Regulatory hurdles have limited the amount of premium written sofar by 2007 start-up Max Specialty, but with 90 employees, sixoffices and $150 million likely to be on the books by year's end,leader Steve Vaccaro isn't complaining.

While overall premium numbers were less than anticipated for2007 and 2008, Mr. Vaccaro, the chief executive of Bermuda-basedMax Capital's U.S. platform, said the specialty operation's shorthistory had a number of upside surprises–such as launching an MGAspecializing in health care liability, and hiring an experiencedteam of marine underwriters that wrote $40 million of marinebusiness, instead of the $5 million budgeted.

Meanwhile, Grace Meek, chief business officer for NaxosInsurance Company–another April 2007 start-up–is equally undauntedby market challenges slowing growth of the new surplus linesinsurer. Ms. Meek ranked the soft market as the biggest challenge,noting that less opportunity exists today as business leaves theE&S sector for the admitted market.

“We're comfortable with that because it's given us time tocontinue licensing Naxos on nationwide basis,” said Ms. Meek, partof the same team that put together Delos Insurance, a programspecialist.

Ms. Meek reported that Naxos is now an authorized E&Sinsurer in 20 jurisdictions. “We continue in that process,” shesaid, noting that while several large E&S states arepending–including California, Florida and New Jersey–the company isalready authorized in Texas, and she expects some others willhappen in three-to-six months.

MAX IN 48 STATES

Mr. Vaccaro said “the single biggest” challenge andaccomplishment for Max Specialty has been working with insurancedepartments over the last year to gain the necessary approvalstatus to write business.

After the initial members of the Max Specialty team signed onwith Max Capital in December 2006, Max Capital completed theacquisition of a nonadmitted company in April 2007, which wasauthorized as an E&S insurer in 42 states. Not havingauthorizations in the other states hindered Max Specialty's abilityto write business on a national basis, Mr. Vaccaro noted.

The last key state–California–came onboard this past June, hesaid, noting that the company is now approved to write E&Sbusiness in all states except New Hampshire.

“We had a number of initiatives going at the same time,” hesaid, explaining that having purchased a shell, the company had tobuild from scratch. “We had to hire competent people, build atechnology platform, put reinsurance treaties together and makeproducer appointments.”

On the hiring front, Max Specialty actually had a head startbecause Mr. Vaccaro had a team of 30 people already assembled in2006, which had been working on raising capital for a start-upbefore striking a deal with Max Capital. (See NU's, Feb. 20, 2006edition for early history details.)

Today, the company has 90 people in all–including the Richmond,Va., home office in Horsham, Pa. (where binding authority businessis handled), as well as in San Francisco, Atlanta, Dallas and NewYork. Mr. Vaccaro believes a lack of bureaucracy has attracted somany people to the company quickly.

“We treat people differently,” he said, adding that thecompany's motto is “check your ego at the door.” While the companydoes have an organizational chart, the culture is an open one. “Wehire the right people and just give them the resources to do whatthey do,” he said.

Mr. Vaccaro said the most recent offices opened–in Dallas andNew York–were set up to accommodate staff that came on board toform a marine division launched in August 2007 and headed byMichael Miller, a 34-year veteran of the marine insurance segment,including positions at Wm. H. McGee & Company as well asFireman's Fund.

The original core business plan of Max Specialty consisted oftwo divisions–a brokerage division and a contract binding authoritydivision. “The concept was that having a vast array of products anddealing with a different group of producers in each one of thosedivisions would give us the flexibility of reallocating resourcesas the market changed,” Mr. Vaccaro said.

To add further flexibility, Mr. Vaccaro raised the prospect tothe executive committee last year of offering “Bermuda-typeproducts” written by Max Capital in the United States. The idearesulted in the November 2007 launch of Max Managers, a managinggeneral underwriter writing on Max Specialty paper. Targetingsmaller-scale accounts than those that wind up in Bermuda, MaxManagers does not compete with the parent company, he said.

Led by Buddy Ankner, a 26-year veteran with specific expertisein the health care segment, Mr. Vaccaro expects the MGU to expandits expertise in the future.

“Max Specialty does not write heavy products exposures, so theremight be room to do that,” he said, thinking out loud, adding thatlarger contractors falling outside of the existing Max Specialtyappetite might be another area of future opportunity.

In the older divisions, Mr. Vaccaro noted, the risk appetiteremains the same, with average brokerage premiums of $50,000 andcontract business accounts averaging $2,000-to-$5,000. “Althoughthat business has to be realistically priced, at this stage it'snot as competitive as the larger accounts,” he said. “That's thearena that our producers control.”

With respect to producer appointments, Max Specialty is “prettywell done” on the brokerage side, with 80-to-85 wholesalerpartnerships. Another 83 privately-owned MGAs have bindingauthority contracts.

In addition, 30 specialty retailers and two wholesalers haverelationships with the marine division, he said.

Commenting on the latest developments at Max Capital, Mr.Vaccaro said that one of the biggest announcements from the parentcompany–the acquisition of the Imagine Group at Lloyd's in lateJuly–won't have a significant impact on Max Specialty.

Although the expansion of the group's international reach “willhave a nice enhancing effect on Max Capital overall,” business donein London is more similar to the Bermuda outfit than the U.S.operation.

More significant for Max Specialty is the acquisition of anadmitted insurer in June, which will be called Max America. “Inorder to become a viable competitor in certain lines, you have tohave admitted paper,” he said, citing the marine line as one sucharea.

NAXOS GETS READY

While Delos Insurance has been signing up program partners sinceit opened in 2006, resulting in 24 program agreements today, theability to access nonadmitted paper drove the formation of Naxos inApril 2007.

It was “part of a strategic move to be able to diversify ourportfolio, to add flexibility to our writings [and] to add value tothe company,” Ms. Meek said, noting that after an unsuccessfulsearch for an E&S company to buy, Delos executives set out tobuild Naxos from scratch.

Explaining the advantages of having E&S rate and formfreedom for programs, she said that some attractive nonstandard orhigh-risks fall outside of underwriting guidelines of programsalready in place.

In addition, it increases speed-to-market for programs expandingacross multiple states or nationwide. “As we gear up, we can writethem on an E&S basis until all rates and forms are filed andapproved,” she said.

There are also situations where the type of risk calls for anentire program to be done strictly on an E&S basis, she said,citing the example of a financial advisors errors and omissionsprogram Naxos is now launching.

“There's so much controversy around [this segment] that we wantto make sure we're excluding coverages we're uncomfortable with,”she noted. “It also gives us the flexibility to be able to chargewhat we feel is the appropriate rate.”

Another program for habitational risks on the West Coast,launching Sept. 1, is targeting vacant buildings. “That reallyfalls more within the E&S market. It wouldn't be a typicaladmitted risk,” according to Ms. Meek.

With managers for these two programs only recently signing onwith Naxos, the small amount of business in Naxos so far is fornational casualty programs where filings aren't yet done in everystate.

“With the soft market right now, the E&S market is tougherto write business in, but we hope our timing for expanding ourauthorizations [will mean] we're licensed nationwide by the timethe hard market comes, and we can fully take advantage of theE&S market,” Ms. Meek explained.

In spite of the soft market, she added, Delos has not had anissue growing. “We've been able to attract many partners that haveknown us for many years from our previous employment,” she said,referring to relationships that she and retiring chairman, DetlefSteiner, formed at Clarendon, where he served as CEO. (For morebackground on Delos' early days, see NU's, June 4, 2007edition.)

While the premium volume in each program individually is muchlower than originally anticipated due to the soft market, “ithasn't deterred us from attracting opportunities,” she said, alsociting a dedication to program business and a focus on writingbusiness strictly through MGAs as competitive advantages fuelinggrowth.