Three E&S Leaders Set To Share Problems, Strategies At Upcoming Forum

Giving NU a preview of his thoughts, Mr. Cavaness drew an analogy to the hidden presence of a bear in a cave to describe the worrisome prospect of unforeseen attacks on the industry, perhaps similar to those launched by regulators investigating broker relationships and contingent commission agreements in the middle of the last decade.

"The cave is dark and you don't know he's in there or how big he is," Mr. Cavaness said, describing the challenges he fears most, particularly given RPS' organizational structure as part of a publicly traded company (Arthur J. Gallagher).

"We operate in an environment that we all still feel, and felt at the time was proper," he said. "The amount of effort and time expended in trying to show what everybody was doing was proper takes focus away from running a business," he said.

The upcoming NAPSLO session will be moderated by Steve Harvill, president of Creative Ventures, a provider of organizational learning and strategic planning programs for Fortune 500 companies. (For more information about Mr. Harvill, see www.propertycasualty360.com for the March 4, 2010 article, "Gut It Out Instead Of Putting Out Fires, Consultant Says.")

Matt Nichols, president of All Risks Ltd. in Hunt Valley, Md., who is also NAPSLO's secretary and the board member responsible for putting the Forum program together, noted that Mr. Harvill also spoke to NAPSLO attendees last year. At the prior meeting, Mr. Harvill steered the conversation beyond the question of what issues actually caused executives to lose sleep toward the bigger question of "what should be keeping them up," Mr. Nichols remembered.

Recalling that Mr. Harvill also provided personal insights into the challenges coming at executives "on a worldwide basis," Mr. Nichols said he hopes to hear his peers in the industry talk about some challenges unique to the world of surplus lines—specifically those relating to the implementation of the federal surplus lines reform provisions of the Dodd-Frank Act, also known as the Nonadmitted Reinsurance Reform Act.

"That's the tie-in" between the executive session scheduled for 8:45 a.m. on Feb. 25 and a 10:15 legislative update being presented by NAPSLO's Executive Director Richard Bouhan and Government Affairs Director Steve Stephan, Mr. Nichols said.

Mr. Bouhan and Mr. Stephan will address questions about what NRRA means to NAPSLO members. "How do we as wholesalers and carriers react to what is coming within a fairly short amount of time, understanding that we might have people quoting 90 days out on binding authority business," he said. In that case, a NRRA effective date of late July really becomes April for those members.

"We won the game, but now the work really begins," Mr. Cavaness said, agreeing that the tasks of trying to get 50 states to agree on implementation details and understanding how it's all going to work remain daunting ones for the surplus lines industry. "It's going to be very difficult to pull this monster together," he said, noting that there has recently been talk of a deadline extension.

Identifying another topic sure to come up at the Forum, Mr. Nichols said he anticipates discussion about mergers and acquisitions—both during the executive session and at individual meetings between E&S carriers and brokers held over the course of the three-day event.

"I don't think it would surprise anyone if there was a lot of activity between now and the midyear that had everyone talking a fair amount by the time we got there," he said.

Asked if he expects insurer or broker deals, he said both could be on the horizon this year.

"There's an awful lot of chatter out there about the insurance companies looking to make acquisitions, [and] there's a lot of money sitting on the sidelines that either needs or wants to be put to use," he said, noting that uses could include acquiring other companies, talent or simply acquiring "volume that it underwritten well."

"On the wholesale side, I think there is just a realization that the market is not changing in 2011—and honestly, it might not change until 2014, 2016 or 2018. So I think people may be doing that gut-check and asking, 'Am I in this for the next five years, or is now the right time to make a deal?'" Mr. Nichols reasoned.

"I think there are still opportunities for people running very solid businesses to get paid very well to sell their operations in the right geographic areas with the right products and the right teams," he said, suggesting that there are "more people out looking to make that happen in 2011, 2012 that sat on the sidelines" during the last 12 or 18 months. "I think money is inexpensive to borrow and people are itchy to make something happen," he said, noting, however, that he foresees likely deals involving "standard NAPSLO members"—in the $10-to-$50 million premium range—rather than multibillion-dollar mega-deals.

"The rumor mill is much quieter today than it was a year ago," he said, noting that the unions of AmWINS and Colemont and Swett and Cooper Gay that occurred in 2010 were the subjects of market chatter long before the deals were finally inked.

Both Mr. Nichols and Mr. Cavaness said their firms continue to seek out acquisition opportunities. Mr. Cavaness also spoke to NU about his firm's organic growth strategies. The interview is summarized in an article featured in the Feb. 7 edition of Special Markets Insights, a weekly eNewsletter published by National Underwriter, and on our website www.propertycasualty360.com.