Recent entrants into the umbrella liability insurance markethave two common strategies in their business plans–they're steeringclear of the most competitive middle-market segments, and aredistinguishing their firms through service and expertise.

While announcements released early this year fueled reports thatthe newest entrants are trying to take advantage of perceived marketdisruptions in the most capital-intensive high-excess casualtysegments, representatives of two firms–Ironshore andTorus–described much broader appetites to NationalUnderwriter recently.

In addition to targeting the world's largest insureds fromBermuda with catastrophe-excess coverage, they have each recentlyset up separate U.S. units vying for very different levels ofcasualty towers than their Bermuda brethren.

At Torus, Linc Trimble, a 13-year veteran of Chubb and St. PaulTravelers, took the helm of the U.S. excess casualty division inJersey City, N.J., in March of this year. He said his sights atTorus are set on the smallest buyers of umbrella coverage–SMEs, or“small and medium enterprise risks,” as well as niche casualtyprograms.

At Ironshore, Tim McAuliffe came on board as president of U.S.Specialty Casualty in New York after 14 years at AmericanInternational Group. While his unit will focus on Fortune 1000 and2000 companies, it will write layers attaching below $100 million,in contrast to Iron-Starr Excess, another Ironshore casualtyventure.

Iron-Starr–an MGA writing for Ironshore and joint venturepartner C.V. Starr–will initially aim for the top of clients'programs, with a minimum attachment of $75 million and grosscapacity of $75 million, according to Chief Executive Officer GeoffSmith, another AIG veteran.

TORUS TARGETS

Torus Insurance Holdings Ltd.–launched in June 2008 and backedby $720 million of funding from First Reserve Corp., a privateequity firm specializing in the energy sector–was initially focusedon U.K. distribution of property coverage for the energysector.

With $720 million, “the need was obvious to expandgeographically and by product,” Mr. Trimble said.

Enter David Perez, who orchestrated Torus' first forays into thecasualty world after joining as president and chief underwritingofficer of global casualty in October 2008. Mr. Perez, with twodecades of casualty market experience under his belt–including 14years at AIG directing U.S. lead umbrella business and high-excessoffshore–has already “become a major player” in the Bermuda excessmarketplace, according to Mr. Trimble.

The book has a bit of an energy focus, but actually includes abroader portfolio of complex commercial accounts, he reported,noting that Mr. Perez started writing high-excess, high-limitcasualty late in 2008, “but in earnest starting in Jan 2009.”

In February, Torus announced it would offer $50 million ofexcess liability capacity from the new Bermuda office for“virtually any class of business” to help clients concerned aboutcarrier strength, seeking to diversify programs beyond existingplayers.

Mr. Trimble said Torus' desire is to capitalize on parts of theumbrella market it perceives as having good profit margins. LikeBermuda excess, the small-risk U.S. umbrella market meets thiscondition.

“We are not going to compete in the large middle-market andnational accounts lead arenas,” he said, explaining that ratesthere “have been eroded to a point where not only is there nomargin, but there is negative margin.”

He said the insurance market for SMEs is “much more scattered”than for large leads. “If you ask who my competition is on thesmall end of the scale, it's everybody and nobody,” he said.

While AIG, with a Web-based portal, “is the market leader forthe very smallest risks, he said there's room for competitors inwhat he believes is a “multibillion-dollar marketplace” ofbusinesses that have revenues of $200 million or less.

The scattered market and minimum premiums are factors explaininga lower degree of rate erosion at the small end of the customerscale, he said. When comparing the total amount of exposure for thesmall-business market to total premiums, “that premium isartificially inflated by a minimum premium, [which] mathematicallybuilds in rate redundancy,” he explained.

Describing Torus' excess casualty appetite for SMEs morespecifically, he said the absolute maximum revenue size of riskshis unit will consider is $300 million, adding that the vastmajority will be under $100 million. By class, that includescontractors, distributors, habitational, hospitality and realestate, he said–noting, however, that the focus will be away from“hard E&S categories” such as nursing homes, trucking andmedical devices.

To date, he said, 90 percent of the SME written premium is on alead position, although Torus also entertains excess positions inthe first $25 million of a tower.

Highlighting a second area of focus– excess capacity over theprimary liability niche programs–he said the attraction to programbusiness isn't just inherent rate redundancies for smaller risks. Aprogram focus “helps me drive my portfolio into areas that I like,”he said, adding that once he's identified desirable niches, MGAprogram managers provide marketing efficiency. “They do all themarketing work and I just piggyback along for the ride.”

Mr. Trimble said the track records of Torus' leaders–Mr. Perezand Chief Executive Clive Tobin, the former head of insuranceoperations at XL Capital–personally attracted him to thecompany.

For customers and brokers, however, he aims to distinguish theU.S. unit through price and service to producers, he said, notingthat all U.S excess casualty distributors are wholesalers and MGAs,and all the business is being written on a nonadmitted basis.

“What I bring to the market isprobably the one [excess] carrier that is not only pursuing, butpursuing with some determined focus, the smaller end of thespectrum” of casualty risks, he noted.

To be successful “you have to price to entice that business,” hesaid–adding that process efficiency is also critical, explainingthe business involves high transaction counts but small premiumdollars.

“Wholesalers don't want to go to four markets and shop a smallpiece of business,” he added. “All they want is a competitive quotethat's turned around quickly,” pledging that turnaround time willbe a day or less. “If it's a more time-sensitive item, we can turnthings around in 10 minutes.”

IRONSHORE U.S. SPECIALTY

Like Torus, Ironshore's initial launch was in the propertymarket. The company set up in Bermuda in early 2007 to writecommercial property in catastrophe-exposed areas has since expandedinto many professional liability and casualty areas. (See relatedarticle, NU, Sept. 8, p. 12.)

Ironshore's initial move into the excess casualty world–througha division called IronSelect set up in mid-2008–did not pan out,according to Mr. McAuliffe, who explained that the trade nameIronSelect was retired, and the older division subsumed into U.S.Specialty Casualty in January.

IronSelect was going to be a middle-market excess player, but“what we quickly found is that market is saturated” by a group of“well-entrenched players.”

The approach changed on Jan. 1, said Mr. McAuliffe, who actuallycame to Ironshore later–in early April–to head up the U.S. divisionthat writes both primary specialty casualty as well as excess andumbrella for Fortune 1000-type accounts.

For excess business, the available limit is $10 million, “butwe're moving to put $25 million into the marketplace in shortorder,” he said, noting that targeted attachments will be $25million or $50 million for businesses in almost any industry, withthe likely exception of pharmaceutical classes.

“We think there's disruption in the marketplace [and] that bycoming in, we're offering a stable solution to our broker partnersand clients,” he said, explaining that a number of markets arefinancially distressed. Disruptions, he said, go beyond widelyreported troubles of the three major markets in the excess andumbrella insurance world–AIG, XL and Hartford.

“We're not going to live or die off the business that comes outof AIG,” he said, citing another disruption created by a specialtywriter of utility business, which appears to have made anunderwriting decision to exit non-utility business that it used toentertain. “That opens up an opportunity for other markets to getin.”

Public entity and energy are two other classes that exitingexcess insurers seem to be pulling back from, he reported.

In addition, there are more general opportunities created bybuyers, who are exercising a higher degree of caution and seekingto have more carriers on their programs. “Where somebody in thepast might have bought a $50 million block or $75 million block ofcapacity from one carrier, they're now breaking that into $25million blocks and even smaller,” he said.

To take advantage of these opportunities, he said Ironshoredistinguishes itself with a team whose members have 17 years ofunderwriting experience, on average.

Diversity of experience also sets the firm apart, he said,noting that Ironshore has drawn talent from a number of differentcompanies. That means quick decision about whether to write a risk.“We're also able to add value to brokers because it's more likelythan not that somewhere in our organization, we've seen thisaccount before,” he said.

IRON-STARR: A UNIQUE MGA

Separately, Mr. Smith said the new MGA, Iron-Starr, occupies aunique position in the excess liability world.

“There's no other setup I'm aware of like this. We are truly anMGA managing the line for two separate companies,” he said. “Thatis more of a property concept than a liability concept,” he added,explaining that the 50-50 partnership means that for every layer ofcoverage the MGA puts out–whether it's for $25 million, $50 millionor $75 million in limits–50 percent goes to Ironshore and 50percent to C.V. Starr.

With this setup, “clients have the ability [to] spread theirplacements among carriers…with one stop,” since two insurersparticipate on every deal–Ironshore Insurance Ltd. and StarrInsurance and Reinsurance Ltd.–the Bermuda companies of the twoorganizations, he said.

Over time, more carrier partners can be added to thearrangement. “There's nothing on the table currently, but at somepoint, there might be a third or fourth partner,” he noted,potentially giving clients more ability to diversify their towersamong carriers.

Because the initial focus has been high- attaching large-limitcatastrophic excess, Mr. Smith said the new MGA is seeking to placea broad array of risks. “This is very highly leveraged business, soour view is to successfully get to critical mass, you have to builda balanced portfolio”–meaning you have to see a lot of differenttypes of risks. He explained that the business is leveraged in thesense that the carriers are “putting up a lot of limit for not alot of money.”

Attachment points are selected to put the carriers “in the realmof truly the fortuitous event affecting our participations”–abovefrequency and severity layers, he said.

Since opening the doors on April 1, Mr. Smith reports thatroughly 260 submissions have come into the Iron-Starr facility fromsome of the world's largest companies. “We've written approximately50,” he said, adding that the hit ratio is at about 50 percent onquoted business.

See also, related article, “StarrNew Excess Facility Aims At Mega Businesses.”