HOW DO YOU DEFINE RISK? That was the question insurance industry pioneer Robert Clements grappled with in the mid-1980s. His solution would prove the genesis of XL. On a trans-Atlantic Concorde flight in 1984, the Marsh & McLennan President put together a rough business plan for a novel type of company—one he reckoned would solve problems crippling the industry.

A capacity crunch threatened to wipe out available excess liability coverage and collapse US insurance markets. As Clements saw it, the issue was defective product. Insurance policies were failing to price or package risk properly, and the result was endless litigation in US courts that left claims unpaid.

Clements envisioned a new system that would define liability limits, timespan coverage and conditions. The result would allow buyer and seller to understand how risks were packaged, paving the way for large corporations to buy excess liability at reasonable cost. His efforts, teamed with those of Roberto Mendoza of JP Morgan, launched a whole new brand of insurance company.

The XL group was born in 1986 in Barbados specializing in the small risk of very large losses—the business of low-frequency, high-severity risk. Sixty-eight of America’s largest corporations — Fortune 500 companies like Texaco, Chase Manhattan Corporation, Union Carbide—each invested $5 million to $10 million to capitalize the new venture and their executives made up EXEL Limited’s first board of directors.

Next: Vision