Ambling around Hamilton, the pastel-colored capital of Bermuda, you'd be hard-pressed not to run into Kenneth 3. LeStrange, a smart, cerebral, middle-aged man who favors dark suits and light shirts.

He is a thoroughly down-to-earth soul and, almost paradoxically, the chairman, president and CEO of Endurance Specialty Insurance Ltd., a billion-dollar reinsurance company formed in the weeks after Sept. 11, 2001 and now operating from offices in Bermuda, London and the United States.

The company has identified and underwrites 22 lines of specialty business. The Bermuda operations focus on high-severity business, such as property catastrophe reinsurance, as well as specific risks such as Fortune 1000 excess casualty, hospital professional liability and directors' and officers' liability risks.

The company's U.S. and U.K. operations write more loss frequency-exposed business, applying the onsite underwriting, actuarial and claims management disciplines that are critical to controlling that business.

Endurance's reinsurance activities, which are conducted worldwide, require of its ceding company clients strong financials, advanced actuarial capabilities, the ability to monitor and react to shifts in pricing and coverage, experienced claims management skills, and substantial net retentions.

In each of its three years, Endurance has grown by buying other companies. It bought LaSalle Re's property catastrophe reinsurance business in May 2002. A year later, it acquired the majority of the premiums of the in-force property casualty reinsurance business managed by HartRe, a subsidiary of The Hartford Financial Services Group. And in September of last year, a U.S. subsidiary of Endurance bought the majority of XL Re America's surety reinsurance business.

Each transaction was structured as a purchase of renewal rights on a selected group of reinsurance contracts and, in the ease of the LaSalle and HartRe transactions, a quota share reinsurance of the unearned premium reserves associated with such contracts.

The build-out is essentially complete, or will be soon. The last leg of the construction of the company's foundations is the development of its U.S.-based primary insurance sector, which was the focus of attention in early 2005. The business will be sourced through brokers and agents.

At the close of its third full financial year, last Dec. 31, Endurance reported net income of $,355.6 million on net premiums of $1.6 billion. Return on equity for 2004 was 20.3 percent. That was after estimated gross losses of $170 million from the four hurricanes that hit Florida and the Caribbean in the third quarter. In the three years, Endurance has earned net premiums of $4 billion. The company has turned initial capital of $1.2 billion into $1.6 billion, almost exactly as planned.

A FAMILY MAN

Insurance runs in Kenneth John LeStrange's veins. He was born in New York City on Aug. 8, 1957 and grew up on Long Island, the older of two brothers. His father was a reinsurance man, who retired from General Re, having spent his career at American Re and Swiss Re.

Like father, like son. LeStrange the younger began his underwriting career with Hartford Insurance Group and held a number of underwriting management positions at Swiss Re. He was executive vice president of American Re and president of its alternative market subsidiary, Am Re Managers, for 13 years. In December 1997, he joined Aon Corp. as chairman and CEO of its alternative market operations and was later named chairman and CEO of Aon's retail brokerage operations for the Americas.

He was working for Aon on Sept. 11, 2001. "My business trait was profoundly affected; we lost 180 employees," he says. "We spent the first couple of weeks dealing with the trauma, getting the business back up and running." The idea of a start-up was not discussed in those first two weeks, but came up the following week. "There was a healthy skepticism," LeStrange says. "People were interested in what would be unique."

And so, Endurance launched operations in Bermuda on Dee. 17, 2001 after raising approximately $l.2 billion from a group of investors that included Aon, the Zurich Financial Group, Capital Z, Thomas II. Lee Partners, Texas Pacific Group and Perry Capital. (Aon and Zurich have subsequently reduced their investments in the company.)

A billion dollars was the minimum threshold at which the business plan would work "in terms of our knowledge of clients and the likely perceptions of the ratings agencies," LeStrange says. "We were aware that many others were out there raising money, too."

When he's not working, LeStrange spends as much time as he can with his wife, Beth, and their two teenagers, Caitlin and Kenneth. Other than that, you can find LeStrange reading a book, playing golf or casting a fishing line. But he admits that fishing isn't something he does very often.

He has at times been an outspoken critic of the insurance industry. In 2002, in a widely-publicized comment made not long after Endurance opened its doors, LeStrange said, "For far too long, [the insurance industry has] been driving 90 miles per hour down a dark and twisty mountain road, staring into the rear-view mirror."

The automotive metaphor is a humorous characterization of insurance and reinsurance companies. The CEO steers. The marketing department has its foot on the gas pedal. The auditors are on the brake. And the actuary, looking in the rear-view mirror, gives directions to the driver.

At the time, LeStrange charged that the industry was guilty of "chronic underreserving in the past."

Some of it had to do with social and tort inflation that nobody could really control, such as asbestos. "Many of us thought that asbestos had settled down and, in fact, it had, in terms of the paid loss triangles in the early '90s. And then a whole new class of plaintiff showed up and it is roaring again," he says.

Does he stand by that view today? "Yes, I think it is still valid," he says. "Many organizations are making their risk management decisions based on stale or inaccurate information, and the behavior of some of the markets reflects that position. The directors' and officers' liability market is among the worst examples: poor information, a poor understanding of claims experience, very much a backward-looking approach to the business."

Endurance's D&O market, LeStrange says, "never grew to a level we thought we could achieve, partly because it was being offered by too many companies, but mainly because of the underappreciation in terms of claims experience." Conditions in the D&O market will only improve, he also says, when the headline-grabbing cases such as Enron and WorldCom fade into history.

Another broad market in which Endurance has not performed as expected is commercial umbrella coverage in the United States, where pricing and terms and conditions did not react as strongly as the company thought they should, in the wake of exposures.

A NIMBLE ANIMAL

Through it all, Endurance has been fairly nimble, LeStrange says, in responding to unexpected market conditions, in part because it keeps its costs relatively low. "We have tried to keep ours on the leaner end of the scale of our competitors, so our business units tend to be rather small," says LeStrange. "People have different views of what on-the-ground capabilities do for you."

In terms of his competitors, LeStrange did recognize some optimistic signs at the end of 2004. "You see a flattening-out of the growth pattern," he says. "In some cases companies are shrinking, as a reflection of lowered pricing and market conditions, and the adoption of a more disciplined approach to capital management. A number of companies are walking that walk, not just talking that talk, more companies than I might have expected, and I think that's healthy."

Although he "grew up in the times when people used to work up pricing on the back of an envelope, usually after lunch," LeStrange argues that technology and new risk analysis tools can help the insurance automobile slow down, turn on its headlights and focus on the road ahead.

Endurance is heavily invested in cutting-edge proprietary and in-house technology. Thomas D. Bell, executive vice president of Endurance Specialty Holdings, who has worked with LeStrange for many years, describes the culture at Endurance as "collaborative, respectful, mindful of integrity and sustainability, and keen to live up to the high expectations we have set for ourselves." The company has certainly set the bar just about as high as it will go, as it executes a simple strategy.