In our June 1st edition of the Daily NewsFlash we ran an article on program business, interviewing five of our Storefronts to get their insight into whether they see the market hardening. One of the executives we spoke with was Wayne Carter, Executive VP of Crump Professional Programs. We followed up with Wayne to further the discussion and gain more of his insight into market conditions in this area. We also discussed Crump’s continued commitment in program business with the purchase of Target Insurance Services, where Wayne served as President and Chief Executive Officer until it was sold in October 2010, and the merger of 5Star Professional Programs under the Crump Professional Programs umbrella.
Wayne has more than 35 years of property and casualty industry experience in underwriting, risk management, and sales, and has held several prominent positions prior to joining Target in 2000. As President of Brown & Brown’s Professional Programs Division in Tampa, he was responsible for the firm’s professional liability programs and related retail operations totaling more than $250 million in written premiums. In 1990, Wayne founded Corporate Risk Consultants (CRCI), Inc. to develop and sell alternate funding programs for doctors, hospitals, and large law firms. Prior to the formation of CRCI, Wayne was with the Seaboard Financial Group in Norfolk, Virginia where he held management positions in marketing and sales. He created their marketing department and large account sales strategy.
In 2010 when Crump Insurance Services, Inc. purchased Target, Wayne was appointed Executive Vice President of the newly formed Crump Professional Programs. His leadership duties include Crump’s Chicago 5Star Specialty program operation, its Roseland, New Jersey-based professional liability brokerage operation and all of the acquired insurance operations of Target Capital Partners, Inc.
Annie George (AG): When we spoke for the article in Daily NewsFlash, you along with the other interviewees stated that rates in most lines have begun to see some stabilization, but basically barring significantly more catastrophic losses, more than likely we won’t be seeing the market hardening until year-end, the beginning of 2012. Why is that?
Wayne Carter (WC): “As I mentioned in the Daily NewsFlash, I think we’ll probably languish at the bottom of the soft market for the next several months, if not into next year, before we experience real changes. There is still a lot of competition out there, with newer entrants in the space continuing to be more aggressive and some irrational behavior on an anecdotal basis in the various markets where competitors are willing to continue to reduce prices to pick up what they consider attractive accounts.
“What’s more, although we’ve seen quite a few catastrophes in the first quarter and most recently in tornado-stricken areas, this won’t result in an overall depletion of capital in the marketplace to the point where any of the reinsurers or the primary carriers are feeling enough pain to drive the market in the opposite direction. There is a tremendous amount of money out there with too many underwriters still chasing too few premiums and too much capital going after the same premium volume.”
In fact, a few weeks back Wayne attended a meeting where he met with about 30 different underwriters. “Everyone seems to be feeling that the market is moving and they want it to move in an upward direction,” said Wayne. “But they still have capital. Some are being more cautious. Yet no one seemed to think there are problems that would require coming off of a risk or drastically increase pricing.”
Wayne points out that the surplus ratio is still less than 1:1. “If you look way back to the hard market of 1984, the premium to surplus ratio was getting north of 3 to 1. You were bumping against regulatory issues and people had to cut their writings. We’re not anywhere close to that. And this will not be a driving factor.”
Wayne also explained that what happens during hurricane season and in the fall will determine whether we’ll see any acceleration or appreciable movement in the market hardening. “If we have further depletion of capital, then we could see some movement in price increases.”
AG: What other differences do you see this time around in relation to what occurred in the early 2000s where markets retreated and left the program business arena?
WC: “A lot of the new capital back then was what considered naïve capital. The new capital today doesn’t fall under this category. There is a lot more expertise…at least in the lines of business we’re writing. These individuals have credibility and a track record; they’ve been able to attract capital, and their investors are expecting them to perform.
“Also, back then there were many fronting arrangements, carriers backed by reinsurers that wanted to be in the primary business. When the market hardened, you had reinsurers and fronting arrangements falling apart and people were pulling out of lines of business -- they didn’t want to participate going forward. Today you don’t have many of these types of risk-bearing mechanisms in place so you’re not going to see this type of bubble.”
AG: Is there then any indication of market players leaving the space?
WC: “Any pull-back will depend on a case-by-case basis. If you have investors relatively new to the market and they get hammered with a few cat losses and they’re not accustomed to this business, you could very well see them thinking this is not what they bargained for and withdraw. For example, we’ve seen a competitor in New Jersey pull out of Professional Liability. But we have to keep in mind this is one particular line in one particular area.
“The number of catastrophes that would have to take place to dry up the capital surplus would have to be significant for you to see a rush to the exists from a whole host of insurers or people with capital. What you’ll see is individual participants who either have not deployed the capital or who are involved in lines or classes of business that are too concentrated, with specific catastrophes impacting them to a greater degree, exiting. You won’t, however, see a general movement in that direction. It will vary by carrier, by line of business, and by the effect of the catastrophes on those carriers and lines of business.”
Additionally, to the extent that people decide to get out of specific lines and regions, some consolidation within the program space will take place. “Those program operators that don’t have relationships with carriers committed to the space will probably look around for a partner…a white knight to partner up so they can perpetuate their business and move into a stronger market.”
Wayne also believes that once the market hardens, rate increases will most likely be significant. “Conventional wisdom says that price hardening will be a gradual move. But I think that’s wishful thinking. Once the momentum moves, you’ll see the prices go back up similar to what they’ve done in the past.”
AG: Your commitment to the program business space is solid. In October of last year, Crump purchased Target and merged 5Star Professional Programs into Crump Professional Programs. Tell us about this new division at Crump.
WC: “Target was initially formed under the Connecticut Reinvestment Act and had a 10-year run under the Act. During this 10-year period, we built quality relationships with financially stable carriers committed to the business we’re in. We also focused on service and diversity in our product offering. And, while we’re not showing significant growth, we’ve been able to get through this soft market cycle delivering an underwriting profit while being competitive in the marketplace.
“We also had an exit strategy once our10-year period was up. By design, we moved into a different ownership arrangement with Crump, which was our first choice. Crump provided an environment in which there was no channel or product conflict with respect to what we offer. With Crump, we had the benefit of an environment with significantly more resources and capital to grow the business, hire people, invest in systems, and do much more than we could as a stand-alone smaller company.”
Wayne explained that with Crump’s acquisition of Target they now have greater access and more credible access to certain carrier relationships as well as an infrastructure that enables them to strengthen their existing relationships. “It worked out to be extremely positive for us. Crump has an extremely talented management team. They’re young, bright, well educated, aggressive, and disciplined. They have core values that fit very closely with ours. They make sure they have the right people in the right positions within the organization to achieve the objectives we’re aiming for.
“We couldn’t find a better fit and culture with respect to what we at Target were trying to accomplish.”
Target primarily provides Professional Liability Programs to niche markets such as Accountants, Home Inspectors, Lawyers, Staffing Firms, and more. Five Star provides Directors & Officers (Non-profit & For-profit), Employment Practices Liability, Errors & Omissions, and Fiduciary coverage for a wide range of professionals, as well as franchisees and groups. “Target provides cover for more admitted, mainstream exposures,” said Wayne, “while 5-Star provides more surplus lines, higher-exposure Lloyds of London-based offerings.
“Crump Professional Programs with its two divisions, Target and 5-Star, allows us to bring many different solutions to the table in the businesses we serve, whether they have traditional straightforward insurance exposures or come with risk exposure problems.
Wayne emphasized that Crump Professional Programs has a definitive plan that includes making the necessary investments in technology and processes to continue to provide the speed of delivery and turnaround times that everyone has come to expect from the Crump brand. “Service is extremely important moving forward, with technology being a big part of being able to deliver. It’s a key plank in our value proposition platform going forward,” said Wayne.
If you would like more information about any of Crump Professional Programs, please visit the Storefront, or contact Chris Foley at 888-888-1613, Ext.223 or via email at: CFoley@TARGET-CAPITAL.com.