It was the end of an era at XL Capital Ltd. last week when Brian O'Hara's 14-year tenure as chief executive officer of the global commercial insurer concluded. Mr. O'Hara, who was XL's first employee when the company was established in the mid-1980s, will remain as non-executive chairman, but the man now charged with calling the shots is Michael McGavick. The 50-year-old American moved into the CEO's office at the company's Bermudiana Road headquarters on Thursday. On his second day in the hotseat, Mr. McGavick gave his first interview as XL CEO to The Royal Gazette's business editor Jonathan Kent. The new boss talked about how he regards XL's problems with Security Capital Assurance (SCA), the bond insurer in which XL owns a 40-plus percent stake, as "unfinished business". He touched on how the situation at XL differs from that at Safeco, a US insurance company he turned around by cutting hundreds of jobs and by axing underperforming units. He also reflected on the lessons learned from his run for the US Senate in 2006 and how he believes that the US is unlikely to make tax changes that would hamper the Bermuda market, no matter who wins the imminent presidential election.

In 2001, Safeco Corp. was in a mess and vulnerable to a takeover. The Seattle-based insurance giant hired Michael McGavick as its new CEO and he immediately started making tough decisions. Inside his first year, he got rid of 1,200 employees, 1,000 agents and 15 lines of business. Mr. McGavick took Safeco from a $989 million loss in 2001 to a $301 million profit a year later. By the time he left the company at the end of 2005, its share price was $56.50, up from $24.56 on the day he had arrived. Drastic action had led to a dramatically successful turnaround and Mr. McGavick was acknowledged as something of a corporate hero in Seattle.

Fast forward to seven weeks ago, when Bermuda-based XL Capital announced that Mr. McGavick would be its new boss. The Bermuda company is still dealing with credit crisis-related problems through its investment in and reinsurance of financial guarantor Security Capital Assurance (SCA). Those problems were the main factor behind a staggering $1.06 billion loss in the fourth quarter of last year which shook investors' confidence and led to the stock losing around 60 percent of its value from its 52-week high last summer.

Some are now wondering whether Mr. McGavick, who was described by some discontents during his first year at Safeco as an "axeman", will need to administer equally nasty medicine at XL. He told the Gazette there are more differences than similarities between the two situations.

"The reality is that at Safeco, so much was broken — their balance sheet faced challenges, their underwriting process was broken," Mr. McGavick said. "There was a lot to update and a lot to fix. Here at XL, while there are significant challenges, they tend to be fewer in number.

"At Safeco, they were selling a commodity product to consumers, which is very different than what we're doing here. They had a tremendous disadvantage in their expense infrastructure. As a result, it was widely known in the market when I was hired, that there would likely be significant restructuring required. I do not believe that there is a similar necessity here at XL.

"That doesn't mean that everything done here will continue to be done the same. I don't even know all the things that are done here at this point. I do know I can approach it in a very different way from Safeco. Any modern business must always be conscious of expense. But there is nothing at all that sticks out to me about the way XL is run, as there was when I joined Safeco."

Mr. McGavick said he'd been a long-time admirer of XL, particularly its discipline and "high ethical character". He got to know the company through his time purchasing reinsurance for Safeco and from sitting on industry boards with Brian O'Hara, the man he has replaced as XL's CEO. "The core underwriting process in XL's insurance and reinsurance businesses is just fantastic," he said. "This is one of the best underwriting companies in the world. So it really calls for a different set of activities from those that were necessary at Safeco. And I'd like to think that we can, in reasonable time, put those major short-term challenges behind us and really focus on the growth opportunities that are created by the strength of this underwriting culture."

The number one challenge, top of the new boss's list of priorities, is to deal with issues relating to SCA. XL established the bond insurer and still owns a stake of more than 40 percent in it. SCA's insurance of investment instruments whose value has fallen because of the sub-prime mortgage crisis has impacted heavily on XL's financial results and its shareholders' confidence. So has XL put its SCA-related problems behind it?

"Clearly, as of now, SCA is still an unsettled matter — it's unfinished business," Mr. McGavick said. "It's a very complicated issue and we've been working as hard as we can with SCA and with other interested parties to bring it to a resolution. My goal is to bring it to a resolution as soon as is possible, while still being reasonable for our company and our shareholders.

"Exactly what course will be taken is impossible to say today. What I can say is that I think it has reached a critical juncture. Various insurance regulators involved, both here in Bermuda and particularly in New York, are taking a deep interest in the whole financial guaranty industry.

"And, as you can tell by their public comments, they are deeply dissatisfied by the continued uncertainty with any of the financial guarantors, SCA being just one. That kind of focus from the regulatory community is helping to push forward some kind of resolution of the outstanding issues."

Some of the gloom has lifted from XL, as the share price has risen some 24 percent over the last fortnight, since the company announced first-quarter profits of $212 million, even though that net income was 57 percent down on a year earlier.

Mr. McGavick described XL as one of the few truly global brands Mr. McGavick described XL as one of the few truly global brands in the industry. He believes the company's reach could be extended further and deeper, particularly into the developing economies of the East, and he looks forward to making that happen.

"The most exciting opportunity, by far, is that while we have this great international platform, there are areas where we are not at the level of development that we'd like — Asia in particular comes to mind," Mr. McGavick said. "Looking around the globe, we have product lines that are not equally availed in some jurisdictions. That's also something we can work on.

"So I think of it as filling out our presence around the world and ensuring that we win our fair share in each product line. It's a wonderful place to be and a wonderful set of opportunities.

"I'm also very excited by the attention to innovation. There are whole groups of people in this company dedicated to making sure that our product lines are as innovative as possible. The world just doesn't stand still any longer and so products can't stand still either. I wish there weren't these short-term challenges that are so preoccupying, but the reality is, I have to admit that if those challenges didn't exist, then I wouldn't have a new job."

Mr. McGavick's former company Safeco is a member of the Coalition for a Domestic Insurance Industry, a group of US insurance giants conducting a long-running campaign to persuade US lawmakers to give them a "level playing field" by removing US tax advantages that their Bermuda rivals enjoy. As head of the Island's second biggest insurer, Mr. McGavick finds himself on the other side of the fence.

"Because of the rules of US taxation, the advantages are less than is often stated," he said. "Second, I don't think that the global economy is benefited by any jurisdiction using its government to take retaliatory actions. That's how I see what some in the US are proposing.

"It's not about level playing fields, it's about them trying to use their government to make advantages for their industry over industries that have developed elsewhere.

"The world economy and the US economy benefits enormously from the expertise that has been gathered here in Bermuda and the effectiveness of the industry here. So efforts by the US or others to limit the effectiveness of that market are self-defeating in the long run."

Bermuda now appears to be looking down the barrel of a political gun, in that Democratic Party presidential candidates Hillary Clinton and Barack Obama have both made threatening noises about taking legislative action against "tax havens", while Republican candidate John McCain appears to have a more tolerant attitude to Bermuda and its like. Mr. McGavick, who as a former chief of staff to US Senator Slade Garton and an unsuccessful Republican candidate for the US Senate in 2006, is well versed in the world of American politics. He's not convinced that the result of November's presidential election will make a major difference to the prospects of the Island's insurance industry.

"The obvious answer is that you have a couple of candidates who've said some negative things about Bermuda, although they never specify Bermuda, but they implicate it," Mr. McGavick said. "And then you have one candidate who's on the record as being relatively friendly. So the tempting, simple answer is that who wins the election will make a big difference. I don't see it that way.

'If there's one thing I know about the US Government and the legislative delivery process of the Congress, it's that the President may have a view going in, but that doesn't mean it will become policy. Not just because the legislature may reject it, but by the time the legislature is done debating the real costs of taking that action, then the executive (President) may actually change his or her mind.

"Lots of things are said to get votes. The question is: What action is taken? I think the case for the contribution of Bermuda is so strong that I remain an optimist that cool heads will prevail."

Mr. McGavick said that his political career, which culminated in his electoral defeat by Maria Cantwell for a Washington state Senate seat, had taught him many lessons he could use in business.

"I think that many companies make a fundamental mistake," Mr. McGavick said. "They presume because employees are being paid means that they should just do what they're told and be happy.

"In the political environment, however, you're working with volunteers. The currency of that realm is inspiration and making sure that everybody feels that they're doing important things. If you keep that mind-set and add the feeling of inspiration and the feeling that you're doing something bigger than oneself, you can get a lot more done and make it a place that everybody wants to be a part of. I think too many businesses leave the inspiration part out of the equation. That I learned from leading volunteers.

"Also from working inside government, as a chief of staff at the US Senate, I learned a real appreciation for what government does. Too often I find the private sector and public sector are distrustful of one another and don't understand one another. That leads to misunderstandings and a lack of progress for society as a whole.

"I have an understanding for each sector and that's been very beneficial. For example, I believe insurance providers benefit from a being in a regulated industry, because the regulator adds trust to the product in the eyes of the consumer. That's a complicated relationship and it's not always easy. But in the end, good regulation is in the interests of society and often in the interests of the companies who are regulated. Starting with that mentality makes you more effective at working with the regulators."

When asked whether he still harbours political ambitions, Mr. McGavick replied with an unequivocal 'no'. "Having decided to live expat for a while is a pretty good answer to your question all by itself," he added.

To move to Bermuda from Seattle was a wrench for Mr. McGavick, who was born and raised in the US northwestern city. He will live on the Island with his wife Gaelynn and two younger sons, Gates and Marco, aged nine and 11. A third son, Jack, attends college.

"As a part of my final due diligence, my wife and I came down here for four or five days and investigated all the basics of what kind of family life we could expect here," Mr. McGavick said. "One of the main things we noticed was how welcoming we found people to be. That was very powerful in our decision to say 'yes'."

Mr. McGavick is a keen rugby fan, having taken up the sport at college in 1978. He played competitively into his late 30s and has played in veterans' teams since. He hopes to find a team to train with in Bermuda.

For now though his focus will be on kicking XL's SCA-related problems firmly into touch.