While the odds may seem stacked against Joe George as he putsbuilding blocks in place for a specialty insurance divisiontargeting residential construction, the industry veteran is workingwith a blueprint for longer-term success. "Our philosophy is youcan't time the market," said Mr. George, president of IronBuilt, arecently launched division of Ironshore Insurance, commenting onthe challenges of setting up shop during a soft insurancemarket.

"You have to pick a good core line. You have to have goodpeople, have the right distribution, do the right things, and thenyou will be there when the market opportunity does present itself,"he said.

While other leaders of start-up surplus lines ventures are allstruggling with the same soft insurance market problems, Mr. Georgefaces a somewhat unique challenge related to the core line his unithas chosen.

In spite of the slumping housing market, however, he believesconstruction liability lines will see growth over a longer timehorizon. Supporting his view, he cited a report by theWashington-based Brookings Institute, estimating more than $20trillion in construction spending by 2030.

The reason for that is an increase in population, he said,citing a projected jump of 70 million people in the same timeframe."There's still going to be a housing shortage. In addition, there'sa lot of infrastructure around the United States that is going toneed repair," he said. "When you look at the construction industry,as a whole, and even housing in particular, it's going to be agrowth area over the next five-to-10 years."

Turning to the competitiveness of the property-casualty marketoverall, he said, "it's like the stock market--it's very difficultto time the insurance market."

"Right now, we're probably paying underwriters to take more of adefensive position than an offensive position," he observed. "Werealize that, but our strategy is to be in place and to be able tocapitalize on the market strategies when they do presentthemselves."

With the comment, Mr. George pretty much summed up the thinkingof Ironshore CEO Robert Deutsch, two other leaders of newunderwriting divisions at Ironshore, and seven more executivesinterviewed for this edition of NU at four other start-ups--ValiantInsurance, Max Specialty, Montpelier U.S., and Naxos.

"If you wait until the hard market is imminent and try to buildinto that, chances are you'll miss the majority of the opportunitythat that presents," said Valiant CEO Gary Dubois, noting the speedbump that the U.S. regulatory environment presents for companiesseeking licenses, approvals, and excess and surplus linesauthorizations.

Like Mr. George, Mr. Dubois highlighted the need for executivesof soft market start-ups to commit to a process of "patientdevelopment."

"If the parent company is truly prepared to take a long-termperspective, then arguably the timing is actually ideal for us," hesaid, noting that boards of directors have to buy into the strategyas well.

On a personal level, Mr. Dubois said, "I think you learn fromthe success and failures that you've had," noting that he hadexperienced the early days at Reliance National and LibertyInsurance Underwriters, the specialty division of Liberty Mutual,during the course of a 24-year career in specialty lines.

"If you look at the timing now relative to 1999," when LIUstarted up, there may be "a good parallel to what we'll see happenover the next few years," he said, pointing to 1999 as the depth ofthe last soft market.

"Our growth at LIU from 1999 through the latter part of 2001 wassolid, not extraordinary, but we did lay that groundwork, thatinfrastructure, that acceptance and credibility in the market," hesaid, adding that "when conditions turned in 2001, we were reallyideally positioned to take advantage of that," noting that LIU wasabout a $1 billion operation at its peak.

SEEKING NEW CHALLENGES

The executives also expressed common themes when giving theirreasons for jumping from the comfort of prior positions atestablished companies to new E&S ventures in any market, citingthe adrenaline rush of new challenges and the lure of smallentrepreneurial, specialty-only operations.

Also high on the list for Mr. George and Mr. Dubois was theattraction of working with industry icons--Ironshore's founder,Robert Clements and Ariel's chairman, Don Kramer--with trackrecords of attracting good people and smart capital tostart-ups.

Mr. Clements is known to the industry for having founded severalBermuda-domiciled insurance and reinsurance companies, includingACE Ltd., XL Capital Ltd. and Arch Capital Group Ltd., while Mr.Kramer--the former vice chair of ACE Ltd.--was also founder andchair of NAC Re, founder of Tempest Re and later president of ACETempest Re.

Management team leaders like Mr. Dubois and Dick Nenaber,president of Montpelier U.S. Insurance Company in Scottsdale, arealso no strangers to start-up building processes.

"I seem to have a track record of being able to start successfulE&S insurance companies," said Mr. Nenaber, an apparentunderstatement for someone whose resume reveals a 31-year historyof the E&S industry in Scottsdale.

Mr. Nenaber, who started in the E&S business in 1977 withGreat Southwest Fire Insurance Company, also co-founded WesternHeritage Insurance Company in 1986 (after a one-year stint managingthe binding authority division of Swett & Crawford inCalifornia). When Nationwide bought Western Heritage's parent,Allied Insurance Group, he went on to reorganize Fulcrum InsuranceCompany, then a unit of Sorema, into a binding authoritycompany.

Together with Stan Kott, CEO of Montpelier US, Mr. Nenaber laterstarted Wellington Specialty Insurance Company. The entire U.S.operation of Wellington Underwriting Inc. went from a $10 millionoperation in 1999 to just under $300 million in 2006, according toMr. Kott--who also reported that Wellington's U.S. platform made anunderwriting profit in all of those years.

After Catlin purchased Wellington, Mr. Kott--who had arelationship with Montpelier Re Chairman Anthony Taylor dating backto Mr. Taylor's days at Wellington--capitalized on the opportunitythat opened up when Mr. Taylor's Bermuda-based property-catastrophereinsurer serendipitously decided to expand into diversifying U.S.businesses, Mr. Kott noted.

For Scott Bayer, who signed on as senior vice president ofValiant's casualty division in May, the sheer pleasure of digginginto underwriting files was a draw that pulled him away from anine-year stint at LIU. "I was involved with nine offices. Myday-to-day underwriting was very limited," he said, describing hisprior position.

"Here you're talking about getting your hands dirty, gettinginto files again, making decisions on individual deals," hesaid.

"To me, that's what it's all about--the idea that now I'mlooking at accounts, putting manuals together, putting ratingmodels together, hiring people, and knowing that these are thethings that four or five years from now" will really determine thesuccess of the company.

Matt Dolan headed up medical professional liability divisions atChubb Executive Risk and One Beacon Professional Partners, a unitof White Mountains, before becoming president of IronHealth, arecently formed health care liability division at Ironshore.

"Inevitably, as a specialist invested in specialty linesliability, you find yourself competing for the resources andattention of a large p-c organization," Mr. Dolan said.

The idea of being part of a business where the focus isspecialty is very appealing, Mr. Dolan said. "You're able to laythe framework for an organization whose reason for being isspecialty lines opportunities," he said.

He added that the idea of creating an approach from scratch,extracting lessons learned, and building an organization "that'sinfused with the most recent and best view on how to do it right,"is another enticement for entrepreneurial individuals involved inspecialty lines.

The vision of starting with a clean slate--or, more precisely,"a clean balance sheet"--also fueled the thinking of Robert Piller,president of IronSelect, the newest division of Ironshore,targeting excess-casualty business. "There are no legacy issues,"said the former senior vice president of umbrella liability forZurich North America.

Large companies also struggle with legacy systems, Mr. Duboisnoted, describing how his new team of underwriters and chief ofclaims can have tangible constructive input into informationtechnology development at the outset. "You don't have to go backand fix it later, when it's a much more complex task," he said.

COMPETITIVE ADVANTAGES

Going forward, Mr. Dolan said the fundamental challenge for newU.S. specialty players like IronHealth will be making sureproducers "have a full appreciation of the meaningful differences"between their approaches and those of other specialty players.

While Mr. Dolan highlighted "meaningful product enhancements"(such as evacuation coverage for medical facilities faced withdisease outbreaks and natural catastrophe risks), and Mr. Georgehighlighted a "true underwriting culture" as a distinguishingfeature of Ironshore's businesses, CEO Robert Deutsch focused onthe fact that individuals in each of Ironshore's divisions areenergized by an entrepreneurial spirit--and willing to take equityrisk to prove it.

"[Bob] Piller is not going to get rich on his base salary," hesaid, referring to the newest divisional head at IronSelect. "He'llcover his bills. He's going to get rich if he does his job right.He'll get rich on performance bonuses and equity ownership,"according to Mr. Deutsch, who added that "for people willing totake that kind of entrepreneurial risk, Ironshore is a fantastichome."

Mr. Deutsch also listed creativity and responsiveness amongIronshore's key competitive advantages. "We are a non-bureaucraticorganization. When clients speak with underwriters, thoseunderwriters are empowered to make decisions. There are nocommittees," he said.

"If it makes underwriting sense, we'll do it. There's no blackbox," said Mr. George.

Summing up characteristics of employees finding a home atValiant, Mr. Dubois said "they tend to focus more on technicalunderwriting than premium flow."

"I like underwriters who enjoy the profession of underwritingand understand the dynamics [beyond] just selling apolicy"--knowing the coverages, appropriate pricing levels and howto "interact effectively with claims, with actuarial, withfinance."

"We look for individuals who enjoy putting all of those partstogether," he said, adding that this requires "a balance ofdiscipline and relationships in the market."

At Montpelier, personal relationships within the company andwith customers built over decades-long careers in the E&Ssegment will drive the success of the U.S. platform, executivessay.

"Every underwriter we have hired, we have known, worked with ordone business with in the past," said Bud Lockwood, president ofMontpelier Underwriting Inc., another component of the MontpelierU.S. platform, which is a wholly-owned managing general agencyauthorized to issue insurance contracts on behalf of MontpelierSyndicate 5151 at Lloyd's.

"Our mantra is that we're a group who know each other, and whilewe're starting in a soft pricing cycle, we're actually doingbusiness with people we've known for years and years," said Mr.Kott. "So although we don't have any renewals, it's as if we do,because we've always built our operation on the strength ofpersonal relationships and knowledge," he added.

"We don't compete on price. We don't typically compete onproduct features," Mr. Kott noted. "What we really do is make itcomfortable for our customers to want to do business with us."

"People want to do business with people they can rely on, peoplethey have faith in--and that goes back to the relationships thatwe've developed with the general agents in the United States," Mr.Nenaber added.