We had an opportunity to meet and speak with Eric Jarvis, President and CEO of Knight Insurance Group, at ProgramBusiness.com's Peak Performance Insurance Ski Conference this past January in Snowmass, Colorado.
KnightBrook, a part of Knight Insurance Group, is a premier specialty insurance company, and we spoke to Eric about the company’s objective to partner with MGAs in writing productive, profitable program business. KnightBrook was one of the key sponsors of the Peak event and is also a ProgramBusiness.com storefront, featuring a number of its MGAs’ programs on the site.
Prior to heading Knight Insurance Group, Eric had been associated with the Hankey Group of Companies for several years, serving in various executive capacities including head of Business & Legal Affairs. He is a former real estate and commercial litigator, an active member of the California State Bar, and serves on several insurance company and philanthropic boards, in addition to serving as a member of the Board of Directors of KnightBrook.
KnightBrook was formed in 2008 as a result of an acquisition of Excess Reinsurance Company by Knight Insurance Group and its partner, Venbrook Insurance Group. “The purpose of the acquisition,” explained Eric, “was to provide paper for programs that Knight and Venbrook individually had been writing on a fronting basis for a number of years, and to provide paper for new programs and opportunities we were seeing in the market place.”
KnightBrook’s approach is to choose niches with good underwriters and management, which is consistent with its program business philosophy. “Our focus is on well-managed niche programs that have a 90% or better combined ratio, in the areas of Commercial Auto, General Liability, Financial Guaranty, and other specialty areas,” said Eric. “As the carrier, we provide the knowledge, paper, and strength behind the programs, and the MGAs with which we partner provide specific expertise and service to the retail agents.”
When discussing what KnightBrook looks for in partnering with an MGA, Eric explained that there are a number of critical determining factors. “The first thing we do when looking at a program is to conduct a quantitative analysis. This allows us from the onset to look at the economics behind the program and see whether it makes sense and if it can overcome our internal underwriting thresholds. The second, and most important piece, is the qualitative analysis, which is what we’re doing here at Peak Performance…we want to get to know the people behind the product,” said Eric.
Much of the insurance business is about relationships, which is why KnightBrook emphasizes this part of the getting-to-know-you process. “I've learned that when putting a deal together if something isn’t right, or I have a nagging feeling about someone or something, then it probably isn't going to pan out. I go with my intuition,” said Eric. “Our business is so complicated that inevitably there are going to be issues that will need to be solved…when these issues arise, you want to be able to pick up the phone and talk to your partner and work together to resolve them.”
In looking at whether to underwrite a specific program, Eric explained that a certain level of profitability must be achieved. KnightBrook has an internal underwriting threshold of 30% ROI, which is determined by looking at the amount of capital that is needed to support any given program. This capital is represented by the particular program's projected unearned premium and unpaid losses. “We model the program using the information provided to us by the MGA or by the MGA's broker, which lets us know how much capital we need for the program. We then look at the cost components of the program: projected ultimate loss ratio, and projected expense ratio, to determine margin relative to capital needed to support the program. If we get a 30% return, then we’ll go ahead with the program underwriting process…. We spend the time and money to the conduct the due diligence needed to confirm all of the necessary data.
“Basically, we like short-term business with a 90% or better combined ratio. By short-term, I mean 12 months or less. If it's a one-, three-, or six-month term even better.”
Eric also explained that the better the data, the more accurate and confident KnightBrook is in its pricing and providing a deal structure that will be beneficial to the MGA. And although they are open to new programs and start-ups, KnightBrook has been very selective with their partners and programs. “For each of the last two years, we have had over 100 deals in our pipeline, but we’ve only implemented two programs each in ’09 and ‘10,” said Eric.
Other steps in the program underwriting protocol process that KnightBrook undertakes to ensure the quality and profitability of the insurance programs and products include: setting up the program structure so that all the parties involved are in synch with the same objectives; offering great flexibility in developing or adopting forms to fit a program; developing rates that will support the success of a program; dealing successfully with the various state regulators to get programs approved; providing clean premium and exposure data integration to ensure transparency in the ongoing relationship with an MGA; establishing clean and open claims communication; and providing performance and results analysis tools to ensure that the programs are meeting expectations on an ongoing basis.
KnightBrook’s programs include: Livery, Car Rental, Spot Auto Liability, Lawyers Professional Liability, GAP, and Dry Cleaners. The programs are predominantly regional, and can be open access or by appointment, depending on the MGA.
Some of the MGAs KnightBrook partners with include: Cardigan General Insurance Services, Sonoran National Insurance Group, Carousel Insurance Services, The Pinnacle Group, Walnut Advisory Corporation, Norman Spencer Insurance Agency, and Henderson Insurance Group.
MGAs who are interested in talking to KnightBrook about a specific program, whether to provide the paper as a primary carrier or for reinsurance, can contact Eric or Stephen Su, Chief Underwriting Officer, at: Eric: (323) 692-4033, email@example.com; Stephen: (323) 692-8843, firstname.lastname@example.org.