By JACK ROBERTS, editor-in-chief of Risk & Insurance®
Gordon Knight was only four months into his new job as president of U.S. operations for Allied World Assurance Co. when the acquisition by Allied World of Darwin Professional Underwriters was announced in June 2008. For someone who was brought in to grow the Bermuda-based insurer's U.S. business, it made him and Allied World a significant player almost overnight.
Now, after what will be two years of Knight's leadership come January, Allied World has become one of the fastest growing property/casualty specialty insurers in the United States.
Not bad for a guy who decided on the insurance business as a career because "at 22 years old, just out of college, with a corporate credit card, a company car and a chance to prove myself, well, what more could you ask for back then?"
Knight joined AIG, spent 25 years there, ran divisions across 12 countries in the Asia Pacific region and built a specialty lines organization.
"I left AIG in January 2008 to join Allied World," Knight said, adding that his departure was "before the government intervention."
With the first-year anniversary of the closing of the Darwin acquisition coming up in December, the results of Knight and his new organization are impressive: Allied World's total U.S. revenue for the third quarter more than tripled to $112 million, compared with the year-ago period. For the nine months ending on Sept. 30, 2009, total U.S. revenue also scored big, jumping to $329 million, more than triple the $94 million figure for the nine-month period in 2008.
The bulk of this year's increase came from the Darwin acquisition, but at the same time Knight has overseen an aggressive U.S. expansion program beyond Darwin.
"I came to Allied for a number of reasons. One was the opportunity to work for (Allied World CEO) Scott Carmilani, a former colleague from AIG," said Knight. "And another was to be in on the ground floor of building an organization, particularly around the specialty lines business. The startup nature of Allied World U.S. offered me the chance to be entrepreneurial again."
There is an irony with the number of former AIG executives working at Allied. AIG was one of the founding investors in the company, which was part of the so-called Class of 2001, those new Bermuda companies formed in the wake of Sept. 11, 2001. AIG bought back its investment in Allied World two years ago.
THE U.S. INSURANCE BATTLEGROUND
Allied World isn't alone in its efforts to increase its penetration of the U.S. market. At least two other Bermuda companies, Endurance Specialty and Argo Group, have also posted significant U.S.-based growth, both using a combination of acquisitions and organic growth.
Meanwhile, Ironshore, another Bermuda-based
insurance company, has equally ambitious U.S. expansion plans. Ironshore's effort is managed by a score of big-name former AIG executives, helped along with some significant capital investments.
Nor is AIG standing still. The AIG property/casualty operations, now called Chartis, faces the task of rebuilding and growing its U.S. business as it battles an opportunistic group of new and old competitors. Analysts point out that, although Chartis continues to see declining premium revenue, the bulk of the top management changes and departures at Chartis appear to be in the past.
Bermuda-based XL Capital, which also saw its U.S. property/casualty business dramatically decline in the wake of the financial crisis, is now on something of a comeback as well.
European insurers Munich Re, with the acquisition of Hartford Steam Boiler from AIG earlier this year, and Swiss Re with its acquisition three years ago of GE Insurance Solutions, also look to the U.S. market for future growth.
Meanwhile, the property/casualty insurance markets remain challenging, with rates generally stable or declining. The recession further complicates the marketplace with lower employment levels and less economic activity, resulting in significantly declining exposures. Success for any of the players in the United States, therefore, is risky.
"CHAOS CREATES OPPORTUNITIES"
Into this world stepped Knight. His marching orders were then, as they are now, to grow the U.S. market while maintaining underwriting discipline.
"This chaos creates opportunities. I think in some respects, being a new player in the U.S. market gives us the chance to take advantage of those opportunities. But, we have to be thoughtful and careful about how we build. You have to watch how you maneuver through this kind of environment and pick your spots carefully," Knight explained.
Jack Sennott, who was executive vice president and chief financial officer at Darwin and is now Allied World's chief corporate strategy officer, said that Darwin was considering various suitors last year. "Because we didn't have to do a deal, we decided we needed to be part of an organization with broader reach," he said.
Why Allied World? "We liked the people and they liked us," he said. "Allied World had really expanded into the U.S. market, and we felt like the acquisition would really complement our primary capabilities, especially in the healthcare area."
The focus of the integration process was on the people. Sennott, Allied World Chief Operating Officer David Bell and Knight lead the process, charged with blending the two cultures through a series of meetings with 21 different teams of both Darwin and Allied World executives in preparation for the merger.
"Gordon is very open to new ideas, but he clearly wants to build the right organization," Sennott said. "He thinks big, but he doesn't think he has all the answers--he relies on his people."
Indeed, there's a joke around the Allied World offices that Knight keeps pumping out all kinds of ideas at all hours of the day and night, even on weekends.
Knight's idea of success--for both the acquisition and for the organization--circles round to the basics: "If you get the best people on the team, truly differentiate yourself from the market and have confidence in your ideas, then things happen. Add innovation and creativity, and you have a formula for profitable things to happen."
If the third quarter is any indication, his plans for growth in the United States seem to be working. Besides more than tripling revenues, U.S. operations posted a 74.8 percent combined ratio, far better than the 134.8 percent in 2008. (On a year-to-date basis for 2009, the quarterly combined ratio for U.S. operations is 82.9 percent.)
Knight is always on the lookout for new opportunities in the specialty insurance markets. He explained, "We are not capacity or commodity players. We pick an industry niche, such as the healthcare space, and execute with the intent to be a meaningful participant. We look at the factors that might contribute to developing a new product. For example, look at healthcare reform. There will be winners and losers coming out of that with multiple opportunities and related products there. Business relocations and changes created opportunities for the swift, the nimble and the innovative," Knight said. That's what he wants from Allied World.
It's not just healthcare where near-term opportunities may be found. "Look at infrastructure," Knight said. "There is about $200 billion going to rebuilding the infrastructure in the United States as a part of the government stimulus package. How do we play a role in providing solutions to construction firms and public entities? How do we tailor products and services to fit the insurance needs in this market?"
David Bell, Allied World's chief operating officer, said that Knight wasn't brought aboard just for the Darwin acquisition. "Our initial growth strategy for the United States was organic. We wanted someone who could help with the acquisition of the key teams of people and shape the organization. The person had to be a cultural and business fit."
Even more than that, however, Bell said, the culture at Allied World focuses on people. In building a U.S. organization, we "had to have someone who is approachable. That person has to be completely candid and be able to tell someone what they don't want to hear, but in a respectful and professional way. I believe that Gordon does that."
U.S. DISTRIBUTION STRATEGY
"We ask ourselves constantly, what is the best way to get to the customer base that we want?" Knight said. "Maybe it's wholesalers and MGA partners. They are great aggregators for us. Maybe we will go with open brokers in other areas. We're working with affinity and association groups. We're always looking for partners that we trust who can get us to where we want to go."
Knight also said that Allied World offers brokers "innovative products at lower frictional costs. Also, we offer efficiencies to the brokers through our i-bind platform and other tools. We pass that along to the customers and those efficiencies become another way we differentiate," he said.
While various property/casualty executives predicted that prices in the marketplace would rise during the past year, they really didn't. "My crystal ball is no clearer than anyone else's," said Knight. "I didn't foresee the dramatic economic damage and challenges during the last four months of 2008 that continue today. I did feel like the economy was very fragile, but I was not anticipating a meltdown."
He added, "as to the property/casualty industry, who could have foreseen the shakeup among many of the specialty property/casualty players in the market?"
So what's the strategy in this changing economic environment? "We have the anti-herd mentality. We want to have a meaningful impact on any niche or segment of the market, and are constantly looking for changing dynamics in the marketplace. You can no longer play roulette with the markets or put bets on all areas. You have to pick your spots."
"Right now we have capacity and we probably have excess capacity," he also said. "We like the professional lines market. There is an opportunity in areas related to the current economic crisis, for example, the legal professions and the real estate professions that have a new appreciation for exposures they face from a fiduciary standpoint and the need for professional errors-and-omissions (E&O) products."
Meanwhile, Knight and upper management of Allied World are pleased that "no key employees" from either Darwin or Allied World have left during the acquisition and expansion of the company. "Clarity is key to managing this process," said Bell.
"Our people remain much of the focus of the management philosophy at Allied World," and as his colleagues say of Knight, "Gordon can be very supportive."
December 1, 2009
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