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Patrick Ryan on Today’s E&S Business and Using Aon Experience to Build RSG

After a notable 50-year insurance career that has included starting and leading two highly successful insurance brokers, 79-year-old Patrick Ryan didn’t mince words when asked if he will ever retire:

“No.”

Many thought that retirement was Ryan’s plan when he stepped down as chairman of the board of Aon Corp. in 2008 after 41 years at the head of the company. But in 2010 Ryan embarked on a new path in the industry with the formation of Ryan Specialty Group, an excess and surplus lines wholesale broker.

In just six years, the company has grown to be the third-largest wholesale broker in the U.S., according to Business Insurance, with 18 underwriting facilities, all in specialty lines. Ryan said he is proud of the company’s accomplishments so far, going from nothing to a major player in the E&S industry. And he certainly doesn’t show any signs of slowing down.

“We are having a lot of fun and doing well,” he said.

Ryan says right now he does everything that retired people do – including traveling, which he enjoys with his wife, and participating in community activities and philanthropy.

“The one difference is I don’t play that much golf…[But] I do a lot of sailing,” Ryan said. “I can do what retired people do, but I can still be a part of building a great company.”

Insurance Journal sat down with Ryan at the recent National Association of Professional Surplus Lines Offices (NAPSLO) Annual Convention to discuss the formation and dramatic growth of RSG and how building this company has compared to his experience building Aon.

“I don’t want to say ‘because of my 50 some years of experience’ – some people would say that means age – I’m talking about having the experience to be able to apply, along with the capital to move much more rapidly – to grow solidly but more quickly,” Ryan said. “It just took longer in the development of Aon, but it’s a much bigger company, and I don’t aspire to have RSG be anywhere near as large as Aon.”

What has been similar in building the two companies, Ryan said, is applying the fundamentals used in making Aon successful to RSG. This includes attracting and retaining what he calls the highest quality people.

“Back in 1964 when what is now Aon was founded, we set core values. We set a strategy. We had a vision. Fast forward to 2010, we basically took those same values and said they’re timeless. They’re what allows you to build a culture that people want to be a part of, not only join, but stay with and be part of building,” Ryan said.

He said in sticking to those fundamentals, RSG has become a “very important factor in the E&S market.”

“I’ve always believed that you have to have a vision that attracts people, and then build a culture that attracts people, retains people, supports people, and then great things happen. That’s what we did at Aon, I believe, and that’s what we’re doing at RSG,” he said.

That’s not to say there haven’t been challenges, Ryan said. But while the challenges today are different than what he faced years ago with Aon, he said, the fundamentals to success are the same.

“At the end of the day, the fundamentals are really what matter,” he said. “You adjust to the hurdles that are put in your way. There were lots of them along the way at Aon and there will be many along the way at RSG.”

Read on for more about what Ryan is most proud of with RSG, his views on the state of the surplus lines industry and the role of the agent, and what’s next in the pipeline for the company:

Insurance Journal (IJ): How has Ryan Specialty Group changed since it first began?

Patrick Ryan (PR): It’s grown very dramatically. We were just a very small group of us in early [2010], and we’ve grown dramatically over the last six years, both in wholesale broking and in managing underwriting facilities…Growth, both in terms of scale and in terms, certainly, of market share. We have 18 underwriting facilities that are all specialty lines. We’re the third‑largest wholesale broker in the U.S.

IJ: How do you think the E&S business has changed since RSG began? Is it still a profitable market?

PR: The E&S market is generally profitable. It’s not profitable for everyone, but it’s growing dramatically. The E&S market, for example, over the last 20 years has grown from $8 billion in premium to over $40 billion. It’s growing about twice as fast as the admitted market. It’s changed in many ways, in terms of distribution, in that there’s been a consolidation by retailers of the use of wholesalers.

There are fewer wholesalers being used on average by retailers. That started, basically, in [2011], and has continued to change all through these six years.

Another thing that’s very significant in the change in the E&S market – [there is] a lot of new capital on the underwriting side. Generally, when new capital comes in, the focus is quite significantly on the E&S market.

IJ: How does RSG separate itself in the current competitive market?

PR: RSG, in my opinion, and I’m obviously very biased, differentiates itself through execution. We believe, when given the challenge, that we out execute our competition. What that means is we believe that if a retail broker favors us with the business, that we’re going to get them the best terms possible, including form and pricing coverage.

It was generally thought that E&S was about accessibility, access to the E&S markets. That’s still true, but a lot of E&S markets have opened up, in part, to retailers. They have a dual distribution with retail and wholesale. Many are exclusive to wholesale. The real differentiator is the ability to execute. We like to say to our clients and our prospects that if you give us the opportunity, and when you give us the opportunity, we will out execute our competition, not every time, but most of the time.

IJ: What are the challenges in the market today compared to when RSG started in 2010?

PR: One of the differences is that the market has gotten a lot softer, just pricing in general. Clearly, there’s business moving from the E&S market into the admitted market, which generally happens in a very soft market. That’s historical. We have competition from the admitted market where retail brokers will move business that’s been in the E&S market into the admitted market because people are so hungry for business. That’s a competitive factor, and that’s a significant change. It’s something that we expected. It’s happened every cycle that I’ve been around in my 50-plus years. It then becomes really important to be able to execute.

The other change that’s taken place is that with new products, for the most part, they’ve been introduced in the E&S market so…risks are much larger. Risk is more complex. With the globalization, with the increasing technology, risks have become larger and more complex. Certainly, with increased litigation, increased regulation, risks are larger and more complex. Those changes are evolving pretty quickly.

IJ: What business segments have you been the most surprised by and why?

PR: One that surprised me is what we call transactional insurance. Transactional insurance is reps and warranties from M&A transactions, litigation, insuring litigation risks, tax. Those three product lines, three areas, three risks are just growing exponentially. Certainly, cyber is becoming ever more in demand.

A lot of the construction has become a much more difficult risk, for example, New York construction. Even though the market is very soft in most lines and in most geographies, construction in the New York area is quite challenging. There have been these changes. I always think change is good. You just have to be prepared for it, and then good things can happen with change.

IJ: Speaking of changes, technology is changing the way insurance is distributed. How is that affecting your business?

PR: We are very advanced in that area because we have been committed to the agent and the broker. The agent and the brokers are clients. We don’t want that agent or broker to be disintermediated. We are working on their behalf so that when there’s technology that is developed, it doesn’t exclude or preclude the agent or broker.

We have a technology that we’re in the process of installing underwriting data for called ‘The Connector.’ The Connector is a very advanced technology for SME business, small commercial business.

What it does is that it underwrites technologically from inputting the app, all the way through the underwriting and policy issue. A single app, multiple lines of coverage, multiple carrier codes.

That is an advancement in technology that’s going to cut the cost dramatically for the agent and broker, and translate onto the insured, but it’s going to keep the agent and broker in the equation.

Our opposition in that scenario are people who want to go direct to the insured. We think that the agent and broker are necessary in the very, very long term, because of the advice they give and the advocacy role that they play.

That’s our technology solution, and that’s our solution to get the economics right for the insured while maintaining the role – the very valuable role – of the broker or agent.

IJ: What is the expected launch of the new technology?

PR: It should be in right around the early part of March. It will be tested before that. It will be in pilot before that.

IJ: Does the E&S market have more of a need to keep agents in the transaction than other segments?

PR: I think certainly E&S does, because the products are more complex. The advice role is really important, and the advocacy role, because there is a lot of marketplace out there, but you’re the advocate to get the best terms for a client.

The retail broker working with the wholesale broker or the managing underwriting facility to really solve the needs of that insured, one is more complex, like E&S is, or higher hazard… It becomes even more important.

IJ: How does the E&S market compare to the admitted market and other insurance segments when it comes to developing and using technology?

PR: I think there has been technology developed both in the admitted market and the E&S market. The insurance industry has trailed other industries. I always say ‘but why is that?’

I think it’s because the end user hasn’t demanded instant data, instant solution to whatever the issue is. In commercial banking, it’s been electronic for a very long time. Investment banking, for the most part.

Insurance hasn’t had to do that. But with this generation of very high tech, savvy people…the demand is much higher.

Even today, you can still submit most of the time an app via email, but not require the end-to-end electronic submission and underwriting and policy issue. We think that’s going to change, but that’s not going to exclude the agent and broker.

IJ: RSG has been very busy over the last 18 months, including launching a new marine unit, launching a new MGU and acquiring companies in London and Ireland… What do those moves say about the company’s goals and plans for the future?

PR: Clearly, it would indicate that we’re aggressively expanding. We pride ourselves on very good organic growth blended with what we call bolt on acquisitions. We’re expanding in specialty lines… expanding geographically. We believe that the model that we have here has a long life cycle that is both going to expand in more specialty lines and in geography. I’m not predicting it’s global, but there’s a global need, certainly international.

IJ: What are some of RSG’s priorities for the U.S. market in the next year?

IJ: What are you most proud in the formation of RSG?

PR: I would say that what I’m most proud of is that our business has always been about people. My entire career has been based on trying to attract and retain the highest quality people.

I think we’ve done that. We grew from nothing six years ago, and [now] we’re a very important factor in the E&S market. I think that we’ve taken specialty lines and given them increased expertise, increased focus.