Regulatory hurdles have limited the amount of premium written so far by 2007 start-up Max Specialty, but with 90 employees, six offices and $150 million likely to be on the books by year's end, leader Steve Vaccaro isn't complaining.

While overall premium numbers were less than anticipated for 2007 and 2008, Mr. Vaccaro, the chief executive of Bermuda-based Max Capital's U.S. platform, said the specialty operation's short history had a number of upside surprises–such as launching an MGA specializing in health care liability, and hiring an experienced team of marine underwriters that wrote $40 million of marine business, instead of the $5 million budgeted.

Meanwhile, Grace Meek, chief business officer for Naxos Insurance Company–another April 2007 start-up–is equally undaunted by market challenges slowing growth of the new surplus lines insurer. Ms. Meek ranked the soft market as the biggest challenge, noting that less opportunity exists today as business leaves the E&S sector for the admitted market.

“We're comfortable with that because it's given us time to continue licensing Naxos on nationwide basis,” said Ms. Meek, part of the same team that put together Delos Insurance, a program specialist.

Ms. Meek reported that Naxos is now an authorized E&S insurer in 20 jurisdictions. “We continue in that process,” she said, noting that while several large E&S states are pending–including California, Florida and New Jersey–the company is already authorized in Texas, and she expects some others will happen in three-to-six months.

MAX IN 48 STATES

Mr. Vaccaro said “the single biggest” challenge and accomplishment for Max Specialty has been working with insurance departments over the last year to gain the necessary approval status to write business.

After the initial members of the Max Specialty team signed on with Max Capital in December 2006, Max Capital completed the acquisition of a nonadmitted company in April 2007, which was authorized as an E&S insurer in 42 states. Not having authorizations in the other states hindered Max Specialty's ability to write business on a national basis, Mr. Vaccaro noted.

The last key state–California–came onboard this past June, he said, noting that the company is now approved to write E&S business in all states except New Hampshire.

“We had a number of initiatives going at the same time,” he said, explaining that having purchased a shell, the company had to build from scratch. “We had to hire competent people, build a technology platform, put reinsurance treaties together and make producer appointments.”

On the hiring front, Max Specialty actually had a head start because Mr. Vaccaro had a team of 30 people already assembled in 2006, which had been working on raising capital for a start-up before striking a deal with Max Capital. (See NU's, Feb. 20, 2006 edition for early history details.)

Today, the company has 90 people in all–including the Richmond, Va., home office in Horsham, Pa. (where binding authority business is handled), as well as in San Francisco, Atlanta, Dallas and New York. Mr. Vaccaro believes a lack of bureaucracy has attracted so many people to the company quickly.

“We treat people differently,” he said, adding that the company's motto is “check your ego at the door.” While the company does have an organizational chart, the culture is an open one. “We hire the right people and just give them the resources to do what they do,” he said.

Mr. Vaccaro said the most recent offices opened–in Dallas and New York–were set up to accommodate staff that came on board to form a marine division launched in August 2007 and headed by Michael Miller, a 34-year veteran of the marine insurance segment, including positions at Wm. H. McGee & Company as well as Fireman's Fund.

The original core business plan of Max Specialty consisted of two divisions–a brokerage division and a contract binding authority division. “The concept was that having a vast array of products and dealing with a different group of producers in each one of those divisions would give us the flexibility of reallocating resources as the market changed,” Mr. Vaccaro said.

To add further flexibility, Mr. Vaccaro raised the prospect to the executive committee last year of offering “Bermuda-type products” written by Max Capital in the United States. The idea resulted in the November 2007 launch of Max Managers, a managing general underwriter writing on Max Specialty paper. Targeting smaller-scale accounts than those that wind up in Bermuda, Max Managers does not compete with the parent company, he said.

Led by Buddy Ankner, a 26-year veteran with specific expertise in the health care segment, Mr. Vaccaro expects the MGU to expand its expertise in the future.

“Max Specialty does not write heavy products exposures, so there might be room to do that,” he said, thinking out loud, adding that larger contractors falling outside of the existing Max Specialty appetite might be another area of future opportunity.

In the older divisions, Mr. Vaccaro noted, the risk appetite remains the same, with average brokerage premiums of $50,000 and contract business accounts averaging $2,000-to-$5,000. “Although that business has to be realistically priced, at this stage it's not as competitive as the larger accounts,” he said. “That's the arena that our producers control.”

With respect to producer appointments, Max Specialty is “pretty well done” on the brokerage side, with 80-to-85 wholesaler partnerships. Another 83 privately-owned MGAs have binding authority contracts.

In addition, 30 specialty retailers and two wholesalers have relationships with the marine division, he said.

Commenting on the latest developments at Max Capital, Mr. Vaccaro said that one of the biggest announcements from the parent company–the acquisition of the Imagine Group at Lloyd's in late July–won't have a significant impact on Max Specialty.

Although the expansion of the group's international reach “will have a nice enhancing effect on Max Capital overall,” business done in London is more similar to the Bermuda outfit than the U.S. operation.

More significant for Max Specialty is the acquisition of an admitted insurer in June, which will be called Max America. “In order to become a viable competitor in certain lines, you have to have admitted paper,” he said, citing the marine line as one such area.

NAXOS GETS READY

While Delos Insurance has been signing up program partners since it opened in 2006, resulting in 24 program agreements today, the ability to access nonadmitted paper drove the formation of Naxos in April 2007.

It was “part of a strategic move to be able to diversify our portfolio, to add flexibility to our writings [and] to add value to the company,” Ms. Meek said, noting that after an unsuccessful search for an E&S company to buy, Delos executives set out to build Naxos from scratch.

Explaining the advantages of having E&S rate and form freedom for programs, she said that some attractive nonstandard or high-risks fall outside of underwriting guidelines of programs already in place.

In addition, it increases speed-to-market for programs expanding across multiple states or nationwide. “As we gear up, we can write them on an E&S basis until all rates and forms are filed and approved,” she said.

There are also situations where the type of risk calls for an entire program to be done strictly on an E&S basis, she said, citing the example of a financial advisors errors and omissions program Naxos is now launching.

“There's so much controversy around [this segment] that we want to make sure we're excluding coverages we're uncomfortable with,” she noted. “It also gives us the flexibility to be able to charge what we feel is the appropriate rate.”

Another program for habitational risks on the West Coast, launching Sept. 1, is targeting vacant buildings. “That really falls more within the E&S market. It wouldn't be a typical admitted risk,” according to Ms. Meek.

With managers for these two programs only recently signing on with Naxos, the small amount of business in Naxos so far is for national casualty programs where filings aren't yet done in every state.

“With the soft market right now, the E&S market is tougher to write business in, but we hope our timing for expanding our authorizations [will mean] we're licensed nationwide by the time the hard market comes, and we can fully take advantage of the E&S market,” Ms. Meek explained.

In spite of the soft market, she added, Delos has not had an issue growing. “We've been able to attract many partners that have known us for many years from our previous employment,” she said, referring to relationships that she and retiring chairman, Detlef Steiner, formed at Clarendon, where he served as CEO. (For more background on Delos' early days, see NU's, June 4, 2007 edition.)

While the premium volume in each program individually is much lower than originally anticipated due to the soft market, “it hasn't deterred us from attracting opportunities,” she said, also citing a dedication to program business and a focus on writing business strictly through MGAs as competitive advantages fueling growth.

Special Reports /

Newbies Max Specialty, Naxos Take Both Regulatory Hurdles, Soft Market In Stride

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