Recent entrants into the umbrella liability insurance market have two common strategies in their business plans–they're steering clear of the most competitive middle-market segments, and are distinguishing their firms through service and expertise.

While announcements released early this year fueled reports that the newest entrants are trying to take advantage of perceived market disruptions in the most capital-intensive high-excess casualty segments, representatives of two firms–Ironshore and Torus–described much broader appetites to National Underwriter recently.

In addition to targeting the world's largest insureds from Bermuda with catastrophe-excess coverage, they have each recently set up separate U.S. units vying for very different levels of casualty towers than their Bermuda brethren.

At Torus, Linc Trimble, a 13-year veteran of Chubb and St. Paul Travelers, took the helm of the U.S. excess casualty division in Jersey City, N.J., in March of this year. He said his sights at Torus are set on the smallest buyers of umbrella coverage–SMEs, or “small and medium enterprise risks,” as well as niche casualty programs.

At Ironshore, Tim McAuliffe came on board as president of U.S. Specialty Casualty in New York after 14 years at American International Group. While his unit will focus on Fortune 1000 and 2000 companies, it will write layers attaching below $100 million, in contrast to Iron-Starr Excess, another Ironshore casualty venture.

Iron-Starr–an MGA writing for Ironshore and joint venture partner C.V. Starr–will initially aim for the top of clients' programs, with a minimum attachment of $75 million and gross capacity of $75 million, according to Chief Executive Officer Geoff Smith, another AIG veteran.

TORUS TARGETS

Torus Insurance Holdings Ltd.–launched in June 2008 and backed by $720 million of funding from First Reserve Corp., a private equity firm specializing in the energy sector–was initially focused on U.K. distribution of property coverage for the energy sector.

With $720 million, “the need was obvious to expand geographically and by product,” Mr. Trimble said.

Enter David Perez, who orchestrated Torus' first forays into the casualty world after joining as president and chief underwriting officer of global casualty in October 2008. Mr. Perez, with two decades of casualty market experience under his belt–including 14 years at AIG directing U.S. lead umbrella business and high-excess offshore–has already “become a major player” in the Bermuda excess marketplace, according to Mr. Trimble.

The book has a bit of an energy focus, but actually includes a broader portfolio of complex commercial accounts, he reported, noting that Mr. Perez started writing high-excess, high-limit casualty late in 2008, “but in earnest starting in Jan 2009.”

In February, Torus announced it would offer $50 million of excess liability capacity from the new Bermuda office for “virtually any class of business” to help clients concerned about carrier strength, seeking to diversify programs beyond existing players.

Mr. Trimble said Torus' desire is to capitalize on parts of the umbrella market it perceives as having good profit margins. Like Bermuda excess, the small-risk U.S. umbrella market meets this condition.

“We are not going to compete in the large middle-market and national accounts lead arenas,” he said, explaining that rates there “have been eroded to a point where not only is there no margin, but there is negative margin.”

He said the insurance market for SMEs is “much more scattered” than for large leads. “If you ask who my competition is on the small end of the scale, it's everybody and nobody,” he said.

While AIG, with a Web-based portal, “is the market leader for the very smallest risks, he said there's room for competitors in what he believes is a “multibillion-dollar marketplace” of businesses that have revenues of $200 million or less.

The scattered market and minimum premiums are factors explaining a lower degree of rate erosion at the small end of the customer scale, he said. When comparing the total amount of exposure for the small-business market to total premiums, “that premium is artificially inflated by a minimum premium, [which] mathematically builds in rate redundancy,” he explained.

Describing Torus' excess casualty appetite for SMEs more specifically, he said the absolute maximum revenue size of risks his unit will consider is $300 million, adding that the vast majority will be under $100 million. By class, that includes contractors, distributors, habitational, hospitality and real estate, he said–noting, however, that the focus will be away from “hard E&S categories” such as nursing homes, trucking and medical devices.

To date, he said, 90 percent of the SME written premium is on a lead position, although Torus also entertains excess positions in the first $25 million of a tower.

Highlighting a second area of focus– excess capacity over the primary liability niche programs–he said the attraction to program business isn't just inherent rate redundancies for smaller risks. A program focus “helps me drive my portfolio into areas that I like,” he said, adding that once he's identified desirable niches, MGA program managers provide marketing efficiency. “They do all the marketing work and I just piggyback along for the ride.”

Mr. Trimble said the track records of Torus' leaders–Mr. Perez and Chief Executive Clive Tobin, the former head of insurance operations at XL Capital–personally attracted him to the company.

For customers and brokers, however, he aims to distinguish the U.S. unit through price and service to producers, he said, noting that all U.S excess casualty distributors are wholesalers and MGAs, and all the business is being written on a nonadmitted basis.

“What I bring to the market is probably the one [excess] carrier that is not only pursuing, but pursuing with some determined focus, the smaller end of the spectrum” of casualty risks, he noted.

To be successful “you have to price to entice that business,” he said–adding that process efficiency is also critical, explaining the business involves high transaction counts but small premium dollars.

“Wholesalers don't want to go to four markets and shop a small piece of business,” he added. “All they want is a competitive quote that's turned around quickly,” pledging that turnaround time will be a day or less. “If it's a more time-sensitive item, we can turn things around in 10 minutes.”

IRONSHORE U.S. SPECIALTY

Like Torus, Ironshore's initial launch was in the property market. The company set up in Bermuda in early 2007 to write commercial property in catastrophe-exposed areas has since expanded into many professional liability and casualty areas. (See related article, NU, Sept. 8, p. 12.)

Ironshore's initial move into the excess casualty world–through a division called IronSelect set up in mid-2008–did not pan out, according to Mr. McAuliffe, who explained that the trade name IronSelect was retired, and the older division subsumed into U.S. Specialty Casualty in January.

IronSelect was going to be a middle-market excess player, but “what we quickly found is that market is saturated” by a group of “well-entrenched players.”

The approach changed on Jan. 1, said Mr. McAuliffe, who actually came to Ironshore later–in early April–to head up the U.S. division that writes both primary specialty casualty as well as excess and umbrella for Fortune 1000-type accounts.

For excess business, the available limit is $10 million, “but we're moving to put $25 million into the marketplace in short order,” he said, noting that targeted attachments will be $25 million or $50 million for businesses in almost any industry, with the likely exception of pharmaceutical classes.

“We think there's disruption in the marketplace [and] that by coming in, we're offering a stable solution to our broker partners and clients,” he said, explaining that a number of markets are financially distressed. Disruptions, he said, go beyond widely reported troubles of the three major markets in the excess and umbrella insurance world–AIG, XL and Hartford.

“We're not going to live or die off the business that comes out of AIG,” he said, citing another disruption created by a specialty writer of utility business, which appears to have made an underwriting decision to exit non-utility business that it used to entertain. “That opens up an opportunity for other markets to get in.”

Public entity and energy are two other classes that exiting excess insurers seem to be pulling back from, he reported.

In addition, there are more general opportunities created by buyers, who are exercising a higher degree of caution and seeking to have more carriers on their programs. “Where somebody in the past might have bought a $50 million block or $75 million block of capacity from one carrier, they're now breaking that into $25 million blocks and even smaller,” he said.

To take advantage of these opportunities, he said Ironshore distinguishes itself with a team whose members have 17 years of underwriting experience, on average.

Diversity of experience also sets the firm apart, he said, noting that Ironshore has drawn talent from a number of different companies. That means quick decision about whether to write a risk. “We're also able to add value to brokers because it's more likely than not that somewhere in our organization, we've seen this account before,” he said.

IRON-STARR: A UNIQUE MGA

Separately, Mr. Smith said the new MGA, Iron-Starr, occupies a unique position in the excess liability world.

“There's no other setup I'm aware of like this. We are truly an MGA managing the line for two separate companies,” he said. “That is more of a property concept than a liability concept,” he added, explaining that the 50-50 partnership means that for every layer of coverage the MGA puts out–whether it's for $25 million, $50 million or $75 million in limits–50 percent goes to Ironshore and 50 percent to C.V. Starr.

With this setup, “clients have the ability [to] spread their placements among carriers…with one stop,” since two insurers participate on every deal–Ironshore Insurance Ltd. and Starr Insurance and Reinsurance Ltd.–the Bermuda companies of the two organizations, he said.

Over time, more carrier partners can be added to the arrangement. “There's nothing on the table currently, but at some point, there might be a third or fourth partner,” he noted, potentially giving clients more ability to diversify their towers among carriers.

Because the initial focus has been high- attaching large-limit catastrophic excess, Mr. Smith said the new MGA is seeking to place a broad array of risks. “This is very highly leveraged business, so our view is to successfully get to critical mass, you have to build a balanced portfolio”–meaning you have to see a lot of different types of risks. He explained that the business is leveraged in the sense that the carriers are “putting up a lot of limit for not a lot of money.”

Attachment points are selected to put the carriers “in the realm of truly the fortuitous event affecting our participations”–above frequency and severity layers, he said.

Since opening the doors on April 1, Mr. Smith reports that roughly 260 submissions have come into the Iron-Starr facility from some of the world's largest companies. “We've written approximately 50,” he said, adding that the hit ratio is at about 50 percent on quoted business.

See also, related article, “Starr New Excess Facility Aims At Mega Businesses.”

Special Reports /

New Entrants Bringing More Than Big-Money Umbrellas To Excess Market

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