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By CYRIL TUOHY, managing editor of Risk & Insurance®

The wholesale insurance brokerage marketplace, traditionally a small, clubby sector of the commercial distribution market, is just brimming with action these days.

What matters most is that transactions are taking place, according to Bernie Heinze, executive director of the American Association of Managing General Agents (AAMGA).

"What it signals to us is a continuing interest, and a growing interest, in the continuing stability of the marketplace," Heinze said.

The most recent spate of activity has been among some of the largest wholesale brokers in the country, which means that senior insurance brokerage professionals have given "considerable thought" before making these investments, Heinze said.

On June 8, Atlanta-headquartered Swett & Crawford Group, with about $2.2 billion in premium volume in 2008, and London-based Cooper Gay, with about $116 million in fees and commissions in 2008, announced they would merge.

In April, Charlotte, N.C.-based AmWINS Group Inc., with about $3.5 billion in annual premium volume, announced it was buying Dallas-based Colemont Insurance Brokers, with about $1.3 billion in premium volume.

In February, founder and former chairman and CEO of Aon Corp. Patrick Ryan announced he was starting a new company, Ryan Specialty Group (RSG).

RSG raided BB&T Insurance Services subsidiary CRC Insurance Services Inc., based in Birmingham, Ala., and is alleged to have stolen 120 employees.

The plaintiff in the case, CRC, found itself depleted of staff in early May after brokers bolted for R-T Specialty of Illinois LLC, RSG's brokerage division.

A federal judge in Illinois on June 23 declined to grant an injunction against R-T Specialty after finding that CRC was in no danger of collapse. CRC CEO Thomas J. Curton was quoted as saying the judge's decision was only the beginning of a "protracted legal dispute" against R-T Specialty.

The lawsuit aside, RSG has plans to invest in and develop managing general agents (MGAs) and managing general underwriters (MGUs), along with wholesale brokers.

In July, for example, R-T Specialty announced the acquisition of Los Angeles-based Chartwell Independent Insurance Brokers, a six-year-old wholesale broker with expertise in tough-to-place property risk coverage for casinos, hotels and other large businesses.

"We partner with insurers to fulfill the needs of the agent and broker community, which more and more frequently require a depth of services and a knowledge base that can only be gained through the investment and development of a highly skilled, experience, quality team," said Ben Beazley, Chartwell's managing director and CEO, in a statement.

In other deals, Breckenridge IS, a new wholesale broker backed by the private-equity firm of Arsenal Capital Partners in New York, earlier this month bought the specialty insurance broker Overby-Seawell Co., based in Kennesaw, Ga.

The Overby-Seawall purchase came six months after Breckenridge IS bought Fresno, Calif.-based Western Pinnacle Insurance Services, a wholesale workers' compensation broker.

Breckenridge IS, based in Aurora, Ohio, was launched last year by former Aon and Alexander & Alexander executive Tracey Carragher.

THE LOW-DOWN

So, what is going on? And how are all these deals being done in a soft market when prices are supposedly low?

Some of the transactions in the wholesale brokerage segment over the past six months have more to do with companies complementing their strengths rather than companies necessarily looking to make their budget numbers, Heinze said.

"When you look at what we're trying to do, we're creating a different business model for our industry," said Neal Abernathy, CEO of Swett & Crawford, in an interview.

Cooper Gay's global operations are strong in Europe, Australia, and South America and are the perfect complement to Swett's presence in North America, he said.

Despite the fact that Cooper has a presence in North America and that Swett does business in London, there will be very little overlap, Abernathy said.

Recent transactions among the largest wholesale brokers might signal to the untrained eye a coming contraction, but Abernathy cautioned that the largest of the deals were done for very different reasons.

Swett executives had been looking for a partner for the past 18 months at least, he said.

He also noted that RSG's raid on CRC was more about Ryan building a new wholesale brokerage shop than about coming up with a new business model.

Heinze said that, whatever the underlying dynamics driving mergers and acquisitions, they are unique to the current cycle. The dynamics at work will likely not be repeated.

"I have learned a lesson that what happened in cycles in the past may not be repeated in the current or future cycles," Heinze said.

Each cycle has unique attributes, Heinze added, and the industry needs to operate in the current cycle and take advantage of opportunities that come its way now.

July 19, 2010

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