“It’s obvious that somebody thinks this market is going to change.”
Words chosen by one wholesaler who, in a recent discussion with yours truly, mused on the consolidation activity that has pervaded the wholesaler segment this year. There’s no doubt things are in motion. And as wholesalers restructure and re-tool through a wave of M&A activity, it begs the question: Why?
I spoke with some of the players to get their take on why they put in motion changes that have dominated wholesaler headlines in recent months.
“There is motivation to sell in a tough marketplace,” says Ben Beazley, who now serves as co-president of R-T Specialty’s Los Angeles office and director of the organization’s Property Practice Group. R-T Specialty is the wholesale brokerage unit of Ryan Specialty Group, started by Aon founder Patrick G. Ryan in February. In July, R-T Specialty acquired Chartwell Independent Insurance Brokers, which Beazley started in 2004.
Based in Southern California, Chartwell quickly expanded operations into other states, specializing in hard-to-place property risks. “About 80% of our business was property,” he says.
To stay competitive at a higher level, he says, the wholesaler needed to provide more in-depth services such as risk modeling, developing forms and better market access. That’s when he started looking.
When asked if he had any anxiety about partnering with a startup wholesaler, Beazley’s response was a quick and confident no.
“The ‘newness’ of R-T Specialty didn’t bother me at all,” he says. In fact, it was he who initiated the discussion. “When Pat Ryan got into the MGA/MGU arena, I saw someone with an incredible track record. The same is true of [R-T president and CEO] Tim Turner. The MGA/MGU model will help capture more middle-market business, and our experience in property will help with the management of larger accounts.”
“The real synergy is that we believe we have the strongest casualty team in Southern California but are weak in property,” Turner said. “They [Chartwell] are strong in property. It was a perfect opportunity.”
Beazley says he was skeptical about doing business with a bank or venture capitalist-backed wholesaler. He believes R-T Specialty’s independence makes it attractive to many of his retailers.
Also attractive to retailers are a wholesaler’s overseas capabilities, says J. Neal Abernathy, president and CEO of Swett & Crawford. The wholesaler made headlines this summer as a component of the newly formed Cooper Gay Swett & Crawford, now claiming to be the world’s largest global wholesale and reinsurance brokerage. He says both organizations had been searching for international capability for some time.
“While other mergers are driven by financials, ours was not. This merger was something we’ve wanted to do for nearly five years,” he says. Abernathy spent much of those years reviewing possible relationships in London and learning that many of them already had significant presence in the U.S. With Cooper Gay, there was virtually no overlap. They had very limited relationships in the U.S., he says. “We’ve always been U.S.-based. It was time for us to better serve our retailers with more overseas capabilities.”
Abernathy says that when it comes to acquisitions, never say never.
“We will continue to look at some things,” he says. “But we’re not interested in just adding numbers.”
Talk of a possible IPO for the organization has the trade press buzzing. He admits it’s something they are hoping for, but the timing isn’t quite right. “I’d say a year from now is too aggressive. Three years is too conservative. When the timing is right we want to be ready.”
I asked him about timing and market conditions.
“There’s a sense we’re closer to the bottom than we are to the middle,” he says. “We’re not seeing the huge declines in pricing and market share like we were three or four years ago. The standard market continues to write a lot of our business. This isn’t the first time. But it will change, and when it does, we’ll be there.”
Beazley agrees there are no immediate signs of improving conditions. He believes, barring catastrophic losses, the marketplace will continue to be challenging. Regardless, he is confident the wholesale segment remains strong.
“Many [excess and surplus lines] carriers are remaining true to wholesalers,” he notes. Declining premiums, he explains, are causing retailers to cut back on the expense of in-house marketing departments, choosing instead to outsource that function to a wholesaler. “The foreseeable future is strong in wholesale.”
Is Beazley’s prediction overly optimistic? Whether it’s the expansion of existing wholesale operations, globalization, or industry veterans investing in the future of wholesaling on a national scale, it’s clear he’s not alone.