The Department of Justice says "it will not challenge" formationof a limited liability company which will offer commercialinsurance policies in excess of $250 million by combining thecapacity of current small underwriters.

The DOJ said in its letter that it is approving the conceptbecause "formation and operation of the consortium is not likely toreduce competition and could offer a new competitive option forlarge commercial insurance policies."

The letter was signed by Deborah Garza, acting assistantattorney in charge of the DOJ's antitrust division.

"The formation of Concepta is not likely to reduce competitionin the sale of large commercial insurance policies," Ms. Garza saidin her letter. "To the contrary, Concepta may provide a competitivenew option for those looking to purchase these types of policies,"she said in the letter.

However, the principals of the company being created were notfully identified.

The company seeking the approval is the Ivy Capital Group, LLC,identified by the DOJ in its approval letter as a Delaware limitedliability company the investors of which are "principals in anindependent firm that provides management and financial consultingservices to Fortune 500 companies."

But, the lawyer for Ivy Capital, James Burns of William Mullen,Washington, D.C., said he could not identify the company'sprincipals, or its location, without their approval.

According to the DOJ approval letter, the sources of theunderwriting capacity will be small insurers who at this timecollectively generate no more than $900 million in annual premiumsfrom the sale of large commercial policies, according to the DOJletter approving the proposal.

This represents approximately 5 percent of the estimated total$19.8 billion of premiums generated from sale of large commercialpolicies in the U.S., the letter said.

According to the information provided by the DOJ, Ivy intends toseek out underwriters with "complementary underwriting expertiseand a focus on different niche submarkets ..."

Ivy will do this by creating a company, Concepta Services, LLC,in which the participating underwriters will have no ownership, theletter said.

According to the DOJ approval letter, the process by whichConcepta will consolidate the policy will begin when a Conceptaparticipant independently submits a proposed "lead" bid with aninsurance broker.

Concepta's role in consolidating coverage capacity will beginafter the insurance broker has selected a Concepta participant asthe lead insurer, the letter said.

Once the broker has selected the lead, Concepta will thendetermine which of its other participants have underwritingguidelines "that are consistent with the rates and terms ofcoverage that the 'lead' insurer has agreed to provide to theinsured ... [and] will then provide each such potential participantwith a summary 'term sheet' of the proposed terms."

It will then request that each such insurer determine whether itwould like to participate in the program as a "capacity adding'insurer," the letter said.

"Each Concepta participant that decides to participate will beallowed then to indicate the amount of coverage that it is willingto provide," the letter added.

If Concepta's participants over-subscribe, then each will haveits respective offered shares reduced on a pro-rata basis, theletter said.

"Conversely, if Concepta's participants under-subscribe to apotential placement, Concepta will apprise the lead that it has notsucceeded in completing the placement and the lead or broker willneed to seek the remaining capacity through mechanisms other thanthose provided by Concepta," the letter said.

The letter said that Concepta's principals contend that thestructure it is using will be pro-competitive structure eliminatingthe need for its participants to use facultative reinsurance orlayering.

Moreover, Concepta's plan to charge the lead and "follow on"insurers fees that are considerably less than the current averagebrokerage commission fee on fire and allied lines policies willalso be pro-competitive.

The arrangement, it was stated, will increase the ability ofsmaller or specialized brokers to assist larger clients on a morecomprehensive basis and lower insurance costs as a result ofdecreasing brokerage costs.

The letter said the Concepta approach is pro-competitive becauseother alternatives for small insurers, like the purchase offacultative reinsurance, "is an undesirable option because theinsurer incurs significant additional costs that impede its abilityto offer the insured coverage on competitive terms."