If there was ever a perfect time to start a managing generalagency, it was in 2009—in the wake of a global financial crisis andabout six years into a soft property and casualty insurance market,the leader of an MGA specializing in program business says.

But for Susan Rivera, president and CEO of V3 InsurancePartners, it’s a lot easier to express that view now—inretrospect.

“What am I doing, leaving a great company with a solid positionand to go out and do this” the former president of specialtyinsurance for QBE recalls thinking back then, as sat across abreakfast table from her partners, investors Rod Fox and JimStanard.

The task at hand was planning the launch of a programadministrator—one that would focus on small-account business—andthe timing turned out to be spot on, Rivera realizes now. “When youset up a company in the midst of an economic crisis, some standardoperating costs are actually lower,” she says, giving the exampleof IT costs.

Other people weren’t out buying IT systems. “You’re the onlyperson doing any IT development, so you can get the systems alittle more cheaply,” she says.

The same was true of the real estate market. “MGAs are all aboutmanaging expenses,” she says.

Rivera also notes that “it takes longer to build something fromscratch than you think.” That means those who wait until the marketturns to start building, miss a chance to reap hard-market pricingbenefits. “Hard markets don’t last very long. They’re a veryfleeting moment in the history of the insurance world,” shesays.

THINKING SMALL

In spite of that analysis, Rivera says she actually set out tobuild a company that would make money in both hard and softmarkets. V3 did this by focusing on small accounts at a time whenmost startups were headed toward large-account business.

The focus helps to minimize the impact of big soft-marketdeclines fueled by large-account competition. But it also caps thepotential hard-market upside, she admits. V3 will still benefitfrom price increases, but small accounts “are never going to seethe increases you get on large ones.”

Rivera notes that as her agency defining its small-businessappetite, the likes of Torus and Ironshore—on the carrier side—were moving in the other direction. It is probably hard to insurersto go below a certain size of account, because “they just don’thave the internal cost infrastructure,” she reasons. On largeaccounts, “you get a return on your investment much faster,” Riveraadds.

For V3, however, she sees another benefit of targeting a lot ofsmall accounts in that those “wind up having a lot of credibility.There’s not much volatility [and] you can do a lot of data miningand analysis” on the book, says Rivera, who started her career inthe industry over 20 years ago in the actuarial department ofAmerican International Group.

After spending 15 years at AIG, where she ultimately served aspresident of AIG’s American Home Assurance Company, Rivera went onto become president of ACE USA Group, and then to lead QBE’sspecialty program division.

During her last year at QBE, Rivera says the carrier purchased alot of MGAs. Getting to see the operations from the “MGA side ofthe house,” she says, gave her a better appreciation for theirwork. “What they really did was specialize. They knew what theywere good at. They knew what they their niches were, and theyreally built on that and stuck to it.”

“After seeing that, I said if I had capital to build somethingfrom scratch, that’s really what I wanted to play,” she says.

In late 2009, Rivera got the backing for V3 from F&SVentures, a privately-held insurance investment firm led by Fox andStanard. Fox, the former CEO of Benfield Group’s U.S. reinsuranceplatform, and Stanard, the founder of RenaissanceRe, are alsoexecutives of TigerRisk, a specialty reinsurance brokerage.

ENTREPRENEURIAL, BUT NOT OPPORTUNISTIC

“We’re really not an opportunistic MGA,” Rivera says. “If youlook if what MGAs needs to do, it’s hard for them to beopportunistic, because they have to support their companies in hardand soft markets.”

To develop V3’s first program niche, Rivera dug into her AIGroots—where an early responsibility was serving as lead actuary fora miscellaneous professional liability profit center. “That’s aproduct area that I have known from my actuarial side usually doesvery well” through up-and-down cycles, she says.

At V3, the focus in on “small, truly miscellaneousprofessionals,” she says, describing target insureds as consultantswith average premium sizes of $2,500—below most minimums of otherE&O programs. “There are also not many miscellaneousprofessional MGAs out there, she adds, noting that others focus onreal estate or insurance agents, for example.

The next V3 program launch was one for used auto dealers inrural territories. Rivera says competition is more heated for newcar dealers with greater property values.

Next up was an Internet-based workers’ compensation program.“Our goal is not to write hundreds of millions of dollars” as aninsurance carrier would, Rivera says, noting that she was involvedin the development of tools to sell comp over the Internet at AIG,ACE and QBE. “If we write $50 million for an MGA, that’s anice-sized program,” she says. “We believe that with a goodInternet offering, with good classes and good state strategy, wecan write a nice portfolio of profitable business,” she says.

V3’s most recent program is V₃antage EQ⁺ Difference In Conditionsprogram, launched last month for small commercial businesses withprimary exposures in and total insured values up to $10million.

While Rivera stresses market differentiators, such as asmall-account focus, NU asks her about the popularity ofboth auto-dealer and earthquake programs, which seem to be frequent targets ofprogram-focused MGAs. How is V3 really different in these twoareas?

Rivera responds that the MGA is not going to distinguish itselfwith “one home run. It’s going to be doing the seven or eightthings very well,” she says.

On the auto program, DealerV3antage, she describes thecombination of program leader, Don Barrand, who is 34-year veteranof the commercial auto program space, seasoned underwriters “reallyknowing the business,” having an easy processing system to ensuretimely responses on quotes, and specialized coverages. For example,the program has an optional “Red Flags” coverage, responding todamages a dealer might incur if a customer’s identity is stolen asa result of dealer negligence.

“It’s all those little cumulative advantages that add up,”Rivera says. She stresses that a key competitive advantage for V3is seasoned underwriters, but notes that they needed to bring morethan underwriting talent to join the V3 crew. “There are greatunderwriters out there that can put together the best underwritingguidelines in the world, but never sell a piece of business,” shesays, noting that V3 selected underwriters with proven distributionrelationships. “You need to make sure you have that balance as anMGA,” she says.

On the DIC program, Rivera says V3’s competitive edge is its useof risk-modeling technology together with unique actuarial ratingmodels and outputs like margin calculations that considerprobable-maximum-loss estimates—all at underwriters’fingertips.

“We spent a lot of time building a very technical rating model”that has a direct feed out to RMS, she says, referring to theNewark, Calif.-based modeling firm. “We actually send dataelectronically out to RMS and it comes back to our rater on all ofthese small accounts. We fully model every location,” she says.

“Rather than worrying about modeling the account, ourunderwriters are actually spending their time analyzing the outputof the actuarial model,” asking why certain indications are high,others are low—and then selecting business “that is best priced forwhat it’s doing to our overall portfolio.”

Rivera believes there’s inconsistency in the way competitorsprices the business today. “So if we are consistently analyzing ourportfolio, our goal is to really take advantage of those times whenthe market is charging more than it really adds to our overallportfolio” in terms of risk, she says.

MORE GOOD TIMING

The recent earthquake and tsunami in Japan are spurring interestin the EQ DIC product, according to Rivera. Three weeks into theprogram, V3 had over 800 submissions, she reports. “You are seeinga lot of first-time buyers.”

“We might need some more underwriters,” she says.

In addition to demand changes, Rivera is starting to see earlysigns of upward pricing movements around DIC and workers’ compbusiness, she says, responding to a question about recentdiscussions surrounding a market turn.

“Everyone is thinking [DIC pricing] is going to change,” shesays. Right now, the flurry of activity is centered on severelyunderpriced accounts. “We are hearing some things [about] reallydistressed business of increasing, but the whole Main Street has toincrease on that market.”

Rivera also reports seeing “the inklings of a turn” in theworkers’ comp line—“and really recently. I’m talking about last twoweeks,” she says during an April 8 interview.

“January and February were very competitive in the workers’ comparena still,” she says, suggesting this was not surprising. “That’swhat people do. Everybody knows they have a big January,” she says,referring to the large number of policies up for renewal, “andJanuary winds up being very competitive.

Right now, she’s seeing a mixture of increased pricingdiscipline sprinkled with some remnants of irrational behavior.“People are still asking for crazy discounts [through] schedulerating,” she says. “We still have a long way to go, but it doesseem like things are going to start happening.”

She continues: “Workers’ comp usually is one of the first linesto change because you can’t run from the results. The results arewhat they are—and eventually [insurers] say I’m not going to run117 combined ratio anymore. I can’t.”