As the Wholesale World Turns

By | July 19, 2010

E&S Brokerage Mergers, Expansions and Start Ups, Oh My!


As goes the circle of life, so goes the wholesale insurance broker world. Not even the sixth year of a soft market cycle has deterred industry veterans from launching new wholesale businesses or creating larger ones. Many industry analysts believe soft pricing will spill into 2011, but clearly these industry movers and shakers hope to see brighter days ahead, i.e., the return of a hard market, and soon. A weak economy and high unemployment haven’t hindered the biggest wholesale broker dealings this year, the likes of which haven’t been seen since 2005.

It was back in 2005 when the “Big Three” – Marsh, Aon and Willis – divested their wholesale brokerage operations to remove any appearance of conflict of interest with its retail arm. Thanks in part to Eliot Spitzer, then New York state’s attorney general, these wholesale brokers suddenly found themselves under a different umbrella. The table below outlines the divestitures that took place in 2005 which were instrumental in establishing three of the largest wholesale insurance brokers in the United States today.

Aside from Crump’s purchase of BISYS’ Insurance Services Group and Retirement Services business in 2007, there hasn’t been any consolidation among the top 10 wholesale brokers (as defined by total premium volume) until now. The looming soft market has made the timing for acquisitions and mergers just right.

Date Majority Investor Investment/Sale Parent April 2005 AmWINS Group (Wholesale broker) Stewart Smith Group Willis October 2005 Parthenon Capital (Private Equity) AmWINS Group October 2005 J.C. Flowers & Co. (Private Equity) Crump Group Marsh & McLennan November 2005 Investor Group including Hicks, Muse, Tate, Banc of America, and Emerald Capital (Private Equity) Swett & Crawford Aon

M&A Activity

In April, AmWINS Group announced it would acquire Texas-based Colemont Insurance Brokers. This acquisition combines the number two and number five ranked wholesalers according to Business Insurance based on total premium volume, including property/casualty and employee benefits premium. Combined, the companies will distribute over $4.8 billion in premiums annually placing the entity second overall to Crump Group, which boasts $5.3 billion in combined property/casualty and employee benefits premium. The acquisition gives AmWINS its first foray into the international community, picking up business in 16 countries outside of the United States and an additional 700 employees to add to its existing base of roughly 1,100 employees.

On the heels of the AmWINS/Colemont merger, came several announcements confirming advanced deal discussions between Cooper Gay, a London-based wholesale, reinsurance and specialist broker, and U.S.-based Swett & Crawford, a nearly 100-year-old wholesale insurance broker. According to Swett & Crawford on July 9, the companies completed negotiations to form a new unified holding company, altering the current ownership structure. The combination of the fifth largest reinsurance broker and the third largest property/casualty wholesale broker, as ranked by Business Insurance, will create a global wholesale and reinsurance brokerage. According to the companies, together they will place about $3.5 billion in premiums in the London, United States and international insurance markets. As noted in the table, Aon sold Swett & Crawford to a group of private equity investors in 2005. International and U.S. expansion coupled with further opportunities in the global markets have many industry observers predicting an initial public offering in the next 12 to 18 months, providing an exit strategy for both companies’ private backers.

Although on a lesser scale than either the Swett & Crawford/Cooper Gay or the AmWINS/Colemont transcations, is another deal in which a wholesale broker, once the acquirer, has become the acquired. Just two years, ago Mercator Risk Services acquired Tennant Risk Services Insurance Agency, a Conn.-based wholesale broker and underwriting manager. But recently, Preferred Concepts acquired Mercator Risk Services. Mercator was formed in January 2006 and has been led by John Addeo as chairman and Chris Treanor as president and CEO, formerly CEOs of Alliant Resources and Marsh’s worldwide placement operations, respectively. Trident III, a private equity fund managed by Stone Point Capital, along with the founding management team, capitalized the new wholesaler. Coincidentally, Trident III acquired an interest in Preferred Concepts also in January 2006. The combined company has 85 employees across six office locations nationally.

Start Ups

In addition to the latest reorganization among some of the top wholesale brokers, the creation of new start-up E&S players has also kept the wholesale world turning as competition in the U.S. property/casualty sector heats up.

Industry veteran and former CEO of Aon Corp., Patrick Ryan, launched Ryan Specialty Group (RSG) in February. RSG’s strategy is to build companies that provide specialized services to brokers, agents and carriers with a specific industry focus in the areas of managing general underwriters and managing general agents, wholesale brokerage, and agency and brokerage services. The company currently has three subsidiaries – ThinkRisk, Ryan Specialty (Europe) Ltd., and RT Specialty (RTS) – all functioning in different capacities in the United States and the UK.

The “T” in RT Specialty stands for Turner, as in Timothy Turner, former president of CRC Insurance Services (CRC). CRC is the largest property/casualty wholesale broker in the U.S. according to Business Insurance 2008 premium ranking and is a subsidiary of BB&T. Turner left CRC in January, and in May, more than 100 employees left CRC as well, presumably to join RTS, although this has not been confirmed by RSG. CRC and RSG are now in legal dispute over the enforcement of non-compete and non-solicitation agreements.

Another industry veteran and former Crump CEO Glenn Hargrove teamed up in March with MarketScout CEO Richard Kerr and launched MarketScout Wholesale (MSW). Headquartered in Dallas, similar to MarketScout, MSW plans to become a national wholesaler focusing on brokerage, MGA, program business and other more traditional roles. According to Hargrove, the company plans to provide service on a more strategic level, including consulting, product and program development, as well as technology consulting, while performing more as a partner with retail agents rather than as a traditional transactional wholesaler.

Hargrove believes MSW will differentiate itself from other wholesale brokers because of its relationship with MarketScout, the online insurance exchange which distributes products to more than 35,000 users, mostly retail agents.

Date Recap of 2010 Events February Patrick Ryan, former CEO of Aon Corp., launches Ryan Specialty Group March Glenn Hargrove, former CEO of Crump Group, and Richard Kerr, CEO of MarketScout, launch MarketScout Wholesale April AmWINS Group announces acquisition of Colemont Insurance Brokers May More than 100 CRC employees resign presumably to join previously departed Timothy Turner at RT Specialty, a subsidiary of Ryan’s RSG Cooper Gay and Swett & Crawford disclose the two companies are in advanced deal discussions to combine entities. The two firms closed the deal in July 2010. June Preferred Concepts announces acquisition of Mercator Risk Services, both investments of Trident III, a private equity fund managed by Stone Point Capital USLI discusses “threats within the wholesale sector” and announces plans to expand distribution through retail brokers after doing business exclusively through wholesalers

Expanding Distribution

In a twist that could have come right from the soap opera As the World Turns for which this article’s title is a play on words, an insurance company is expanding its distribution directly to retail agents after doing business exclusively with wholesale brokers.

As reported first by Insurance Journal in June, United States Liability Insurance Group (USLI), a Berkshire Hathaway company, will not drop wholesale brokers altogether, but is looking to conduct business with more retail agencies.

The chairman, CEO and president told Insurance Journal “threats within the wholesale sector made staying exclusively with professional wholesalers not in the long-term best interests of our company.” Specific threats and issues were not discussed, but perhaps merger and acquisition activity within the wholesale sector is impacting USLI’s customer base.

Not unlike As the World Turns, which will cease to be the longest running daytime soap opera when its final episode airs this September, all brokerage firms don’t last forever, and neither do some relationships.

About Audra M. Szollosy

Szollosy is a senior vice president with Hales & Co., located in Hales' Harrisburg, Pa., office. She advises agents and brokers on valuation and mergers and acquisitions transaction matters. Phone: 717-541-9300, ext. 103. E-mail: aszollosy@halesgroup.com. Web site www.halesgroup.com. More from Audra M. Szollosy

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