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

The environment of the late 1990s stands in stark contrast toconditions of the current market, carrier executives agree. Withfew existing programs looking for new homes, carriers are lookingto grow their program portfolios by expanding relationships withtheir current program administrator partners, these officialssay.

“I haven't seen a lot of programs where [PAs] say, 'I don't likethis company anymore and we have to move,'” said Mr. Peloso, vicepresident of liability programs in the New York office of LibertyInternational Underwriters.

Nor has he seen carriers gettingout of the business, “which is what happened during the hardmarket, when many companies either lost their rating or wentunder,” 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 theprogram business sector, including a stint at Clarendon.

“Reliance went away, Kempes went away and Legion went away, andstuff was coming at us in different directions,” he said, referringto carrier insolvencies that occurred around the turn of thecentury. “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 peoplethat have opportunities,” according to Mr. Peloso, who joined LIUin 2009.

At Delos Insurance Group in New York, Bill Davis, president andchief executive officer, is also being selective. “In this part ofthe cycle, we believe it's more effective for us to extend ourrelationships with current general agent [partners] than it is togo out and necessarily take a leap of faith on a new book ofbusiness,” he said.

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

“Companies–and relationshipsbetween the general agents and the companies–have been generallyvery 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 economicincentive for a program manager to move,” he continued. “Andbecause it's so hard to dislodge programs given where we are in thecurrent market, we'd just rather find organic opportunities withthe people that we're working with already.”

DELOS TAKES STOCK

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

The company was initially built up from a handful of programs itinherited from Sirius American Insurance Company, a program writeracquired by Lightyear Capital, a private equity group, in 2006.Delos ended 2009 with $337 million in direct premiums, according toHighline Data (a data affiliate of NationalUnderwriter).

“We grew from about eight programs when the acquisitionoccurred, and last year ended up with 26 in force,” Mr. Davissaid.

Currently, the total is down to 24, after cutting four andadding two new ones. The cuts came “primarily because we didn'tlike the macroeconomics of certain lines,” noted Mr. Davis,referring specifically to workers' compensation and personallines.

Describing some new programs that Delos has signed onto thisyear, he said the company continues to find niches in commercialauto–a line of business in which the company alreadyparticipated.

“A tow truck program, even thoughit may be nationwide, is never going to be huge. We're not goingafter long-haul trucking [or] vanilla commercial auto,” Mr. Davissaid. “What we do [are programs such as] waste haulers. We do towtrucks. 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 diligentprogram carriers, he added.

TOW TRUCKS & REPO MEN

Like Mr. Davis, Mr. Peloso listed two commercial auto programsamong the most recent additions to LIU's primary liabilityseven-program portfolio. An admitted program for auto repossessorsis currently the largest LIU liability program, he noted.

“There aren't a lot of competitors, although we're drawing morepeople to it,” he said, adding that auto repossession is one of thefew growing areas in the economy. “People are losing theirvehicles, and repossessors are in demand.”

Speculating on the lack of competition to date, Mr. Peloso saidthere 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 thinkof someone going out and pulling a gun and taking someone's caraway in the middle of the night. There's just a perception thatit's bad business.”

In reality, Mr. Peloso said thosein repo are “good businessmen. They have contracts with financialinstitutions,” which require bonding and liability insurance.

Building on the success of the repo program, Mr. Peloso said LIUis now writing a regular tow truck program–involving tow trucks forservices stations, for example–through the same PA.

GREENFIELD PROGRAMS

More recently, LIU announced that it launched a “green” generalliability program for midsize real estate properties with MainstayInsurance Group, a Bellevue, Wash.-based PA.

The new primary program, launched in early May, targets realestate classes including apartments and condominiums as well asoffice, retail and light industrial buildings, and offers specialtygreen coverage enhancements for indoor environment and adversepublicity exposure.

Mr. Peloso said he sees green building owners as “a targetclass” for LIU.

Elsewhere, Craig Fundum, president of Programs and DirectMarkets for Zurich, said he sees a “greenfield” opportunity inaccident and health business.

Mr. Fundum said the Schaumburg, Ill.-based carrier, which haspreviously written a&h insurance through worksite marketing andother non-program approaches, is now “aggressively looking forprogram partners” to build an a&h portfolio of programs. “It'sour turn on the program side [of Zurich] to step it up and growthat business,” he said.

Zurich's programs team will emphasize the 'a'–the accidentaldeath and dismemberment part–of a&h, he said, noting that arecently launched a&h profit center is currently being staffedwith some experienced AD&D professionals. “There's hugepotential out there,” he said.

Beyond a&h, Mr. Fundum said Zurich started focusing on thehuge potential of the p&c program business arena about fouryears ago, even though its participation in the segment actuallyspans four decades.

“We have several programs with relationships that have been inexistence upward of 40 years,” he said, explaining that thedefinition of a program centers on business for which the carrierhas outsourced the transactional underwriting, marketing, policyprocessing and issuance to an MGA, MGU or PA.

“In 2006, we decided to capitalize on our experience and marketposition, and to really put a heavy emphasis on growing the programbusiness, leveraging a position of strength to become even strongerand bigger,” he said, noting that the company created a newprograms team that is dedicated 100 percent to evaluating newprogram opportunities.

“That's all they do every day,” he said, noting that today theteam has 300 people organized in five strategic business units (notcounting the new a&h unit).

The “re-energized, rejuvenated approach” to a long-term play hasresulted in 70 programs in place today–with roughly half of thoseadded in the last three years. In 2009, Zurich brought on 14 newprograms, Mr. Fundum said.

His description of Zurich's latest foray–into a&hprograms–similarly highlights a move to capitalize on a strength ofthe company, in this case a strength that existed in other parts ofthe world. “We identified a&h globally as an area for hugegrowth potential,” he said, noting that the company has enjoyeda&h success in Europe.

In addition to the accident and health unit, Zurich's programSBUs include:

o Transportation programs.

o Construction services programs.

o Segmented programs, focusing on professional lines, workers'comp and other areas that aren't categorized as either constructionor transportation.

o Alternative programs, including those with alternativedistribution (through banks and homebuilders, for example) andthose with alternative risk mechanisms (where a program-basedcaptive or risk retention group might be involved).

o A new programs team, performing due diligence.

ACQUISTIONS FUEL GROWTH

At QBE the Americas, which rivals Zurich in terms of programdiversity, acquisitions have fueled premium growth in recent years,according to Stephen Fitzpatrick, president of QBE SpecialtyInsurance.

Currently, QBE owns six PAs in the United States. “Our[acquisition] strategy, I would say, has been more defensive thanopportunistic,” he said. Explaining the distinction, he said thatthese were situations where a PA partner may have had successionissues and approached the carrier about making a deal.

While Mr. Fitzpatrick attributed a large part of a 17.4 percentpremium jump in 2009 to the acquisition of a large programadministrator, new appointments also fueled “meaningful growth lastyear, even though the industry was sluggish,” he said.

He said QBE, which first opened its offices in the United Statesin the early 1990s, is probably one of the nation's largest programbusiness writers today. Within QBE the Americas, the specialtyprogram business unit is the largest single unit, representingnearly $2 billion in premiums.

The expansive scope of p&c programs includes most lines ofbusiness–admitted and nonadmitted–and a broad range of programsizes. The smallest is a $0.5 million prize indemnification programadministered by Hole In One International in Reno, Nev., while thelargest–a program of forced-placed property coverage for financialinstitutions managed by Atlanta-based Sterling National–garnersseveral hundred million in premiums.

QBE acquired Sterling National in 2009.

The common thread among QBE programs, Mr. Fitzpatrick said, isthat they all require a certain level of specialized skill from thePA. Examples include:

o A program for a difficult class, like anassisted living facilities program QBE signed onto last year, whichrequires specialized underwriting expertise.

o Business that lends itself to uniquecoverages customized for a specific industry, like a newstaffing industry program. In addition to general liability insuredwith a package, there is coverage for “malplacement”–a professionalcover.

o Programs that require specialized approachesto loss control or claims settlement, like a longtime fine artsprogram through which QBE provides personal inland marine coveragefor large private collections and museum collections.

“Some programs we undertake would be considered more difficultto underwrite as you look at the spectrum of business,” Mr.Fitzpatrick noted, listing as examples a program for small chemicaloperations and another for West Coast contracting business. “We'rewilling to entertain more difficult exposures provided we findbest-in-class PAs” to manage them, he said.

Like Delos' Mr. Davis, Mr. Fitzpatrick said QBE also looks togrow its programs segment by partnering with PAs on multipleprograms, or by adding lines and states to existing programs. QBEwill entertain a start-up, but only “if it's got the right businessand the right story,” he said.

In February, the company announced the launch of ComplicationInsurance, a start-up program providing financial resources topatients in the event of adverse outcomes following any one of 80covered elective surgical procedures. The program was the 10thprogram in a portfolio of a&h programs that the carrier startedbuilding in 2001. (Complication Insurance was described fully inthe April 12 edition of NU, available at http://bit.ly/djmVwW.)

In September, 2009, QBE added to its a&h portfolio byacquiring the CIGNA special risk, student and sports accidentinsurance book of business, rounding out an a&h portfolio thatalso include employers stop loss and provider excess.