, tax insurance, and loss mitigation underwriting (“LMU”). LMU provided coverage for contingent liability; in effect, future liability that was either uninsured or underinsured.

I had done a number of those deals with Hank’s approval and Bob could not hear enough about them. Nobody else was doing them and he was so excited he could barely contain himself. I loved Bob and vice versa. When he found out who the co-investor would be, he knew how the deal was going to be structured and how much capital was to be invested.

After that meeting, things progressed rapidly between Swiss Re and Marsh and I tendered my resignation from AIG in January 2000.

We thought we had built a great structure: a Bermuda reinsurer and a New York-based MGA writing on AAA Swiss Re fronting paper, with great economic terms.

What happened post-resignation and Hank’s relentless quest to capitalize on Swiss Re vulnerabilities is outlined in a future blog.

Ultimately, this opportunity was triggered by new product innovation. And, along the way, Bob Clements became a great mentor to me, as Hank had been. I was blessed to have known them both.

I spent hours with Bob telling stories about deals and the future of the Axcelera business, at lunch and dinner in Connecticut and at his home. I got to know his entire family. He and Hank were similar in many ways. I had deep respect and admiration for them both, particularly for the investment each made in his family. Both raised wonderful and ultimately very successful families.

I loved them both and am a better man for having worked with them and learned from them through observation and communication.

Over the years, the insurance industry has repeatedly needed new capital in response to external shocks—from the oil and gas downturn and banking crises of the 1980s, to the dot-com collapse of the early 2000s, 9/11, or Hurricane Katrina events. All of which were limit capacity plays and drove the need for capital. My opportunity was different. 

Our need for capital was driven not by catastrophe or crisis, but by new product development in the transactional liability space.