NU's E&S/Specialty Lines Extra asked wholesalersattending this year's Mid-Year Leadership Forum: What are you doingdifferently in 2010?

Matt Nichols, president of All Risks Ltd. in Hunt Valley, Md.,said 2010 marks a reversal of cautious approaches to hiring andacquiring at his firm.

Looking back on the recent past,he said his firm realized somewhere between late 2007 and early2008 that growing at the level it had been--25 percent annuallyover the 15- to 20-year period dating back to the late 1980s--"hada different set of challenges."

"I think everyone went through that--changing maybe a little bithow they hired, altering how long they were willing to give aproject, whether it was a hire, a group of hires or an office."Wholesalers generally, and All Risks Ltd. in particular, lookedharder at "how long they were willing to allow those projects tocontinue not making money" throughout 2008 and most of 2009.

Mr. Nichols said the strategy began changing at All Risks Ltd.in fourth-quarter 2009. "The reversal we have had since [then] andinto 2010 is really shifting back into high gear with hiring." Headded that hiring runs the gamut "from straight out of school [in]our university program, where we hire from insurance-typeuniversities, to hiring seasoned people in the industry."

On that end of the hiring spectrum, he said that "today'senvironment probably has the best group of people you could look atfrom a resume experience, with so many people being out of work. Sowe're aggressively moving into that hiring mode and trying to growthe business organically, something we'd gotten away from over theprior 24 months."

Alan Jay Kaufman, chairman, president and chief executiveofficer of Burns & Wilcox in Farmington Hills, Mich., said hisfirm has also stepped up hiring activity. "We have increased ourresources in acquiring talent at all levels from college graduatesto very experienced brokers."

Mr. Nichols said, in some ways, his firm may benefit from thestruggles of competitors in 2010. "So many of our peers out thereare making cuts--whether they're looking to sell their operations,or they're looking to pare down because they're owned by a venturecapital firm or a bank."

"We're in the fortunate position that we're privately held andstill one of the larger brokers in the country, and we're able tocontinue to reinvest" for opportunities that may bear fruit "threeand five and ten years down the road, rather than thinking aboutsimply today," he said.

Asked if the activities of peer firms would prompt All RisksLtd. to buy any of them outright, Mr. Nichols responded that thegroup of potential targets is limited. "I think the peers that arecutting back that I would consider are certainly way too large forus to acquire," he said.

Firms that are one-half or one-third the size of All Risks Ltd."would be the small group of peers that are out there...from asize-of-business standpoint. There's not a whole lot between $500million and $1 billion in premium--a handful at most. That's thearea that we fall in," he said.

"I think that an acquisition would tend to be either a group ofpeople or a small business in a geographic area where we see a fitfor ultimate long-term surplus lines business growth," heconcluded.

Kevin Westrope, president and chief executive officer ofWestrope in Kansas City, Mo., said his firm actually grew about 5percent in 2009. "That really is a result of just a lot more facetime right now," he said.

"Our brokers are traveling heavily and are seeing customers on apretty regular basis," he said. In addition, "we've always handledour expenses to a level that allows us to keep everybody prettymuch employed on a long-term basis," he said.

Mr. Kaufman highlighted cross-selling as a strategy in place atBurns & Wilcox. "We have institutionalized cross-selling in ourorganization," he said. "Our people now look to make sure that weare writing as much of the available lines of business on a givenaccount [as possible], rather than just a single coverage."

Mr. Westrope noted that his firm entered into the bindingauthority arena over the last 24 months, with the initial build-outin this segment coming in the states of Florida and California.That was "really an attempt to diversify our revenue stream awayfrom just simply open-market brokerage," he said.

Mr. Nichols said All Risks Ltd., unlike some other firms,already has three premium-producing platforms--brokerage, bindingauthority and national programs, with roughly one-third of premiumscoming from each one.

"Depending on the market, you may have a great opportunity togrow large-account brokerage [or] a great opportunity to growbinding authority," he said. He believes that "today's market isprobably most conducive to setting up and driving new programgrowth."

"We've been particularly focused over the last 12 months onbringing in new programs, bringing in the talent to manage thoseprograms from an underwriting, quote, bind and issue standpoint forour carrier partners, [and] we'll continue that in 2010 where wereally push the programs side of the business.

"That gives our brokers, our binding authority people, when theygo out and market, something to talk about as a truedifferentiator--us versus our peers out there, because we've gotexclusive products for about 20 different classes of business," hecontinued.

Programs recently kicked off include an architects and engineersprogram and a real-estate owned product, he said. The REO product,he said, is one "we had been dabbling in for a number of years, butnow we've gone out and hired a full team to run and manage thatproduct. And we've seen significant growth over the last 90 days asthe banks have taken on more and more properties that they didn'tnecessarily intend to own," he reported.

David Price, executive vice president and chief underwritingofficer of Burns & Wilcox, observed that "not all of theE&S market is contracting," adding that his firm is focusing onareas of growth such as personal lines.

Mr. Kaufman said, "We are concentrating on product niches wherethere is less commoditization." Providing an example of acommoditized product, he said "there are dozens of companies thatwant to write primary general liability, including many in thestandard market."

Mr. Price added, "We are delving deeper into our marketingefforts for greater penetration of our agents. We are constantlydeveloping and repackaging new products to meet the needs of thechanging environment."

ECONOMY REMAINS SLUGGISH

Meanwhile, signs of an economy recovery that could boost E&Sinsurance premiums are few and far between in wholesale brokers'offices, these brokers said. They're so infrequent, in fact, thatthe smallest indication of economic relief produces a round ofcheers in some corners--like the processing unit of All Risks.

"You'll hear a yell over there at the desk every now and againthat they got an AP [additional premium] audit," reported Mr.Nichols. That is "fairly amusing when you think about it, becausethat was a significant revenue flow year after year for an awfullylong time."

Now "it's an oddity," he said, explaining that the AP auditsoccur at the end of the policy--"when you actually audit thepolicy, [the customer] actually owed us money rather than us havingto return money or a situation where there was nothing owed one wayor another" because their payrolls were higher than they hadoriginally projected.

"An AP audit is something that we did not see for darn near ayear" prior to the recent ones that spurred a mini-celebration.

Elsewhere, NAPSLO's insurer and broker members described limitedareas of economic recovery--and opportunities for the E&Ssegment.

"We are encouraged by the slight improvement we are seeing infinancial-related problems such as arson, non-pay cancellations,audits returned for collection and decreasing exposure bases," saidChristopher Timm, president of Century Insurance.

Jim Carey, president of Admiral Insurance Company, said, "Wehave seen strong results in some of our niche segments,"highlighting a specialty program for the oil and gas industry as anexample of a segment that "has clearly done better than othercommercial risks."

Mr. Westrope identified the multifamily apartment house businessas an area of the economy that is doing very well. "Occupancy rateson those properties are running fairly high today," he said,speculating that this is a longer-term effect of the mortgagecrisis. "Folks who were in houses that maybe were on the margin ofwhether or not they should have been...are back, and [they] needplaces to live," he reasoned.

At Mercator Risks in Hartford, Conn., Robert Sargent, executivevice president, said that while economic conditions seem to haveimproved from a macro perspective, his firm'sspecialty--professional liability business--"is still seeing signsof distress."

"Businesses continue to reduce insurance buying, revenue andemployment levels are not growing, and businesses are continuing toclose. We anticipate that some of these signs are laggingindicators, and we are moderately optimistic about opportunitiesahead," Mr. Sargent said.

At Burns & Wilcox, Mr. Price said his firm has found successin "tailoring coverage for the [poorer] economic conditions,"targeting classes such as vacant buildings and renovationrisks.

Mr. Price also noted that with 38 offices in multiple states,Burns & Wilcox has been able to take advantage of the unevenpace of economic recovery, although he did not identify whichstates were recovering the fastest.

Burns & Wilcox CEO Alan Jay Kaufman identified opportunitiesfor his firm in emerging industries, such as bio-tech, high-tech,alternative fuels and renewable energy.

"We are well-positioned to meet the needs of the burgeoninghealth care sector," he added. That sector "will be in a highgrowth mode for many years to come, given the demographics of theUnited States--longer life spans and aging baby boomers being twokey factors."

Mr. Kaufman also said the "trickle- down effects of the AmericanRecovery and Reinvestment Act of 2009 (Stimulus Package) arestarting to show up in certain sectors, such as contractorsinvolved in infrastructure work. As these contractors take on thejobs, they of course need to purchase insurance," he asserted.

Highlighting a final area of opportunity, he said: "Our fortehas always been the small-to-medium commercial lines account. Thisexpertise is serving us well as the so-called 'second-stage'companies (defined as having 10-99 employees and $1-to-$50 millionin annual revenue) are increasingly the growth engine of theAmerican economy."