The Department of Justice says "it will not challenge" formation of a limited liability company which will offer commercial insurance policies in excess of $250 million by combining the capacity of current small underwriters.

The DOJ said in its letter that it is approving the concept because "formation and operation of the consortium is not likely to reduce competition and could offer a new competitive option for large commercial insurance policies."

The letter was signed by Deborah Garza, acting assistant attorney in charge of the DOJ's antitrust division.

"The formation of Concepta is not likely to reduce competition in the sale of large commercial insurance policies," Ms. Garza said in her letter. "To the contrary, Concepta may provide a competitive new option for those looking to purchase these types of policies," she said in the letter.

However, the principals of the company being created were not fully identified.

The company seeking the approval is the Ivy Capital Group, LLC, identified by the DOJ in its approval letter as a Delaware limited liability company the investors of which are "principals in an independent firm that provides management and financial consulting services to Fortune 500 companies."

But, the lawyer for Ivy Capital, James Burns of William Mullen, Washington, D.C., said he could not identify the company's principals, or its location, without their approval.

According to the DOJ approval letter, the sources of the underwriting capacity will be small insurers who at this time collectively generate no more than $900 million in annual premiums from the sale of large commercial policies, according to the DOJ letter approving the proposal.

This represents approximately 5 percent of the estimated total $19.8 billion of premiums generated from sale of large commercial policies in the U.S., the letter said.

According to the information provided by the DOJ, Ivy intends to seek out underwriters with "complementary underwriting expertise and a focus on different niche submarkets ..."

Ivy will do this by creating a company, Concepta Services, LLC, in which the participating underwriters will have no ownership, the letter said.

According to the DOJ approval letter, the process by which Concepta will consolidate the policy will begin when a Concepta participant independently submits a proposed "lead" bid with an insurance broker.

Concepta's role in consolidating coverage capacity will begin after the insurance broker has selected a Concepta participant as the lead insurer, the letter said.

Once the broker has selected the lead, Concepta will then determine which of its other participants have underwriting guidelines "that are consistent with the rates and terms of coverage that the 'lead' insurer has agreed to provide to the insured ... [and] will then provide each such potential participant with a summary 'term sheet' of the proposed terms."

It will then request that each such insurer determine whether it would like to participate in the program as a "capacity adding' insurer," the letter said.

"Each Concepta participant that decides to participate will be allowed then to indicate the amount of coverage that it is willing to provide," the letter added.

If Concepta's participants over-subscribe, then each will have its respective offered shares reduced on a pro-rata basis, the letter said.

"Conversely, if Concepta's participants under-subscribe to a potential placement, Concepta will apprise the lead that it has not succeeded in completing the placement and the lead or broker will need to seek the remaining capacity through mechanisms other than those provided by Concepta," the letter said.

The letter said that Concepta's principals contend that the structure it is using will be pro-competitive structure eliminating the need for its participants to use facultative reinsurance or layering.

Moreover, Concepta's plan to charge the lead and "follow on" insurers fees that are considerably less than the current average brokerage commission fee on fire and allied lines policies will also be pro-competitive.

The arrangement, it was stated, will increase the ability of smaller or specialized brokers to assist larger clients on a more comprehensive basis and lower insurance costs as a result of decreasing brokerage costs.

The letter said the Concepta approach is pro-competitive because other alternatives for small insurers, like the purchase of facultative reinsurance, "is an undesirable option because the insurer incurs significant additional costs that impede its ability to offer the insured coverage on competitive terms."

Special Reports /

Justice Dept. Won't Challenge Commercial Insurance Combine

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