The new chief executive officer of United America Indemnity Group envisions overseeing a specialty insurance group with three distinct operating units, including one that will command larger slices of the program business and casualty brokerage markets at some future time.
But with a property-casualty specialty insurance market at a point that's not ideal for rapid growth, putting building blocks in place for growth is the near-term task at hand, according to Larry Frakes, who took the helm in late June.
"As the market continues to soften, it's the perfect time to build infrastructure, staff and resources," he said.
United America's ultimate parent, United America Indemnity, Ltd., is a Cayman Islands-based holding company comprised of U.S. insurance operations and a Bermuda reinsurance operation called Wind River. The U.S. insurance operations house two U.S. specialty operating units writing excess and surplus lines business–Penn America and United National.
According to a report on the E&S market published by Oldwick, N.J.-based A.M. Best and distributed at the annual meeting of the National Association of Professional Surplus Lines Offices, Ltd. earlier this month, United America ranked as the 16th largest surplus lines insurance group based on 2006 E&S premiums of $461 million.
Focusing on the E&S insurance businesses, which came together in a merger deal completed in January 2005, Mr. Frakes told National Underwriter there is more construction work to do at United National than at Penn-America, with the goal being to bring more product expertise, underwriting strength and claims support within United National.
At Penn-America, the focus is on managing relationships with a limited agency base, he said, distinguishing the small binding authority business of Penn-America from United National's core focuses–specialty brokerage business placed through wholesalers and program business written through program administrators.
Clarifying distinctions between the two units is a big part of Mr. Frakes' mission.
"While seeking to brand these units as distinct businesses, we're also focused on flattening the organization to allow for senior management of each of these units to be empowered to do the business they need to do," Mr. Frakes said.
The recent hiring of Scott McDowell to the position of president at Penn-America in August was the first step. Mr. McDowell, who had formerly worked at Admiral Insurance Company for 13 years, also has roots in the small account binding authority world that is Penn-America's focus, Mr. Frakes said, noting that Mr. McDowell's family at one time owned a general agency that did business with Penn-America.
Turning to United National, Mr. Frakes, a 35-year industry veteran of the industry who spent the last 10 years leading Everest National, the specialty programs unit of Bermuda-based Everest Re, said "programs are a piece of what we do today and a big piece of what I want to see grow in the future."
He recalled that in the early days of United National's history, the company was heavily involved in programs, but the focus then "was more fronting-oriented–working closely with reinsurers."
Today, he said, "it's very different. There is a true underwriting focus. We're taking risk in a real way and use reinsurance in a more traditional fashion." He noted that such a model requires more infrastructure than a fronting model.
The company has roughly 15 programs on the books, ranging from miscellaneous professional to package programs, and even has a horse mortality program. The common theme is that program administrators have good core knowledge in a particular industry or class, Mr. Frakes said.
He noted that while there are no targets for the number of programs to be added going forward, "an ability to look at historical results [to] make a knowledgeable underwriting pricing and profitability decision" will be key.
"My focus has been to get under the covers and understand [the administrators'] ability and the business they're doing," he said, explaining the need for strengthening a supporting infrastructure. "Having obtained this understanding, we're looking to retain a knowledgeable and experienced president for United National, to build on this business as well as the brokerage piece."
It's a similar situation on the brokerage side of United National, where building staff and resources are near-term goals.
"We have a property brokerage operation today that's running well–not large, but well established, with a good group of underwriters and a very good group of producers supporting them," he said. "We have a presence in the allied health and miscellaneous professional areas, but we really don't have a big presence in the casualty arena today."
On the casualty brokerage side, he noted he will concentrate on bringing in additional underwriting talent and leadership. "You will not see rapid growth in the casualty brokerage arena near term," he continued. But "when the market starts hardening a little, we'll start to grow."
The agenda is different at Penn-America. Instead of building internally, Mr. Frakes said the first order of business for him and Mr. McDowell is reestablishing historically strong ties with agency partners.
"The biggest challenge I've had in the last five months is to make sure the agents understand where United America is and what the changes mean for them in the long term," he said, noting that since the merger, frequent management changes have been unsettling for agency partners.
At the same time, he noted, the market is softening, "and agents have opportunities to take on new relationships or expand existing ones."
"Through Mr. McDowell, we are back working on relationships," he said, confirming that Penn-America has binding authority contracts with more than 100 general agents today.
Prior to the merger, United National had been doing some small binding authority business similar to that of Penn-America, he reported, adding that when the merger deal was complete, United National's general agency relationships were brought together with approximately 66 existing Penn-America relationships.
"You had more business but more agents in place as well, [and] in some places, perhaps, overrepresentation," he said. "Actually, when you put the companies together, we were still underrepresented in some markets also," he said.
Going forward, the company will continue to refine its agency base to ensure strong franchise value, Mr. Frakes said, agreeing that there might be some partnership reorganization as a result.
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