Filed Under:Agent Broker, Agency Management

Specialty Program Managers Staying Put, Carriers Say

Joseph Peloso, a veteran of the program business segment, remembers a time when unsolicited program proposals flooded the desks of property and casualty underwriters, offering more business than they could possibly handle.

The environment of the late 1990s stands in stark contrast to conditions of the current market, carrier executives agree. With few existing programs looking for new homes, carriers are looking to grow their program portfolios by expanding relationships with their current program administrator partners, these officials say.

"I haven't seen a lot of programs where [PAs] say, 'I don't like this company anymore and we have to move,'" said Mr. Peloso, vice president of liability programs in the New York office of Liberty International Underwriters.

Nor has he seen carriers getting out of the business, "which is what happened during the hard market, when many companies either lost their rating or went under," he recalled.

Back then, "we didn't have time to breathe," said Mr. Peloso, whose 40-year career in insurance includes over 25 years in the program business sector, including a stint at Clarendon.

"Reliance went away, Kempes went away and Legion went away, and stuff was coming at us in different directions," he said, referring to carrier insolvencies that occurred around the turn of the century. "You just had to pick and choose what you wanted to do," he added.

"Now, you have to be a lot more selective and try to find people that have opportunities," according to Mr. Peloso, who joined LIU in 2009.

At Delos Insurance Group in New York, Bill Davis, president and chief executive officer, is also being selective. "In this part of the cycle, we believe it's more effective for us to extend our relationships with current general agent [partners] than it is to go out and necessarily take a leap of faith on a new book of business," he said.

As a result, he said Delos spent a fair amount of time in the last 24 months building out business with existing partners. Explaining that program expansions could involve adding lines of business or widening territories, he said one reason for engaging in this strategy is the fact that "it's very difficult to move programs."

"Companies--and relationships between the general agents and the companies--have been generally very good. They are invested in each other in certain ways [and] it's not going to be attractive for them to move."

"We're not going to compete by offering a higher economic incentive for a program manager to move," he continued. "And because it's so hard to dislodge programs given where we are in the current market, we'd just rather find organic opportunities with the people that we're working with already."

That doesn't mean Delos isn't looking for new partners in 2010. "We're always looking for new relationships and new business. I just think it's more difficult to find those relationships today than it's been in the past," Mr. Davis explained.


Delos, which has grown rapidly since the company's launch four years ago, actually reduced the number of programs in its portfolio this year, Mr. Davis reported.

The company was initially built up from a handful of programs it inherited from Sirius American Insurance Company, a program writer acquired by Lightyear Capital, a private equity group, in 2006. Delos ended 2009 with $337 million in direct premiums, according to Highline Data (a data affiliate of National Underwriter).

"We grew from about eight programs when the acquisition occurred, and last year ended up with 26 in force," Mr. Davis said.

Currently, the total is down to 24, after cutting four and adding two new ones. The cuts came "primarily because we didn't like the macroeconomics of certain lines," noted Mr. Davis, referring specifically to workers' compensation and personal lines.

Activities to scale back workers' comp began early in 2008, with the removal of a California program and another program for 16 states, he said. A combination of economic and pricing conditions generally soured Delos on the line, but there are still two comp programs--one in California and one in New York--remaining in the portfolio, he noted.

As for personal lines, he said that "because of competition from direct writers, we didn't think that was a space that was really comfortable for us any longer." With direct writers gobbling up more market share, "it's tougher and tougher for retail agents to compete. They [direct writers] can deliver the product, quite frankly, cheaper."

As in workers' comp, Delos isn't completely out of personal lines business today, and the company is still keeping an open mind about future prospects in the segment.

"There are always opportunities. There are niches within lines of business that we continue to find attractive," he said--noting, for example, that Delos continues a profitable and unique program of personal lines business for Minnesota teachers underwritten and marketed by teachers and sold to teachers and educators.

Other successes include a medical stop-loss program and a longtime commercial businessowners package put together by a general agent operating in a very competitive environment in New Jersey, according to Mr. Davis, who added that the GA brings local knowledge to bear to make the business profitable.

Describing some new programs that Delos has signed onto this year, he said the company continues to find niches in commercial auto--a line of business in which the company already participated.

Information on Delos' Web site indicates that the company writes at least a half-dozen commercial auto programs. In 2009, the commercial auto premiums represented one-quarter of the total direct writings, while the two workers' comp programs accounted for 37 percent of the premiums (according to information from Highline Data).

"A tow truck program, even though it may be nationwide, is never going to be huge. We're not going after long-haul trucking [or] vanilla commercial auto," Mr. Davis said. "What we do [are programs such as] waste haulers. We do tow trucks. We do some private livery business."

Commercial auto is a "decent line compared to other options," because it continues to open up pockets of opportunity to diligent program carriers, he added.


Like Mr. Davis, Mr. Peloso listed two commercial auto programs among the most recent additions to LIU's primary liability six-program portfolio. An admitted program for auto repossessors is currently the largest LIU liability program, he noted.

"There aren't a lot of competitors, although we're drawing more people to it," he said, adding that auto repossession is one of the few growing areas in the economy. "People are losing their vehicles, and repossessors are in demand."

Mr. Peloso said that while the program is largely an auto program, lines such as general liability and inland marine are included. The inland marine--also known as "on-hook coverage"--protects property of others that gets damaged when it is being hauled, he said, explaining that a repossessor that seizes a vehicle might hook it to a tow truck. "The can have it on a flatbed and we call it the same thing," he noted.

Speculating on the lack of competition to date, Mr. Peloso said there are misperceptions in the marketplace based on the image of "Dog the Bounty Hunter," a reality television show based on Duane "Dog" Chapman's job as a bounty hunter, not a repo man. "They think of someone going out and pulling a gun and taking someone's car away in the middle of the night. There's just a perception that it's bad business."

In reality, Mr. Peloso said those in repo are "good businessmen. They have contracts with financial institutions," which require bonding and liability insurance.

Building on the success of the repo program, Mr. Peloso said LIU is now writing a regular tow truck program--involving tow trucks for services stations, for example--through the same PA.

He said the tow truck and repo programs are written on an admitted basis.

He also noted that two of LIU's early E&S programs--one for painting contractors and another for liquor liability--are still in place.

"They're reasonably profitable given the market conditions, [but] they've shrunk in size, since a lot of E&S business is going into standard markets," he said, explaining that the trend prompted the carrier to start entertaining admitted programs about two years ago.

A third E&S program that used to be in place--a small-account product liability program for non-consumer goods--"went away" because of deteriorating conditions in the E&S market, he said. The producer realized the program would never reach its potential in this market. "I don't think it got to $2 million," Mr. Peloso recalled.

LIU did start writing another E&S program in January--for commercial contractors in Western states. That program anticipates the potential "trickle-down" of federal government stimulus money creating more commercial contracting jobs, he said.

On the admitted side, LIU is ready to sign on to a building-owners liability program and a program for leasing operators of modular storage facilities--such as trailers for construction sites and temporary classrooms.

The producer of the storage program had created this niche with another carrier and was seeking to expand, Mr. Peloso reported, noting that the other carrier didn't have a broad enough license base.


LIU's primary liability programs division, like Delos, is about four years old, although LIU has been involved in professional liability programs--in a separate division--for a long period of time.

Both carriers are proponents of outsourced models in which program managers handle underwriting, marketing, production and servicing functions, and both look for growth potential in submissions, but are somewhat flexible on size requirements.

"We'd like a $5 million program. We'd love to see it grow to $10- or $15 million in three-to-five years, depending on market conditions," Mr. Peloso said, also noting that LIU will entertain startup programs.

"Is it a startup because somebody says, 'I have this great idea and let's start sending e-mails to people that we have a program," he said--contrasting that unacceptable proposal with a preferred situation where a producer that has been writing a class of business for a period of time through several carriers decides it would make sense to consolidate the book with a single program writer.

At Delos, Mr. Davis said the carrier has no minimum premium requirements. "We tend to like things around $20 million, but we'll do some that are smaller and we certainly do some that are larger."

Although programs aren't moving around a lot in the marketplace, he said Delos still sees roughly a dozen solicited and unsolicited program opportunities per quarter. "This year we expect to write only two or three new programs. So the hit ratio is pretty low right now," he said.

With market conditions being very soft, "it's difficult to make a buck these days unless you have something very nichey," he said. He added that Delos is taking a pass on most programs it's presented with because they are mainly new ones--either a GA "has an idea" about getting into something new, or programs are submitted by new GAs that don't have business track records.

"For the most part, we're not interested in those unless we think there's really a tremendous unique opportunity, because they tend to be smaller or we just don't think the PA has the expertise," he said.

Mr. Davis said a broader market trend isn't new GAs setting up shop, but GAs merging or being acquired by competitors or insurers.

While Delos hasn't acquired any GAs to date, the company did announce a joint venture with Avoca Insurance Holdings last September. Under terms of the agreement, a Boston-based GA called Naxos Avondale Specialty Casualty was formed to write E&S casualty business for Delos Insurance Group. The new GA will be managed by two E&S veterans--Chris Maciejewski and David Lewis, formerly of Aspen Specialty.

"The market is difficult right now, but we're setting the table to be able to take advantage of the E&S marketplace when it corrects itself," Mr. Davis said.

While he confirmed that Naxos Avondale will essentially be writing individual risk (non-program) casualty E&S business, since Naxos Avondale has been set up as a GA, he said that "from the perspective of the folks here at Delos, we look at this as a program."

"At the holding company level, they look at it as an investment, but from the operations side, we look at it as we would any other program," he said.

Naxos Avondale, as a GA or program manager, will actually write the business on the paper of Naxos Insurance, a member of Delos Insurance Group. Naxos Insurance was set up in 2007 for programs that needed E&S paper, and to handle one-off risks that didn't fit the guidelines of the admitted programs in Delos Insurance Company's portfolio. (See related article,

Mr. Davis said Naxos is now authorized as an E&S carrier in 46 jurisdictions, and Naxos Avondale will be the exclusive casualty E&S producer for Naxos. "But we still have opportunities to write property E&S and some ancillary E&S lines that we could find from other program managers," Mr. Davis confirmed.

As to what motivated the company to launch Naxos Avondale, Mr. Davis said this was really an investment opportunity that fell into place. "We were looking for the right program to write casualty E&S, and this came along. They were looking for funds, and it morphed into a joint venture where we supplied some of the original capital and then got exclusive access to the business that's produced by the agency."

"We also have an option to buy the agency at some point in the future," he noted.

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