Access to top-rated carrier comes
either directly or through its owned-MGAs
By Sandra Carcione
Craig Kelbel (left) is Executive Vice President of HCC Insurance Holdings, Inc. Byron Way is the company's Vice President.
What kind of insurance "animal" is HCC Insurance Holdings, Inc, (HCC), of Houston, Texas? Describing this organization is a bit like deciding what an elephant looks like by feel, rather than sight--it depends on where you're touching it.
"We're somewhat unique," says Byron Way, vice president. "No one else has our exact operating model or our mix of business, so it sets us apart in the industry." HCC Holdings includes a diverse group of affiliates--specialty insurers, managing general underwriting agencies (MGAs) and a reinsurer intermediary.
Affiliate insurers include Houston Casualty Company, Avemco Insurance Company, U.S. Specialty Insurance Company, HCC Life Insurance Company and HCC Europe. HCC has recently announced that it has acquired American Contractors Indemnity Company, a surety company based in Los Angeles.
HCC MGAs include HCC Benefits Corp., which sells medical stop-loss and group life products; Professional Indemnity Agency, Inc. (PIA), which sells D&O, kidnap and ransom and miscellaneous errors & omissions insurance; HCC Global Financial products which provides D&O to public and private companies worldwide; Continental Underwriters, which sells marine hull, P&I and excess liabilities; and ASU International, which sells nontraditional disability insurance for professional athletes, entertainers and high-profile individuals as well as event cancellation coverage.
Affiliated reinsurance broker Rattner Mackenzie, Ltd., based in London with offices in Bermuda and New York, places specialty property and casualty, accident and health reinsurances.
Dickson Manchester is a wholesale broker and MGA for miscellaneous E&O in the UK.
Tight focus on specialty insurance
However, despite its operational diversity, HCC takes a very focused approach to the lines of business it writes.
For one thing, the company steers away from Main Street property and casualty business--instead emphasizing short-tail lines such as medical stop loss insurance and specialty casualty business such as D&O for private and nonprofit corporations. "By not writing long-tail WC and GL we have avoided the industry's main legacy issues," says Way.
HCC also writes aviation, marine and energy, large commercial property risks, and accident and health insurance in its insurance company operations.
HCC is different from other insurance companies that write program business in that it gives its "paper only" to managing general agents that it owns. The reason? Control. HCC believes that management fees are great, but at the end of the day the company is looking for profitable underwriting results.
"This is a critical part of our strategy. We have very close oversight of our MGAs, though we don't interfere with how they write the business," says Craig Kelbel, executive vice president in charge of agency operations at HCC. "They were successful at underwriting the business long before they became affiliated with HCC. That's one of our most important criteria used in making an acquisition."
"We have been and will continue to be particularly diligent about the integration of acquired companies, as we feel that this is just as critical as negotiating the price when measuring the success of an acquisition."
-- Stephen L. Way, Chairman
HCC Insurance Holdings, Inc.
In addition to underwriting, the MGAs handle claims, marketing and all service-related activities. "Our MGAs are much more proactive in service-related functions than insurance companies, mostly because of size," notes Kelbel. "Larger companies simply do not pay close attention to service. Fast turnaround time for quotes, efficient policy issuance and responsiveness to claims really makes a difference."
The company distributes its interesting mix of specialty products several ways and prides itself on long-term relationships with independent producers.
Honing agent relationships
"We sell our products through thousands of independent agents and surplus line brokers," says Kelbel. "We require our producers to have appropriate licensing and E&O coverage."
Also, through its MGAs, HCC is able to get to know the agents that sell its products. "We have long-standing relationships in all lines of business, because our emphasis is excellent underwriting. Our agents don't sell on rate so we're committed to our lines of business for the long haul."
Selling HCC-related coverage is often a limited part of an independent agent's overall business, however, because the HCC organization focuses on such specialized niches and has such stringent underwriting requirements, Kelbel notes.
HCC is looking at the Internet as a way to improve its ability to communicate with producers but will still talk to agents directly and give them access to management. "We also want them to know that our underwriters make decisions quickly ... they don't need to go through five people to get things done." Kelbel says.
Focusing on underwriting
Underwriting results are the key to this organization's success. "When our group was formed 30 years ago this year, we had only $800,000 in capital, so disciplined underwriting was a priority," explains Kelbel. Since then, we've grown through consistently profitable underwriting results and numerous, targeted acquisitions, where today we have more than $1 billion in equity."
Indeed, HCC has been writing specialty insurance since 1974, starting life as a managing general agent, forming its first insurance company in 1981 and growing through its stringent underwriting focus and strategic acquisitions. Over the past 10 years, the company has completed more than 20 acquisitions. HCC went public in 1992 (NYSE: symbol HCC) with a market capital of $60 million, which now exceeds $2 billion.
Growth through acquisition
"Acquisitions are an integral part of HCC's strategy," explains Way. Today, HCC is an international holding company with subsidiary companies across the United States and international offices in Bermuda, Spain and the UK.
The company is always looking for a way to enhance potential fee income, enter new lines of business, expand its existing lines or add new distribution sources. In most years, the organization completes two or three acquisitions. HCC is in a leading position in most of its specialty lines.
In a recent Chairman's Letter, HCC Holdings Chairman Stephen L. Way says this about the organization's acquisition strategy: "We have increased premiums and expanded our lines of business by acquiring both underwriting agencies and insurance companies. In addition, we have acquired a reinsurance intermediary and a specialty retail broker that have augmented our fee and commission income." He continued, "We have been and will continue to be particularly diligent about the integration of acquired companies, as we feel that this is just as critical as negotiating the price when measuring the success of an acquisition. Team spirit and group synergy are also very important."
HCC's strategy of emphasizing underwriting results and acquisitions has produced impressive results. The company's net earnings for 2002 were the best in HCC's history at $105.8 million or $1.68 per share. Total revenue grew a whopping 32% to a record $669.4 million. The consensus of the analysts who follow the company estimate 2003 revenues of almost $1 billion and earnings of more than $140 million. HCC is rated A + by A.M. Best Company and AA by Standard & Poor's.
Chairman Way says this about MGA results: "Management fee income increased 25% in 2002. Further organic growth and revenue from recent acquisitions should result in increased profits from this segment in 2003." Through the third quarter 2003, the company's SEC filings show that management fees had grown 38% to a record $79 million, compared to the corresponding period in 2002.
Moreover, net written premium growth in the HCC insurance subsidiaries reached record levels in 2002 at $545.9 million--an increase of almost 300% in the past four years. Through the third quarter 2003, net written premiums had grown to $666.1 million, a further 66% increase over the same period in 2002.
The HCC organization is enthusiastic about its future. "We have a strong balance sheet that emphasizes underwriting results and is remarkably free of any legacy issues," says Kelbel. "We'll continue to grow aggressively, but in a disciplined way, continuing our acquisition activities." He adds, "We're always open to new opportunities." *
The author
Sandra Grant Carcione is a Chicago-based business writer/editor who has specialized in the financial services industry--insurance, banking and accounting--for more than 20 years. Most recently she was editor of agent publications for CNA Insurance.
SELECTED ACQUISITION HISTORY
HCC has grown through disciplined underwriting and strategic acquisitions. Here are the major acquisitions:
1997 U.S. Specialty Insurance Co.
1997 Avemco Insurance Co.
1999 Rattner Mackenzie, Ltd.
1999 The Centris Group, Inc. / US Benefits (now part of HCC Benefits)
2001 ASU International LLC
2001 Professional Indemnity Agency (PIA)
2002 MAG Global Financial Products (now called HCC Global)
2002 Dickson Manchester, Ltd.
2002 St. Paul Espana (now called HCC Europe)
2003 Covenant Underwriters, Ltd.
2003 American Contractors Indemnity Company (closing pending)
HCC Benefits Corporation is based in Atlanta, Georgia, with regional offices in Massachusetts, Texas, Minnesota and California, and is among the largest providers of stop-loss medical coverage for self-insured employers. With more than $500 million in premium, this MGA insures more than five million member lives.
ASU International is based in Woburn, Massachusetts, with a branch in London, England, and is a leading provider of unique contingency insurance for the promotion/integrated marketing, entertainment and sports industries. The agency also provides event cancellation coverage for many high-profile sporting events, including the NFL Super Bowl and the Indianapolis 500. In addition, ASU is one of the leading providers of disability insurance to professional sports teams, entertainment and other high-profile individuals.
Professional Indemnity Agency (PIA) is based in Mt. Kisco, New York, with a branch in San Francisco. PIA sells directors & officers, kidnap/ransom, product tampering, EPLI and miscellaneous errors & omissions insurance.
HCC Global Financial
Products is based in Farmington, Connecticut, with international offices in Barcelona, Spain, and London, England, and is an underwriting agency specializing in directors & officers liability and professional indemnity for medium and large companies in the United States and internationally.
Dickson Manchester operates as a wholesale broker and an underwriting agency, specializing in professional indemnity in the United Kingdom.
For more information:
HCC Insurance Holdings, Inc.
Web site: www.hcch.com