Joseph Peloso, a veteran of the program business segment, remembers a time when unsolicited program proposals flooded the desks of property and casualty underwriters, offering more business than they could possibly handle.

The environment of the late 1990s stands in stark contrast to conditions of the current market, carrier executives agree. With few existing programs looking for new homes, carriers are looking to grow their program portfolios by expanding relationships with their current program administrator partners, these officials say.

“I haven't seen a lot of programs where [PAs] say, 'I don't like this company anymore and we have to move,'” said Mr. Peloso, vice president of liability programs in the New York office of Liberty International Underwriters.

Nor has he seen carriers getting out of the business, “which is what happened during the hard market, when many companies either lost their rating or went under,” he recalled.

Back then, “we didn't have time to breathe,” said Mr. Peloso, whose 40-year career in insurance includes over 25 years in the program business sector, including a stint at Clarendon.

“Reliance went away, Kempes went away and Legion went away, and stuff was coming at us in different directions,” he said, referring to carrier insolvencies that occurred around the turn of the century. “You just had to pick and choose what you wanted to do,” he added.

“Now, you have to be a lot more selective and try to find people that have opportunities,” according to Mr. Peloso, who joined LIU in 2009.

At Delos Insurance Group in New York, Bill Davis, president and chief executive officer, is also being selective. “In this part of the cycle, we believe it's more effective for us to extend our relationships with current general agent [partners] than it is to go out and necessarily take a leap of faith on a new book of business,” he said.

As a result, he said Delos spent a fair amount of time in the last 24 months building out business with existing partners. Explaining that program expansions could involve adding lines of business or widening territories, he said one reason for engaging in this strategy is the fact that “it's very difficult to move programs.”

“Companies–and relationships between the general agents and the companies–have been generally very good. They are invested in each other in certain ways [and] it's not going to be attractive for them to move.”

“We're not going to compete by offering a higher economic incentive for a program manager to move,” he continued. “And because it's so hard to dislodge programs given where we are in the current market, we'd just rather find organic opportunities with the people that we're working with already.”

DELOS TAKES STOCK

Delos, which has grown rapidly since the company's launch four years ago, actually reduced the number of programs in its portfolio this year, Mr. Davis reported.

The company was initially built up from a handful of programs it inherited from Sirius American Insurance Company, a program writer acquired by Lightyear Capital, a private equity group, in 2006. Delos ended 2009 with $337 million in direct premiums, according to Highline Data (a data affiliate of National Underwriter).

“We grew from about eight programs when the acquisition occurred, and last year ended up with 26 in force,” Mr. Davis said.

Currently, the total is down to 24, after cutting four and adding two new ones. The cuts came “primarily because we didn't like the macroeconomics of certain lines,” noted Mr. Davis, referring specifically to workers' compensation and personal lines.

Describing some new programs that Delos has signed onto this year, he said the company continues to find niches in commercial auto–a line of business in which the company already participated.

“A tow truck program, even though it may be nationwide, is never going to be huge. We're not going after long-haul trucking [or] vanilla commercial auto,” Mr. Davis said. “What we do [are programs such as] waste haulers. We do tow trucks. We do some private livery business.”

Commercial auto is a “decent line compared to other options,” because it continues to open up pockets of opportunity to diligent program carriers, he added.

TOW TRUCKS & REPO MEN

Like Mr. Davis, Mr. Peloso listed two commercial auto programs among the most recent additions to LIU's primary liability seven-program portfolio. An admitted program for auto repossessors is currently the largest LIU liability program, he noted.

“There aren't a lot of competitors, although we're drawing more people to it,” he said, adding that auto repossession is one of the few growing areas in the economy. “People are losing their vehicles, and repossessors are in demand.”

Speculating on the lack of competition to date, Mr. Peloso said there are misperceptions in the marketplace based on the image of “Dog the Bounty Hunter,” a reality television show based on Duane “Dog” Chapman's job as a bounty hunter, not a repo man. “They think of someone going out and pulling a gun and taking someone's car away in the middle of the night. There's just a perception that it's bad business.”

In reality, Mr. Peloso said those in repo are “good businessmen. They have contracts with financial institutions,” which require bonding and liability insurance.

Building on the success of the repo program, Mr. Peloso said LIU is now writing a regular tow truck program–involving tow trucks for services stations, for example–through the same PA.

GREENFIELD PROGRAMS

More recently, LIU announced that it launched a “green” general liability program for midsize real estate properties with Mainstay Insurance Group, a Bellevue, Wash.-based PA.

The new primary program, launched in early May, targets real estate classes including apartments and condominiums as well as office, retail and light industrial buildings, and offers specialty green coverage enhancements for indoor environment and adverse publicity exposure.

Mr. Peloso said he sees green building owners as “a target class” for LIU.

Elsewhere, Craig Fundum, president of Programs and Direct Markets for Zurich, said he sees a “greenfield” opportunity in accident and health business.

Mr. Fundum said the Schaumburg, Ill.-based carrier, which has previously written a&h insurance through worksite marketing and other non-program approaches, is now “aggressively looking for program partners” to build an a&h portfolio of programs. “It's our turn on the program side [of Zurich] to step it up and grow that business,” he said.

Zurich's programs team will emphasize the 'a'–the accidental death and dismemberment part–of a&h, he said, noting that a recently launched a&h profit center is currently being staffed with some experienced AD&D professionals. “There's huge potential out there,” he said.

Beyond a&h, Mr. Fundum said Zurich started focusing on the huge potential of the p&c program business arena about four years ago, even though its participation in the segment actually spans four decades.

“We have several programs with relationships that have been in existence upward of 40 years,” he said, explaining that the definition of a program centers on business for which the carrier has outsourced the transactional underwriting, marketing, policy processing and issuance to an MGA, MGU or PA.

“In 2006, we decided to capitalize on our experience and market position, and to really put a heavy emphasis on growing the program business, leveraging a position of strength to become even stronger and bigger,” he said, noting that the company created a new programs team that is dedicated 100 percent to evaluating new program opportunities.

“That's all they do every day,” he said, noting that today the team has 300 people organized in five strategic business units (not counting the new a&h unit).

The “re-energized, rejuvenated approach” to a long-term play has resulted in 70 programs in place today–with roughly half of those added in the last three years. In 2009, Zurich brought on 14 new programs, Mr. Fundum said.

His description of Zurich's latest foray–into a&h programs–similarly highlights a move to capitalize on a strength of the company, in this case a strength that existed in other parts of the world. “We identified a&h globally as an area for huge growth potential,” he said, noting that the company has enjoyed a&h success in Europe.

In addition to the accident and health unit, Zurich's program SBUs include:

o Transportation programs.

o Construction services programs.

o Segmented programs, focusing on professional lines, workers' comp and other areas that aren't categorized as either construction or transportation.

o Alternative programs, including those with alternative distribution (through banks and homebuilders, for example) and those with alternative risk mechanisms (where a program-based captive or risk retention group might be involved).

o A new programs team, performing due diligence.

ACQUISTIONS FUEL GROWTH

At QBE the Americas, which rivals Zurich in terms of program diversity, acquisitions have fueled premium growth in recent years, according to Stephen Fitzpatrick, president of QBE Specialty Insurance.

Currently, QBE owns six PAs in the United States. “Our [acquisition] strategy, I would say, has been more defensive than opportunistic,” he said. Explaining the distinction, he said that these were situations where a PA partner may have had succession issues and approached the carrier about making a deal.

While Mr. Fitzpatrick attributed a large part of a 17.4 percent premium jump in 2009 to the acquisition of a large program administrator, new appointments also fueled “meaningful growth last year, even though the industry was sluggish,” he said.

He said QBE, which first opened its offices in the United States in the early 1990s, is probably one of the nation's largest program business writers today. Within QBE the Americas, the specialty program business unit is the largest single unit, representing nearly $2 billion in premiums.

The expansive scope of p&c programs includes most lines of business–admitted and nonadmitted–and a broad range of program sizes. The smallest is a $0.5 million prize indemnification program administered by Hole In One International in Reno, Nev., while the largest–a program of forced-placed property coverage for financial institutions managed by Atlanta-based Sterling National–garners several hundred million in premiums.

QBE acquired Sterling National in 2009.

The common thread among QBE programs, Mr. Fitzpatrick said, is that they all require a certain level of specialized skill from the PA. Examples include:

o A program for a difficult class, like an assisted living facilities program QBE signed onto last year, which requires specialized underwriting expertise.

o Business that lends itself to unique coverages customized for a specific industry, like a new staffing industry program. In addition to general liability insured with a package, there is coverage for “malplacement”–a professional cover.

o Programs that require specialized approaches to loss control or claims settlement, like a longtime fine arts program through which QBE provides personal inland marine coverage for large private collections and museum collections.

“Some programs we undertake would be considered more difficult to underwrite as you look at the spectrum of business,” Mr. Fitzpatrick noted, listing as examples a program for small chemical operations and another for West Coast contracting business. “We're willing to entertain more difficult exposures provided we find best-in-class PAs” to manage them, he said.

Like Delos' Mr. Davis, Mr. Fitzpatrick said QBE also looks to grow its programs segment by partnering with PAs on multiple programs, or by adding lines and states to existing programs. QBE will entertain a start-up, but only “if it's got the right business and the right story,” he said.

In February, the company announced the launch of Complication Insurance, a start-up program providing financial resources to patients in the event of adverse outcomes following any one of 80 covered elective surgical procedures. The program was the 10th program in a portfolio of a&h programs that the carrier started building in 2001. (Complication Insurance was described fully in the April 12 edition of NU, available at http://bit.ly/djmVwW.)

In September, 2009, QBE added to its a&h portfolio by acquiring the CIGNA special risk, student and sports accident insurance book of business, rounding out an a&h portfolio that also include employers stop loss and provider excess.

Special Reports /

Program Carriers Remain Selective Even As Most Program Administrators Stay Put

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