CGSC’s Esser on Managing Wholesale Expansion and Growth

By | September 17, 2014

Cooper Gay Swett & Crawford’s CEO, Toby Esser, has had a busy year since we last spoke with him at the Reinsurance Rendezvous in Monte Carlo, but the company he heads (CSGC) is moving forward to realize cost savings from its restructuring program, following a series of acquisitions, as it continues to grow in the U.S. and in emerging markets, and to find the best people to assure that it does.

Esser explained that the recent downgrade by Standard & Poor’s Ratings Services was presented in a more or less accurate manner. CGSC has grown quickly, and integrating all of the various parts isn’t done overnight. “It takes time to get the costs out,” he explained; adding that while the group’s “top line is good, the bottom line isn’t so good.” He’s not worried, however, about achieving eventual success.

It’s also important to realize that brokers, unlike insurers and reinsurers, aren’t particularly affected by ratings. They aren’t required to keep reserves, and they don’t have to fulfill of the regulatory requirements insurers do. They are essentially businesses like any other, who seek to make the best return on their capital. For this reason A.M. Best doesn’t even rate brokers, and S&P doesn’t rate all of them.

They do, however, have to deal with the reinsurance market in its current state, and that’s been affected by the flow of capital into the industry. “In any kind of market where you get supply and demand not being equivalent to each other, you get pressure on pricing,” Esser said. “That will change, but not in the foreseeable future.”

He also explained that the “major primary insurers have reduced their spending for reinsurance,” and that this coincides with changes in their business models to use capital in different ways. As a result “they may not come back” to spending ore for reinsurance. On the other hand medium and smaller sized reinsurers have actually increased some of their spending for reinsurance to take advantage of reduced prices.

Esser sees future expansion in both markets and product lines, but he doesn’t think it will happen swiftly. Nonetheless CGSC is well positioned in a number of markets, particularly in Latin America and more recently in Dubai, to grow its business organically.

As far as new risks, especially cyber risks, are concerned Esser also sees growth, but not rapid expansion. “Yes, people are talking about cyber,” he said, “and you can put together huge amounts of limits in the market right now to sell cyber, but not many people are buying it. Some retailers are even asking their clients to ‘sign off’ if they don’t buy it.” Cyber coverage may become more important; however, as corporate boards seek to make sure that their companies are adequately protected against data breaches and other technology problems.

As Swett & Crawford celebrates its 100th year, it’s not standing still. It just appointed a new CEO, Tom Ruggieri, for North America, whose role is to expand and build the company’s product lines. Esser said “growth in key areas is improving” with expansion in the number of MGA’s, who act as coverholders for Lloyd’s business, and new opportunities in healthcare.

One of CGSC’s assets is its focus on specialized sectors of the economy, such as energy, and its commitment to work directly with clients to ascertain their risks, and their coverage needs. Esser explained that as a wholesale broker, there isn’t the potential for completion with retail brokers, who are only too glad to have CGSC’s experts assist in structuring complicated specialized coverages for large and complex accounts.

In order to carry out those services, CGSC is committed to the essential requirement of maintaining a high level of competence and expertise in its employees. “People are everything in our business,” Esser said. “There is nothing else; they are the assets. They go up and down in the elevator each morning, and those are our assets. We don’t make widgets; we don’t have any machines, so we have to look after our people.

“If we have on average better people than anyone else has, and I truly believe we do, we’ll continue to be successful in our business.” And successful it has been. CGSC is now the 6th largest Lloyd’s broker. It collects annual premiums in excess of $5 billion, and brokerage related income of around $400 million.

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