IJ Online Exclusive: Swett & Crawford Group Gains Independence Again

November 6, 2005

Insurance Journal Publisher Mark Wells interviewed Dave Hartoch, chairman of the Swett & Crawford Group, shortly after an announcement that the company had been sold by Aon Corp. to an investment group in late September. From the company’s headquarters in Woodland Hills, Calif., Hartoch discusses the “new” independent Swett, and its plans for future growth.

Insurance Journal: Give our viewers a little background about Swett & Crawford.

Hartoch: Swett & Crawford is the oldest wholesale firm in the country; more than 90 years old. We have 37 offices in 30 states, and about 800 employees. From the management down to the support staff, we’re all extremely excited about being an independent company. As most everybody knows, Aon had an-nounced back in February that it was going to explore options to sell us. A purchase agreement has been signed by Hicks, Muse, Tate & Furst Inc. out of Dallas. We expect to close within the next 30 days.

IJ: Swett originally started as an independent wholesale brokerage firm and more recently was owned by Aon, a large retail firm. Now you are going back to being independent again. How does that affect your business?

Hartoch: It affects it in an extremely positive way. Aon was our biggest client and will remain a huge client, but what independence allows us to do is a lot more business with Aon competitors. The larger alphabet houses were reluctant to do business with a wholesaler owned by one of their largest competitors. It also allows us to attract a different kind of talent; talented individual producers who may have books of independent business and never wanted to go to work for a wholesaler that was owned by a retailer.

IJ: What would you say separates you from your competitors?

Hartoch: We are very diverse. What differentiates us from our competitors is we have five major lines of business: property, casualty, professional liability, transportation and energy. Most of our competitors specialize in two or three. We also do quite a bit of workers’ compensation.

IJ: How many markets do you represent?

Hartoch: We represent 300 markets. Fifty percent of our business is admitted, and the other 50 percent is nonadmitted.

IJ: What are your plans for the future now that you’re independent? Do you see any growth?

Hartoch: Absolutely. We are going to be much more aggressive than we have been in the past. With our prior ownership, we were under a hiring freeze and we had a problem replacing people. We are going to be much more aggressive in hiring people, and we are going to be much more aggressive in going out and acquiring business.

IJ: Do you think there is room in the market for you to grow?

Hartoch: There is a lot of opportunity for us. There are places that we’d like to be that we are not now, geographically.

There are places in the Southeast, maybe Tennessee or Las Vegas. There are also opportunities for us to expand where we have smaller offices.

IJ: Tell us how your new independence will affect your customers, the retail agents.

Hartoch: Independence is important, but I don’t think it is the most important thing. The most important thing is service, value, being innovative and expertise. I think that is what we offer and will continue to offer. What we are going to do with the company is we are going to posture the company a little differently in that we are going to divide it by product line. We are going to have product leaders in the five disciplines that I mentioned before, including underwriting. I think that is another thing that differentiates us from our competitors; the vast amount of underwriting and the vast amount of exclusive underwriting units we have that our competitors don’t.

IJ: Where do you see the market going? There’s a lot of speculation that losses from Katrina and Rita will create a hard market. Hartoch: It depends on the line of business. J.H. Blades is part of Swett & Crawford, the preeminent energy broker in the country and all they do is energy. They are seeing tremendous increases in premiums, and they lost 14 offshore rigs. They have seen increases of 100 percent to 150 percent in premiums. In the energy arena, you’re going to see some big increases. I think in the property arena, you’re also going to see some large increases. The capacity is dwindling; some companies have gotten out of the property business. It will filter down to professional and casualty, but I don’t think those increases will be as much.

IJ: How long do you think that will last?

Hartoch: That’s a good question. I think the energy might last for a while, then I think it will eventually level out.

IJ: There is some speculation that the reduced capacity will spawn some new formations of carriers.

Hartoch: That could be. That has not been a good investment lately. I think the wholesale arena has become very attractive. You’ve just seen Stewart Smith, Crump and Swett sell all within probably eight months.

IJ: Is that driven by the conditions coming out of the New York attorney general’s office or is it market driven?

Hartoch: The investment community has noticed that wholesalers have become very attractive because of the cash flow that they generate. Most are very profitable. I think the major houses are selling them because of the New York attorney general, but they are getting a very good price.

IJ: What happens now? There seem to be fewer but larger wholesaler brokerage firms. Are there new firms starting up?

Hartoch: There are always new firms starting up. Individuals that are really good brokers go out on their own and get backing. It’s pretty easy to get backing today. There’s a lot of money around looking for people to start wholesale operations. Yes, there are a lot of big wholesalers, but the smaller ones will come, and it won’t be too long before some of those are pretty big.

IJ: You mentioned your employees are very happy to be independent, could you elaborate on that?

Hartoch: Employees now have a stake in the company. Most of the employees have a vested interest and ownership, especially the core employees.

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