After years of pruning a program book that once commanded $500 million in gross premiums, Lois Massa, vice president of Swiss Re’s program division, has been given the green light to grow her business again–and she’s excited about the prospect.
Speaking to National Underwriter in March at the NAPSLO midyear conference in Palms Springs, Calif., Ms. Massa described the historical “ebbs and peaks” that she says were eliminated when Swiss Re acquired GE Insurance Solutions.
When the deal was done, Swiss Re went through a detailed review of all the profit centers, “and one of the recommendations for our program segment was to expand our risk appetite, which we had wanted to do,” according to Ms. Massa, who is based in Overland Park, Kan.
The program unit now has support to grow and access to worldwide resources, such as particular expertise in financial products–ranging from auto financing to mortgage and financial protection products for banks–that have been a recent focus of the program unit, she noted.
“I am more excited about our opportunities to develop better products than I’ve ever been,” she said, reporting that two new programs have launched since the acquisition. “That doesn’t sound too impressive, but we normally only do one or two a year, and now we’ve done two in six months,” she said.
A new program for tow trucks reveals a refined appetite for highly specialized, rather than commodity-type programs.
“We’re not interested in restaurant programs; a lot of standard markets write that,” Ms. Massa said.
Other program criteria include minimum premiums of $10 million, a requirement that the program not be a startup, and that it not be in workers’ compensation (written elsewhere in Swiss Re) or a tough liability class like nursing homes or roofers, she said.
In addition, programs must deliver underwriting profits consistent with Swiss Re’s corporate return goals, generating combined ratios of about 95 but varying by line of business, Ms. Massa explained.
She also described due diligence performed on program managing general agents that focuses on sales as well as underwriting expertise.
“At the end of the day, we can spend a lot of time developing a product, the MGA can be a great underwriter, but if they’re not good sales people, we’re not going to write any business,” she said.
While Swiss Re will assist with activities such as writing press releases or performing market research, “we look for them to have the mindset–the strategy,” she added.
With respect to underwriting, she said, Swiss Re structures guidelines to keep referrals to a minimum. “We don’t want to have to reunderwrite,” she said, adding that an automated system triggers referrals.
“When we see too much referral activity, we modify the guidelines. We want to have management oversight, but we don’t want to restrict [MGAs] from writing business,” she explained.
While Ms. Massa recalls a time when GE ramped up the program segment to 30 programs generating more than $500 million in gross premiums, and then ultimately had to cut back to a handful, she said Swiss Re is now committed to being a long-term player.
Looking back, she said, some of that prior GE business came from the reinsurance side of the house, with the program unit providing fronting. “Our model has changed. We’re now risk-takers,” she noted.
Two of those fronted programs were transportation books for which “pricing was very light then,” she said. “We had some long-haul trucking, some commercial auto, business auto–and the results were bad. We learned from that,” she added, explaining one impetus for the shift away from commodity, price-sensitive business.
Having ended 2006 with $150 million in premiums, Swiss Re is looking to add four-to-five new programs this year.
Like others interviewed at NAPSLO, Ms. Massa believes current soft market conditions will be a challenge for program writers. With opportunities to raise prices drying up, partners will need to find more economical ways of doing the business, she said.
In particular, she noted, while MGAs typically say they need 6-to-8 percent to run their operations, the assumption should be evaluated on a program-by-program basis. “Do they really know on a particular program what their transaction costs are? What’s the premium size? Head count? Net income expectation?”
“I think everybody can look a little bit closer at all the expense components to see if they’re really accurate and if they can tighten their belts up a little,” she added.
Asked why MGAs should choose Swiss Re as a program partner, Ms. Massa supplied an extensive list that started with risk appetite and ended with flexibility.
“Our corporate risk appetite under Swiss Re ownership is greatly expanding,” she said. “Swiss Re’s approach to risk is to ask, ‘Do we understand the risk?’” and to put controls and monitoring in place.
“That’s a much more positive response than, ‘There’s risk. We’re not sure we understand it. Let’s not do it,’” she added, contrasting the risk-averse philosophy of prior owners.
“At the end of the day, we can spend a lot of time developing the product, the MGA can be a great underwriter, but if they’re not good sales people, we’re not going to write any business.”
Lois Massa, V.P.
Swiss Re Programs