Burns & Wilcox Chief Aims For $1 Billion

During previous face-to-face meetings at surplus lines conventions, Mr. Kaufman typically roamed about the Burns & Wilcox suite, meeting and greeting, while his father, Herbert Kaufman, the companys founder, dealt with the media and was the public face of the Farmington Hills, Mich.-based MGA.

Alan Jay Kaufman would be reined into the press briefings to give an instant response on matters that he had worked directly onbe it an acquisition, the formation of a reinsurance intermediary, or the firms technological advances.

In spite of his original behind-the-scenes role, Alan has worked for years in a decision-making capacity.

"My father was really the true diplomat, the ambassador for our company," the younger Kaufman said. "He spent time talking to the managers of insurance companies, the press, whoever. He was the person in the forefront of the companyand really a legend in the insurance industry," he said.

Herbert Kaufman, the firms previous president and chief executive officer, passed away last August after a short illness. Alan, who had served on the board of directors since 1973 and became chairman in 1996, assumed the roles of president and CEO as well last September. Alan also was, and still is, chairman, president, and CEO of H.W. Kaufman Financial Group, the parent company of Burns & Wilcox.

Just how involved he would be at the forefront of the company was one of the concerns Alan needed to address as he took on his new roles, confirmed Stephen Allen, executive vice president and chief operating officer.

"Many of the managers had questions. A lot of them asked, Does Alan really understand and know our business?"

Its a question that Mr. Allen responds to affirmatively. "They didnt see Alan in the role that we actually saw him in up here" at the firms headquarters, because "Alans been in the background. But he has been making decisions for years with the companywith different underwriting programs" as well as acquisitions.

"He was also the one that pushed for a new technology program," he said.

"He didnt want the limelight. He left that for his dad," Mr. Allen said.

Serving as both steward and ambassador these days, Alan Kaufman now runs Burns & Wilcox, the largest independent managing agency, while practicing law in his spare time–in the early morning, evenings and on weekends.

While it may not have been the life plan he had in mind when he got out of the University of Notre Dame Law School in 1973, Mr. Kaufman, who is a senior partner of the firm of Kaufman and Payton in Farmington Hills, Mich., isnt complaining. "At this point, Im willing to pay the price because Im happy and its exciting," he said.

Mr. Kaufmans career reveals a pattern of living in the worlds of law, business and insurance simultaneously.

As he worked towards earning a bachelors degree in insurance, accounting and finance from Michigan State University, Mr. Kaufman reports that he sold property, casualty and life insurance door-to-door.

"The law firm that I happened to work for out of law school represented insurance companies," he continued. While he wasnt representing insurance companies exclusively, his background in insurance helped him to successfully litigate some cases for insurers, which, in turn, created a following for the young lawyer within the insurance community.

Agreeing that there arent too many lawyers who are CEOs in the insurance world, "I think the time will come when youll see many more," he said, noting that in the total business world, lawyers are "well-sought after for those positions."

"A lawyer can think quickly and decisively. Thats what youre trained to do," he said. "You have to be analytical–quick on your feet," he added. And "you have a certain presence about yourself. Youre going to think things through. Youre not going to shoot from the hip. Youre going to do your research."

For insurance company partners seeking an underwriting profit, he believes his background brings a degree of comfort. They know "that I understand the claims ramifications of writing business," he said, noting that 50 percent of his law firms practice is devoted to insurance-related matters.

Applying his analytical skills, Mr. Kaufman said he reviews potential and pending acquisitions every single day.

"I emphasize that old clich?–if you stay still, you go backwards–and we have no intention of standing still," he said. "We intend to continue to make acquisitions, said Mr. Kaufman, who was the architect of several deals in recent years, including the acquisitions of two Louisiana-based MGAs–Cygnus and Southern Insurance Servicein 2000 and 2001.

Mr. Kaufman announced the firms most recent acquisition, a deal for Birmingham, Ala.-based MGA Van American Insurance Services, a specialist in the placement of personal lines, transportation and employment practices liability in the Southeast, in January 2002.

Why would other MGAs want to be acquired at a time when the insurance market is so strong?

Mr. Kaufman analyzes the situation this way: "Its a great time to be in the business, if you have the [insurance] companies that will follow you," but companies are not as willing to write business today as they had been in the past. "It has to be extremely profitable. [Companies] are being forced by the reinsurance market to write less business and to be restrictive on what business they write," he said.

"So the capacity issue, puts many agents in a situation where they may not have the [company] markets to place the business that comes in the door. In some cases, their key markets may have dried up," he said.

"So you could have a good MGA, good business coming in, good relationships with the agents around the area, but with no marketsor not enough markets. That is one good reason why an MGA may come to us for an acquisition."

Mr. Allen agreed, noting that during the due diligence process for one target, Burns & Wilcox found that four of the eight or nine insurance companies the acquisition candidate represented were getting ready to cancel them. "It was almost, for their existence, that they actually had to be acquired."

Mr. Kaufman also said that to be competitive today, it takes a larger investment of capital. "To service the [retail] agent, you have to make continuous investments in your infrastructureday-to-day, month-to-monthwith technology, with excellent support staff, whether the support staff are involved with underwriting or other support issues."

"If you dont do that, then youre going to fall backward," he said, noting that some MGAs, who "are not willing to take that risk and put a tremendous amount of money into the infrastructure, would rather sell out."

Finally, he said, selling at a time when the market is strong makes economic sense for target companies because "they may be able to get the best dollars for their businesses."

With 725 employees in 30 offices located in 21 states, serving close to 30,000 retail agents nationally, Burns & Wilcox generated $450 million of premium revenue in 2001. Acquisitions will help the firm double that premium in five years, but according to Mr. Kaufman, most of the growth will come internally.

"Whats set us apart is superior underwriting talent," he said. "Our growth will come, not only from brokerage, but it will come from underwriting."

To build a team of talented underwriters, Burns & Wilcox spends a lot of money and time on education, he said. "We bring people up through the ranks," hiring some right of college," he said, noting that the firm has its own internal university program.

Future growth will also come through the introduction of exclusive or innovative products, the two men agreed. For example, "we have asked our research and development departmentto see if there are ways we can get somebody to support a standalone policy for terrorism," Mr. Allen said.

"We have a unique umbrella program for very high limits that we can bind coverage [for] immediately," Mr. Kaufman added, noting that while the coverage sounds basic, the ability to be expeditious on such a program is another plus in this marketplace.

Because the firm has a national distribution network, Mr. Allen said, Burns & Wilcox has been able to form relationships with two large standard carriers (and is negotiating with a third) that are looking at ways to capture more standard market business. As these insurers grow their standard business, they capture some specialty business along with it that they dont want to write, he said.

"They route it directly to our offices," he said. "They want us to take the part theyre uncomfortable with."

With ambitious growth plans ahead of him, Mr. Kaufman said there are some things that will not change at Burns & Wilcox. Under his fathers leadership, he said, "the theme of our management team was relationships. My father was a strong people person. He was concerned about the people that worked for him, the people that he did business with."

"He put that above everything else. That was above profit. It was the more important ingredient."

"We wont change that. Thats the way we do business," he said.

Emphasizing integrity, he said, the firm will continue to pass by acquisition opportunities that dont fit the culture or business strengths of the organization.

"Even though we are large, we run [the firm] as a family company. And when we make acquisitions, we welcome [the employees] as a family.

"We wont do business with companies we dont feel comfortable with," he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 25, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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