Marketing
Any which way we can
AmTrust grows organically, geographically, and via strategic acquisitions
By Elisabeth Boone, CPCU
What happens when a successful carrier in an underserved market decides to expand?
Plenty!
AmTrust Financial Services has developed a reputation as a market to turn to for small business workers compensation risks—the Main Street businesses that typically are not pursued by larger carriers. (See “Comp for Small Businesses” in the September 2005 issue of Rough Notes.)
Given its record of success in this challenging niche market, one might think AmTrust would focus simply on building its workers comp volume among small businesses. The fact is, though, that while AmTrust continues to enlarge its presence in that market, the company also has embarked on a number of initiatives to expand its reach in terms of both product offerings and underwriting territory.
Based in New York City, AmTrust Financial Services is a multinational insurance holding company engaged in three major lines of business: small business workers compensation; specialty risk and extended warranty administration; and specialty mid-market P-C programs.
To learn the details of AmTrust’s ambitious expansion initiative, Rough Notes spoke with Mike Saxon, chief operating officer of AmTrust Financial Services, the parent company of AmTrust North America that is the small business workers compensation unit also led by Saxon.
“Since 2005, we’ve achieved considerable growth,” Saxon says, “and at the same time, our focus and core capability still is workers compensation for small businesses. Due to demand in the market, as well as our pursuit of organic growth, we’ve expanded our core business to offer workers compensation for mid-sized businesses and to offer other commercial lines as well,” he explains.
Specialty mid-market P-C programs
“In 2005 we entered into a renewal rights agreement with Alea North America, which allowed us to write program business for the specialty middle market, under risk sharing with certain GAs [general agencies] with which Alea—which we have now branded AmTrust Underwriters—had established relationships,” Saxon says. “Then in mid-2006, we acquired Wesco Insurance Company. Wesco gave us the ability to expand our domestic insurance operations and also provided additional underwriting capabilities for the program business, for workers compensation, and for specialty risk lines of business that we currently write. Wesco now complements Technology and Rochdale Insurance Companies as domestic, wholly owned AmTrust carriers rated A- by A.M. Best.”
AmTrust Underwriters, Saxon explains, targets programs that are willing to assume a share of the risk to gain better control of their exposures. The company places coverage for workers compensation, general liability, commercial auto liability, and property. Its capabilities include captives and rent-a-captives; risk retention groups; risk purchasing groups; trusts; and sliding scale commissions.
Among the preferred risks entertained by AmTrust Underwriters are retail operations, wholesale operations, light to medium contracting, light to medium manufacturing, habitational exposures, smaller public entities, schools and universities, not-for-profit organizations, and a broad spectrum of commercial automobile risks. AmTrust Underwriters works specifically with a select group of GAs who are dedicated to the program market and have secured the people, infrastructure and expertise to develop long-term business. “Today we have 32 programs on the books, and the majority of these relationships have been in place for a very long time,” Saxon adds.
Small business workers comp
AmTrust also has expanded its reach by acquiring Muirfield Underwriters of Chicago. “In May of 2006 we entered into an agreement with Aon to acquire Muirfield, which allowed us to gain a foothold in the Midwest and establish a presence in some of the Plains states closer to the Mississippi,” Saxon notes. “We’ve been able not only to expand our small comp writings but also to expand our workers comp operation into the middle market.” As a result of this initiative, Saxon comments, “We no longer consider ourselves strictly a small comp writer, although that is our bread and butter. We’re now able to offer policies to larger businesses.”
In any line of business, the definition of “middle market” depends to a great extent on the individual carrier’s view of that market. How does AmTrust define the middle market with respect to workers compensation risks?
“We don’t target risks in a particular premium range,” Saxon responds. “We write workers compensation policies on a stand-alone basis up to about $900,000 in premium. For us, the small to mid-market would be premiums from $100,000 on down. If a risk is good and falls within our underwriting parameters, we’ll look at it even if it carries a higher premium. We also have some select wholesale relationships, but in large part we distribute our comp products through our retail base,” Saxon explains.
In 2004, AmTrust entered into a renewal rights relationship with Associated Industries Insurance Services of Florida to write their small business workers compensation business in the state of Florida. In the fourth quarter of 2007, AmTrust finalized a deal to acquire the rest of the workers compensation business along with purchasing Associated Industries Insurance Company. Associated writes about half of its business with the acquired carrier and the remaining portion with AmTrust’s Technology Insurance Company. AmTrust retained the current management team and employees to continue operating the business, which is licensed in Florida and contiguous states. Associated maintains relationships with about 300 agents in the state of Florida.
Both product and geographic expan-sion will result from another acquisition that AmTrust recently announced.
“We currently offer programs that include general liability, commercial auto liability, and property insurance,” Saxon notes. “We recently entered into an agreement with Unitrin, Inc., to acquire Unitrin Business Insurance (UBI), a commercial package writer for businesses throughout the United States, but primarily west of the Mississippi. We will be able to offer its package policies to our agent base throughout the rest of the country, so the acquisition will give us a strong presence in the western United States and allow us to fill out some additional lines of business that we want to offer to our 8,000 retail agents,” Saxon says. UBI writes multiline package policies, and it currently works with about 600 retail agents.
Through its carriers Technology Insurance, Wesco Insurance, Associated Industries Insurance Company, and Rochdale Insurance, AmTrust North America now writes workers compensation business in 40 states and for other lines of business is licensed in all 50 states. “The reason we don’t write comp in all 50 states,” Saxon explains, “is that some states are monopolistic, and in other cases there may be political issues that affect the regulatory environment for workers comp.” If the political situation changes in those states, Saxon adds, “We’ll certainly explore writing business there.”
Specialty risk and extended warranty administration
“Another significant new avenue of growth for us is offering specialty risk insurance and extended service plan administration to a variety of retail, wholesale, and manufacturing industries,” Saxon says. “We offer this protection through a subsidiary, AMT Warranty Corporation. This was a source of tremendous growth for us in 2006 and 2007, and we anticipate continued success in this line of business for 2008 and beyond.”
Target markets for AMT’s extended warranty protection are consumer electronics; telecommunications (including wireless); computers, peripherals, and accessories; home office equipment; cameras; small appliances; major appliances; furniture; power tools; lawn and garden equipment; exercise and fitness equipment; watches and jewelry; and optics and eyewear. AMT administers custom and turnkey extended service plans and original equipment manufacturer (OEM) warranties, and also arranges for the bundled underwriting of these programs through its insurance carriers Technology and Wesco Insurance.
It’s well known that the warranty arena is full of pitfalls for the wary as well as the unwary. Why did AmTrust choose to enter this market?
“In the past, some companies have encountered problems when writing large warranty business,” Saxon agrees. “The majority of warranties we sell are on products worth $500 or less, although we can provide protection up to $5,000 and beyond in some categories. Also, we offer both bundled underwriting and extended warranty plan administration, which is different from the OEM warranty plan. What we provide extends beyond the OEM product warranty and service recall side of the business,” he explains. “It really falls in line with our operating platform of focusing on low-hazard, predictable, non-catastrophic coverage for small and middle-market businesses. It gives us another avenue to sell a smaller-scale product to a large group of people.”
Diversity rules
Evidence of AmTrust’s growing diversity can be seen in the numbers. “In 2005, the majority of our business was workers compensation,” Saxon comments. “At year-end 2007, workers compensation contributed about 37% of our gross written premium, compared with 49% in 2006. Specialty risk and extended warranty also accounted for 37% of gross written premium in 2007, compared with 25% in 2006. Program business represented 26% of gross written premium in both 2007 and 2006. From our perspective,” Saxon remarks, “this is a much better blend of business. We’re not relying on any one product line in any single state. We’re really diversifying in what we’re writing and how we’re writing, which I think helps insulate us from the problems you can be faced with if you’re still relying on a single product or a single market.”
Going public
Another significant development at AmTrust has been its transition from private to publicly held entity. “We became publicly traded on the NASDAQ in November of 2006,” Saxon says. “We had been privately held by a small group of individuals, and to continue to grow the insurance companies, we decided to go to the public market to raise capital to facilitate our acquisition and growth plans. We believe that going to the capital market was the best strategy for us,” he asserts.
Balancing stringent underwriting controls with expansion into new markets and territories, while pursuing strategic acquisitions and forming key partnerships, AmTrust clearly is dedicated to growing “any which way we can.” *
For more information:
AmTrust Group
Web site: www.amtrustgroup.com