It wasn't all that long ago that E&S insurers didn't need tolook for business; with standard companies reeling from losses andreduced capacity, it came to them. Indeed, from 1994 to 2004, theE&S market grew remarkably, to $33 billion in premium from $9.1billion. In that time span, its share of the commercial-linesmarketplace more than doubled, to 14.14% from 6.43%.

Today, however, the E&S marketplace operates in a changedenvironment. The standard markets, flush with capital and comingoff record years in terms of profitability, are competingaggressively for business they once shunned. Last fall, A.M. Bestreleased figures showing that E&S insurers barely grew at allin 2005, increasing their volume only by about $270 million.Meanwhile, their share of the commercial-lines marketplace slippedto 12.65%.
E&S insurers, and the MGAs and surplus-lines brokers thatdistribute their products, have changed their tactics to fit thenew marketplace. Rates are coming down in acknowledgment ofcompetitive realities–but only so far, they say. Both carriers anddistributors appear to be making greater use of admitted paper. Andwhile returning to their core market–difficult risks that standardinsurers aren't prepared to underwrite–E&S insurers are lookingfor opportunities to expand that market. Catastrophe-prone propertyinsurance also continues to look like a market that E&Scarriers are likely to have more or less to themselves. Above all,the players in the E&S market are ramping up their marketingactivities. Growth is still the mantra; and since they can't counton business coming to them the way it did in the hard market,they're going out looking for it.
Here are how six members of the American Association of ManagingGeneral Agents and the National Association of Professional SurplusLines Offices view today's market. Their comments are followed bythe perspectives of three E&S insurance companyexecutives.
William Newton
Lemac & Associates
In the West, E&S insurers continue to express a desire for morebusiness, according to William Newton, although rates are downsignificantly for most lines–other than earthquake insurance.
Newton is the president and CEO of Lemac & Associates, in LosAngeles, and the current president of the National Association ofProfessional Surplus Lines Offices. The wholesale broker writesmost of its business in California but also is active in Arizona,Nevada and Hawaii. “We do a little bit of everything,” Newton said.Our biggest product line would be casualty.” Lemac & Associateswrites a significant amount of workers compensation insurance,which must be placed with admitted markets. The great majority ofits property, casualty and professional liability insurance,however, is written by E&S insurers. Specific classes includecontractors, products liability, and bars and taverns. Also, abouthalf of the wholesaler's umbrella business is written on anonadmitted basis. On all such business, rates have been comingdown, Newton said. Casualty rates, for example, have dropped from10% to 25%, depending on business class.
The main exception to the trend is earthquake insurance, Newtonsaid, which this past year was in a state of crisis. “Six to ninemonths ago it was very, very difficult to find needed capacity atany price,” he said, but now rates appear to be stabilizing,although not dropping. This is welcome news, Newton said, becauseLemac & Associates writes quite a bit of earthquakecoverage.
When rates get too high, a “backlash” develops and property ownersjust stop buying earthquake insurance, Newton said. “Unfortunately,when they stop buying, often they do not ever come back into themarket and we lose them forever as a customer.”
Such customers initially bought the coverage because they couldafford it or because a bank required it, Newton said. But whenprices get too high, he said, those who have the option to drop itoften do–sometimes even if they have mortgages. The bank may dropthe earthquake-coverage requirement, or the property owner may findanother bank that will.
Scott Anderson, CIW
Concorde General Agency
With the market softening, Scott Anderson says he does not expecthis agency's E&S business to grow much, if at all, in2007.
“I'd be happy to stay flat,” said Anderson, who is executive vicepresident of Concorde General Agency, in Fargo, N.D., and thecurrent president of the American Association of Managing GeneralAgents. He added that while policy count may go up, pressure onrates likely will keep a lid on volume.
Concorde General Agency does business mainly in the Dakotas,Minnesota, Iowa, Montana and Idaho, said Anderson, while Wyomingand Colorado “are opening up.” The largest part of the agency'sbusiness is specialty personal lines, he said: “Log homes to mobilehomes,” as well as coverage for motorcycles, snowmobiles, personalwatercraft, etc.
Roughly 35% of Concorde's business is nonadmitted. Anderson saidthe agency turns to the E&S markets to obtain coverage for suchrisks as artisan contractors, bars and taverns, vacant buildings,and some agriculture-related and manufacturing business. He saidthe agency currently is not pursuing “gray area” accounts likerestaurants, because the standard markets once again are showinginterest in them.
Anderson said the agency has met with both London and domesticmarkets since the beginning of the year, and they all areexpressing concern about the downward pressure on rates brought onby the increased competition from standard insurers. Nevertheless,Anderson said, the expectation very much is for growth.
Anderson said he hasn't seen any indication that E&S carriersare broadening coverage to better compete. Rather, he said, thecarriers and Concorde jointly are looking for opportunities in themarket where they can use underwriting expertise to excel. “Can wefind something additional?” is the message he's hearing, Andersonsaid.
Preston Gough
CRC Insurance Services
d/b/a Southern Cross Underwriters
Preston Gough is executive vice president of CRC Insurance ServicesInc., d/b/a Southern Cross Underwriters, and a former president ofAAMGA. Southern Cross Underwriters has 13 offices, primarily alongthe Eastern Seaboard and in the Southeast, including Gough's officein Jackson, Miss.
Gough said the Jackson office is not highly specialized, but ratherwrites traditional MGA business, including commercial property andcasualty, most of which is nonadmitted; transportation; and somepersonal lines.
At the time we spoke, Gough was preparing to leave for London,where he was to meet with Lloyd's syndicates participating in acontract covering coastal property located from Maryland to Floridaand west to Alabama. Business placed under the contract, which isup for renewal in April, primarily consists of coverage forcondominium owners and some homeowners, Gough said. Because ofhurricanes in 2004 and 2005, rates for such business increased lastyear by roughly 50% to 100%, depending on location, Gough said, anddeductibles increased too. This year, he said, he hoped that themild 2006 hurricane season would persuade underwriters to holdrates steady. Last year, Southern Cross Underwriters' aggregatelimits–the maximum amount of business it could write in the variousterritories in which it does business–were reduced. With morecapacity in the marketplace, Gough said he was hopeful those limitswould increase this year.
In the Jackson area, Gough said that the casualty market continuesto soften. Among other things, this seems to reflect a desire byinsurers in the state to compensate for their greatly reducedproperty writings, he said.
As a result, much casualty business that Southern CrossUnderwriters placed with E&S carriers for the last three yearsis now returning to the standard markets.
“We heard of a standard carrier that is getting into the truckingbusiness, which is kind of scary,” Gough said. “In my opinion, theydon't really understand that particular market, but it gives them aquick way to have an infusion of cash flow.”
Gough said that in an effort to retain good casualty business, hisE&S markets will drop their pricing by 5% to 10%, but theycontinue to stress underwriting discipline and say they will notcompete aggressively. “They're not willing to get down in thetrenches and write business where they don't think they can make aprofit,” he said.
Certain types of accounts–e.g., contractors–just seem to alternatebetween E&S and standard insurers, depending on the state ofthe market, Gough said. “I tell my underwriters, 'Wait two or threemore years and we'll see that same account again.'”
In regard to commercial property, Gough said most carriers arefreely writing coastal business–but without wind coverage. Rather,most businesses must turn to the state “wind pool,” which Goughsaid will provide up to $1 million of coverage but no businessinterruption insurance. It's not easy to get anything more, Goughsaid, adding that he has just one E&S carrier that will writeexcess property coverage (including for wind) above the wind pool's$1 million limit, as well as BI. He said he hoped to findadditional markets for such business while in London.
Gough said he didn't expect Southern Cross Underwriters' use of theE&S markets to change much in the year ahead. He said loyaltycounts for a lot when the market starts to soften. “There's nothingany individual wholesaler can do about it,” he said. “My advice toeverybody is try to do business with the carriers that have beenthere….What we dread most is new players coming into themarketplace with no underwriting discipline.”
Gough said Southern Cross Underwriters set a production record in2006 and thinks, with hard work, it can eclipse it in 2007. “It'sgoing out and finding pockets of business that we haven't hadbefore,” he said. “And we've got a very aggressive staff that willgo out and call on our retail agents…. Everybody's got the samepricing mechanisms to work with. Whoever provides the best servicewill probably get the best business.”
Kurt Bingeman, CPCU, ASLI, RPLU, CIW
Russell Bond & Co. Inc., CMGA
For Russell Bond & Co., success in 2007 will be a matter ofwriting more policies, although at perhaps lower premium, andbuilding business outside of the firm's core territory, accordingto Kurt Bingeman, president.
Bingeman, a past president of NAPSLO, said Russell Bond is shootingfor 10% growth in premium this year. “Last year our premium growthwas only 5%, but our policy count was up 10%,” he said. “So thepricing may be slipping, but we're writing more accounts, whichhelps.”
One way the firm plans to meet its goals is by developingrelationships with retailers in states like Connecticut, Vermontand Massachusetts, where it expanded in recent years from itstraditional base in New York, New Jersey and Pennsylvania. Bingemansaid that only a few of the firm's markets initially followed itinto the new states, but more have since come on board, which bodeswell for its effort to write more business in 2007.
Professional liability insurance has been Russell Bond'straditional specialty, Bingeman said, and still accounts for about30% of its business. But he said the fastest-growing segments ofits business are transportation and workers comp.
Historically, Russell Bond has written roughly 40% of its businesson admitted paper, Bingeman said, adding that the figure could riseby a few percentage points in 2007 because of the growth in thetransportation and workers comp business. Furthermore, traditionalE&S insurers are making greater use of admitted paper, he said,in an apparent effort to hold on to more business in a softeningmarket.
“We're pretty excited that we have both those options (admitted andnonadmitted paper) in a good part of our territory,” he said.
Bingeman said he doesn't foresee a major change in how Russell Bondwill use the E&S markets this year.
“I think our biggest issue is with the binding-authority-typebusiness,” he said. “A lot of that business has moved back to thestandard markets. And our number of submissions for that type ofbusiness has dropped.”
Bingeman has noticed that his loss ratios with some E&S marketshave been creeping up. “That's because prices have come down some,but the losses sure haven't changed,” he said. “It's something Iwatch carefully, because we do have profit-sharing opportunitieswith those markets.”
One place Bingeman has seen more competition from standard insurersis in the contractors market, although such carriers mainly arefocusing on artisan contractors and subcontractors, rather than ongeneral contractors. Standard carriers also are aggressive in theD&O market, even for clients that have experienced losses orthat work in riskier specialties. “We've seen people competing onaccounts that are not actually choice,” he said.
Most E&S companies have been making modest changes to theirprograms to hang on to business, Bingeman said. “There's been somerate flexibility,” he said. “They've brought back some endorsementsthat maybe they didn't offer before,” One example, he said, is moreflexibility in regard to coverage for additional insureds.
Bingeman said one concern he has in 2007 is whether New York Gov.Eliot Spitzer and Connecticut Insurance Commissioner RichardBlumenthal will continue to push for the elimination of contingentcommissions in their respective states. “We have contingencyagreements with markets where we have binding authorities,” hesaid, and, as for a retail agency, contingent commissions areimportant to the firm.
With the industry posting great results in 2006, Bingeman said themarketplace undoubtedly will get softer in 2007. “Everyone will getmore aggressive and try to write more business,” he said. “We don'tintend to roll back. We intend to grow, but it's going to meanwriting a lot more accounts.”
Mark Gold
Princeton Risk Managers
MGAs and wholesale brokers face a tough market these days,according to Mark Gold. “We're struggling more and more to hold onto renewals, just because the standard markets are writing accountsthat they weren't writing last year,” he said.
Gold is president of Princeton Risk Managers, in Princeton, N.J.,which does business in about a dozen Northeastern states and soonwill be licensed in Florida. Gold said the wholesale broker is bestknown for medical malpractice insurance, including forallied-health risks, and for providing coverage for socialservices; but it also offers property, products liability andgeneral liability insurance. About 85% of its business isnonadmitted.
Gold said he has been surprised to see standard carriers take onsome products liability accounts that long had been forced to findcoverage in the E&S marketplace. “But real estate has beenwhere we've been taking the biggest hit,” he added.
Gold said his E&S insurers are not idly sitting by, however.They are constantly offering additional products or enhancements,he said, such as combined general liability and professionalliability insurance, and risk-management services in connectionwith lawyers professional liability insurance. They also arewriting excess coverage over certain lines or classes that theydidn't before, he added, and showing interest in more classes forprofessional liability insurance.
In this environment, MGAs and wholesalers need more than ever tostay on top of what their markets are doing, Gold said. Theinsurers themselves are making an effort to get the word out, hesaid. At the time he was contacted, Gold said representatives fromfour E&S insurers had been in to see him in the previous week.Insurers also are putting more product information on their Websites and into their brochures, he said. Gold said he also scansthe trade press for information about markets, and speaks withcompetitors at gatherings sponsored by such groups as NAPSLO andthe New Jersey Surplus Lines Association.
Besides giving him updates on products they are offering, visitingreps are asking what they can do to get more business from hisfirm, Gold said. He said he replies that he needs flexibility andquick response time. “Sometimes we're going to have to get areduction in rates,” he added, “anything we can do to get theaccount bound.”
Gold said he sees a lot of capacity in the market, leading him tobelieve this soft market will stick around for quite a while. Inresponse, Gold said he is looking for new products to sell. “Rightnow, we are looking at possibly expanding into personal lines,” hesaid, “maybe high-risk homeowners … on the coasts. Nothing iscarved in stone yet, but I'm speaking with certain carriers aboutthat.” He added that he was referring to coastal property in theNortheast, not in Florida, where he may soon be expanding.
Also, just as E&S brokers are calling on him more often, Goldis encouraging his brokers “to pound the pavement and see retailbrokers.” He added, however, that he doesn't try to compete withstandard markets for an account. “I always tell my retail brokers,'If your standard markets are writing it, or it's done through somesort of program, by all means, just keep it there.'”
Meanwhile, Gold said the E&S market is still the place to putsuch risks as lawyers, doctors and other professionals who haveproblematic claims histories or practice in high-risk specialties,like securities or obstetrics.
Gold said he has bought a document management system and hasassigned specific territories to his New York and New Jerseyoffices. He also plans to open an office in Philadelphia. Gold saidhe is taking these steps and others to improve the level of servicehe can offer to retail agents and brokers.
“I think we can actually grow in this soft market,” Gold said.“It's just a matter of working harder. The business is out there,but now we've got to shake the trees to find it.”
Fred Steves
Myron F. Steves & Co.
As he considers the E&S marketplace in 2007, Fred Stevesdescribes it as soft and very competitive, with standard companiesbroadening their appetite. E&S agents and companies realizethey're going to have to write more policies to grow or evenmaintain premium volume, he said, but that already was the case in2006.
Steves is a managing partner of Myron F. Steves & Co. and apast president of AAMGA. The agency writes in excess of $200million in premium, Steves said, about 60% of which is nonadmitted.It does business mainly in Texas, although it has some programsthat it operates regionally or nationally.
Steves said the agency writes a broad range of insurance, includingprofessional liability. He said he doesn't expect the agency's useof the E&S market to change greatly in 2007, although insurers,despite softening conditions, are asking for more (but stillprofitable) business. “We will have to stay close to our companieson product and price, he said. “We will keep our underwritingintegrity while doing our best to offer better pricing by usingcredits, as allowed by our companies, to keep and write goodbusiness.”
“Our companies want to write a broad array of classes,” Stevessaid, “especially artisan and specialty contractors, vacantbuildings and dwellings, habitational property outside coastalareas, commercial and industrial contractors, janitorial services,manufacturers and distributors. It's the same things we've alwayswritten, except the standard markets are skimming off the best ofit.” The E&S markets are still a mainstay for restaurants andliquor-liability risks, Steves added, as well as for garageliability, builders risk and difficult transportationaccounts.
The exception to the soft market is coastal property, Steves said,where its difficult to impossible to place risk. Where there isavailability, he added, pricing and deductibles are up. Steves saidsome of his E&S markets will write excess wind coverage forcoastal properties over the primary insurance provided by the TexasWindstorm Insurance Association, the state's quasi-governmental“market of last resort” for hurricane coverage.
“Our wish list for 2007 would include increased aggregate orcapacity in the second tier of counties away from the coast,”Steves said, “a market or two to write new-construction residentialcontractors with uninsured subs, and something non-catastrophic toharden the market and keep standard markets from poaching E&Sbusiness.”
Anthony F. Markel
Markel Corp.
In 2006, according to information posted on its Web site, MarkelCorp. recorded a 78% combined ratio on its E&S business, downfrom 92% in 2005. Does it get any better than that?
“Let's put it this way,” said Anthony F. “Tony” Markel, presidentand CEO. “It might get better than that, but you certainly wouldn'texpect it.”
While Markel Corp., like other insurers, was helped by a benign2006 hurricane season, Markel said its results also reflectedfavorable loss development. Indeed, the insurance group reportedthat $16.5 million in increased loss reserves connected to the 2005hurricane season were more than offset by $176.6 million infavorable loss development associated with professional liabilityand products liability business for accident years 2002 through2005.
Markel said that the insurer's approach is to reserveconservatively. “If you see us posting outstanding results,” hesaid “it's only because we've now got years that are maturing,where we've got recognizable redundancies.”
Markel said possibly as much as 80% of Markel Corp.'s business isnonadmitted. Among its operations that write such business areEvanston Insurance Co., which is the nation's seventh-largestE&S carrier, and Essex Insurance Co., the 10th largest. He saidthe insurer writes “virtually anything of a specialty nature, wherewe can add value and make an underwriting profit. … The only twothings, frankly, that are off limits for us … are long-haul truckand workers compensation.”
Despite the migration of some E&S business back to standardinsurers, Markel said the outlook for 2007 remains good. Among thelines in which rates are eroding, he said, are casualty, umbrellaand professional liability, including D&O. Successful regionalcompanies are among the stronger competitors, he added. “I don'tthink the competition is so severe yet that it is depressingmargins down below where they're reasonable,” he said, “but thetrend is concerning.”
In the property cat market, much depends on the number and severityof events. “I do think that those players that are still in it aremuch more sophisticated and better priced for the long run,” Markelsaid, adding that he thought the industry is “pretty well preparedto digest a reasonable cat year.”
Markel said the level of E&S carriers' commitment tounderwriting will be the third determinant of what kind of yearthey have in 2007. “It remains to be seen how much discipline themarket is going to show in that regard,” he said. “I've been aroundthis industry a long time and, candidly, I don't give itparticularly high marks for discipline.”
Markel said the insurance cycle has reached the point where E&Scarriers are returning to their core market: tough productsliability, hard-to-place property, fireworks manufacturers, etc.Consequently, even if things turn out optimally, he said, E&Sinsurers' share of the commercial-lines marketplace is unlikely togrow in 2007–and could even decline a bit.
In regard to catastrophe property insurance, Markel said theinsurer is a “fairly big writer of earthquake” and “a reasonablysignificant player on coastal wind.” He said he was dismayed by therecent enactment of legislation in Florida that is intended tolower insurance costs by making the state-created Citizens PropertyInsurance Corp. a competitor for private insurers and the FloridaCatastrophe Insurance Fund an alternative to private reinsurance.The ultimate result, he said, could be to drive private insurersand reinsurers from the market.
“I think it's an awful, awful precedent for the legislators inFlorida to effectively put the taxpayers in the insurancebusiness,” he said. Should hurricanes really hammer the SunshineState, he said, its residents will be left with the tab. WhileMarkel said he didn't closely monitor the debate leading up theenactment of the legislation, he said he wondered whetherlegislators sufficiently thought the idea through or whether “thetaxpayers understand what they've bargained for.” While the newlegislation appears targeted mainly at the admitted personal-linesmarket, Markel said, “Anything of that nature is going to have aneffect on everybody … at least indirectly.”
Markel Corp. is not planning anything flashy for 2007, he said. “Wecontinue to look for opportunities to expand our product-line baseand to grow our existing products, but we don't force it at therisk of underwriting profit, and we just sort of stick to our corecompetencies.”
Kevin Kelley
Lexington Insurance Co. At Lexington Insurance Co., thenation's largest E&S insurer, President Kevin Kelley, sees anE&S market that is regaining its financial footing, whichshould help ensure a continuation of positive results.
“I think that 2006 was a very important year,” Kelley said. “Iwould view it as the beginning of what I would call a transitionmarket.” Having been left “substantially short” of what it neededin capital following the 2004 and 2005 hurricane seasons, Kelleysaid the industry last year made significant progress in closingthe gap. “I think it will probably have to continue (to do) thatthroughout 2007,” he added.
For 2007, Kelley said he expected casualty rates to soften,although not at an accelerating pace. Primary products liabilitycould be the line in which E&S insurers will face the mostcompetition from standard carriers, Kelley said, adding that themarket for non-cat property insurance also will be highlycompetitive.
Kelley said E&S carriers with strong balance sheets willcontinue to find opportunities in the market forcatastrophe-exposed property. He added that insurers competing forsuch business will continue to find reinsurance a significant cost,however, despite a benign 2006 hurricane season. Kelley said mostof Lexington's cat property reinsurance covers renewed at thebeginning of the year. “From January '06 to January '07, I wouldsay that they were up probably in the 35% range,” Kelley said. “Ingeneral, I would say, the property reinsurance market remainspretty firm.”
Lexington provides coverage for cat-exposed property in bothpersonal and commercial lines, Kelley said. It is active inFlorida, where the governor in January signed into law legislationenabling Citizens Property Insurance Corp. to compete with privateinsurers like Lexington. The state-created carrier previouslyfunctioned as a typical “market of last resort.” Citizen's isoverwhelmingly a homeowners market. Yet, while fewer than 10,000 ofCitizen's 1.3 million policies are written for commercialproperties, they account for about 15% of the insurer's exposure,according to data posted on the carrier's Web site.
Kelley said it was unclear what effect the new legislation willhave on Lexington. “But based on what we know, it should not have adramatic impact on commercial business,” he said. It may affectLexington's home-owners book, he said, “but we provide big limitsto very high-valued homes in Florida. So in that market, you'reprobably still going to continue to buy from a non-Citizen'salternative.”
Lexington also appears to see opportunity in the terrorisminsurance market, having recently announced an increase in per-riskcapacity to $250 million, from $100 million. Kelley said theinsurer made the move primarily for competitive reasons. “We seeLloyd's putting up that kind of capacity and felt that, in order toeffectively compete and attract that kind of risk, we had to dolikewise,” he said. The move did not reflect an estimate on theodds that the federal Terrorism Risk Insurance Act, which is set toexpire at the end of the year, will be continued in some form,Kelley said. He declined to comment on what Lexington might do ifTRIA is not extended.
Randall Jones
Maxum Specialty Insurance Group
At Maxum Specialty Insurance Group, CEO Randall Jones expects thebulk of the carrier's 2007 growth to come from its relatively smalladmitted unit. As for its nonadmitted business, “we're basicallyjust trying to hold the line and have more modest growthexpectations,” he said.
Maxum Specialty Insurance Group consists of Maxum Indemnity, anonadmitted insurer that operates in 45 states. The company,formerly known as Caliber One Indemnity Co., was purchased andrenamed by Northern Homelands Co. in 2003 and accounts forapproximately 85% of the group's business. About 18 months later,Northern Homelands purchased Golden Isles Insurance Co. and renamedit Maxum Casualty Insurance Co. It now does business in 25 statesas an admitted subsidiary of Maxum Indemnity.
Jones said Maxum is primarily a casualty insurance market, withproperty business accounting for less than 10% of the group'soverall book. On the nonadmitted side, the insurer writes midsizeliability accounts. Average premiums are around $40,000 for primarycasualty and low-layer excess, he said, which is written forriskier accounts like manufacturers and contractors that fit withinthe excess and surplus marketplace. Maxum Indemnity also writesmiscellaneous E&O, he said, as well as professional liabilityinsurance for small architect and engineering firms and for alliedmedical accounts, excluding such risks as nursing homes andphysicians. The carrier deals with wholesale brokers and generalagents who may have binding authority for its smaller P&Cbusiness such as small contractors, lessors and mercantile risks.On the admitted side, Jones said Maxum Casualty was set upspecifically to write small trucking operations, typically thosewith five or fewer power units.
Jones said Maxum ended 2006 with about $85.2 million in premiumvolume. The goal for 2007, he said, is $101 million. “Thatincreased production is primarily coming from … the (admitted)transportation division,” he said.
Jones said everything but catastrophe property will be morecompetitive in 2007. “We see standard markets coming in on some ofthe riskier liability business that we were writing when the marketwas tighter–maybe light manufacturers, some contractors that werenot quite as hazardous … architects and engineers, andmiscellaneous errors and omissions.”
Maxum's casualty reinsurance treaties renewed in January, and Jonessaid the process went smoothly. “We have a quota-share arrangement,which is a little different from excess of loss, where you'renegotiating rates,” Jones said. While the reinsurers scrutinizedthe group's underwriting standards, he said, they were willing todiscuss support for new opportunities the group may wish to pursuein 2007, subject to understanding the rationale of the underwritingapproach.
Maxum works with fewer reinsurers than do most carriers its size,Jones said. “Our strategy is to partner with a limited number andjust share everything with them. So for us (treaty renewal) is moreof just a continuation of an ongoing dialogue. We didn't ask forany major enhancements. It was more just 'keep movingforward.'”
Jones said that as a newer and smaller insurer (A- VII), Maxumchose its reinsurers with an eye toward security and thecredibility they would give them with rating agencies andcustomers. The insurer also started out with relatively low netretentions, Jones said, and has slowly increased them as thecompany has gained experience. Maxum offers casualty limits up to$5 million and this year is retaining up to $650,000 of thatexposure, Jones said–up $100,000 from last year.
On the nonadmitted side, Jones said Maxum will seek new businessprimarily by tweaking coverage and expanding into additionalclassifications. “When you find the market getting softer, we tryto put more time and effort into product development,” Jones said.“For instance, on a rolling three-year basis, we like to see atleast 10% of our premium come from new ideas or expansion ofproducts.”
One example Jones cited is a combined products liability andmanufacturers E&O policy for technology-oriented manufacturers.He said the carrier also is placing more emphasis on insurance fordefense contractors and is researching a move into specializedfirearms and munitions manufacturers and distributors.
Jones said Maxum deals with a limited number of brokers and generalagents. Each of the carrier's four divisions appoints 35 to 45general agents. Some of these intermediaries work with more thanone division.
The goals the carrier shares with its producers these days are notpremium-based, Jones said, but rather focus more on hit ratios andthe quality of the underwriting information and process. It also isseeking to become one of their producers' largest carriers for thelines of business it offers.
Premium-based goals potentially undermine underwriting integrity,Jones said–something to avoid regardless of market conditions.