Surplus lines brokers and insurers, who will meet to discuss issues in the crosshairs of their market segment this month, will also have an opportunity to attend educational sessions about broader topics with potential market impact, organizers say.

In addition to the usual face-to-face networking opportunities, this year's midyear educational workshop of the National Association of Professional Surplus Lines Offices Ltd. offers one educational session that will look at the impact of private equity investment on the insurance industry, and another featuring a political expert who will speculate on the outcomes of this year's key elections, including the presidential election.

Explaining the impetus for organizing a panel to discuss the first topic, Robert Sargent, co-chair of NAPSLO's Communications & Technology Committee, noted that there has been “quite a bit of an increase” of private equity investment in the market, especially in specialty or surplus lines businesses.

Private equity interest has grown steadily in recent years, he said, noting that while it would be difficult to point out a single event or time that could be seen as a start to the surge in investments, events such as the attacks of Sept. 11, 2001, the actions by New York Gov. Eliot Spitzer in his former role as state attorney general as well as “the market cycle” have all played a role as “drivers” of the growth.

Mr. Sargent, who is president of Hartford-based Tenant Risk Services, said he believes there is a fairly broad spectrum of knowledge with regard to private equity among NAPSLO members.

“My guess would be that it varies dramatically,” he said, with some members having relatively little knowledge of how private equity works and others having a more in depth understanding.

Private equity investment, Mr. Sargent argued, has been an “evolutionary” change to the E&S market, rather than a problem for companies now dealing with investors that may not understand the market, although he acknowledged that not everyone may feel the same way.

“Opinions probably vary, but I view it as a positive,” he said, adding that private equity has provided more capital for the market.

Chris Treanor, president and chief executive officer of Mercator Risk Services, shares Mr. Sargent's view. Mercator is backed by a private equity firm, Stone Point Capital LLC, and Mr. Treanor said he is a “big fan of private equity,” which he believes has been very good for both newer surplus lines companies and older ones changing ownership.

Private equity firms looking to invest, he said, are attracted to the fact that participants in the surplus lines insurance segment are not as restricted as those operating in the admitted segment.

“As a surplus lines company, you just have a lot more flexibility,” Mr. Treanor said. Surplus lines companies are able to move into different markets, different lines or different geographical areas far more easily than admitted companies, he said.

“As a private equity investor, one of the things you want to be is more nimble,” he added.

Additionally, Mr. Treanor noted, the wholesale distribution system is very efficient, which also makes the segment attractive to private equity investors.

Just as Mr. Sargent said that the insurance industry's understanding of private equity is a broad spectrum, Mr. Treanor noted that the same is true on the private equity side.

“Any investor needs to understand the space that they're getting into,” he said. “You'll see private equity investment kind of runs the gamut” from those who do nothing but insurance, such as Stone Point, to those who only “dabble” when they see something that appears attractive as an investment.

In seeking to help educate members, Mr. Sargent said NAPLSO has put together a very strong panel with significant experience in investing and, specifically, investing in the insurance industry. Among those who will be speaking are:

o Matthew Kelty, principal for Washington-based Allied Capital Corp.

o John Kraska, managing principal of Hales & Company Investment Bankers in New York.

o Gerard Vecchio, managing director for Boston-based Century Capital Management.

o Mark Watson, president and chief executive officer of Bermuda-based Argo Group International Holdings Ltd.

Mr. Sargent said the panel would provide a “great opportunity for NAPSLO members to get a first-hand view” of how private equity investors view the market and how they operate.

While private equity investment plays a role in providing capital for the industry, the second panel will examine an area that could affect the landscape in which industry operates–the political scene.

“A Pollster's Odds: Betting on the 2008 Elections,” which will feature the insights of Jordan Lieberman, publisher of Campaigns and Elections magazine, was conceived to give NAPSLO members an idea of what they can expect once the current election cycle ends, according to NAPSLO.

Legislative activity remains important for the group–most specifically, legislation that would reform the regulation of multistate surplus lines risks with regards to the collection of premium taxes and regulatory jurisdiction, according to Mike Ardis, NAPSLO's director of communications and technology.

“We wanted to find out what the potential is” for the bill passing this year, he said. “And if not this year, then we're interested in seeing what will happen in Washington next year.” (See related story on page 17.)

Beyond that, Mr. Ardis said he hoped the discussion would provide some perspective on what has been a wide open political race thus far, as well as other races that could play a key role in determining the makeup of Congress in 2009.

“A number of representatives and senators are retiring,” he noted, adding that NAPSLO is interested in hearing about the prospects for those races and any others that are viewed as “up for grabs.”

Of course, the largest undecided race thus far is for the White House, and Mr. Ardis noted that it is almost too early to even make any prognostications on who will be sworn in next January, particularly in advance of Tuesday, Feb. 5, when over 20 states will hold their primaries.

Special Reports /

Private Equity Role In Insurance Sector To Be Examined At NAPSLO Conference

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