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By Risk & Insurance®

In this soft market environment, where it is difficult for brokers to grow organically and where premium volumes have generally been in decline, mergers and acquisitions continue to be fairly strong. In many cases the motive to merge comes about because of flat revenues and because of the prospect of future declines.

Any list of 10 brokerage firms to watch is based on past performance and on the expectation that management has proven itself to be savvy, growth-oriented and opportunistic in the current environment.

Many of these firms have posted stellar performances. Some, however, have yet to succeed although they could be poised for success. Exceptional brokers tend to focus on serving clients' needs be they a corporate risk manager, or in the case of a wholesale broker or managing general agent/program administrator, the retail broker clients. Here are 10 firms to watch based on their organic performance, their propensity for merger activity, or both.

AmWINS

Charlotte, N.C.

The past few years haven't been great for wholesale brokers. Margins have been squeezed and some of the biggest players have suffered severe revenue and profit declines. Privately-held, Charlotte-based AmWINS Group Inc. has emerged as the largest wholesale broker with more than $4 billion in premium volume in 2010. That number should easily be surpassed in the coming year when the final numbers are calculated for both 2011 and 2012. The company continues to grow as it integrates its acquisitions and solidifies its national and international footprint. Importantly, it has managed to maintain its preferred relationship with the largest brokers which can direct a significant amount of business to its specialists. In November, it announced it would acquire London-based reinsurance and specialty broker THB Group and is expected to boost its total premium volume to more than $6 billion just as its biggest competitors face significant revenue shortfalls. The company continues to expand its offices and increase its specialty offerings.

Arrowhead General Insurance Agency Inc./Brown & Brown

San Diego

Brown & Brown, the $1-billion publicly-held broker based In Daytona Beach, Fla., paid $395 million for Arrowhead, a growing brokerage firm in the Southern California market with $105 million in revenue last year. Arrowhead reportedly has unusually high margins and should add significantly to Brown's bottom line, which has been "lackluster" as CEO J. Powell Brown has said. For Brown & Brown, Arrowhead solves, at least for the short term, some of those growth issues because of its $100-million addition to Brown & Brown's revenue base. Arrowhead's management team, led by CEO Chris Walker, is well respected and the company is a strong player in the program business market. But as with any acquisition in the brokerage business, the talent retention issue is critical in terms of longer-term success. Brown bought Arrowhead from owners that included two private equity firms and a management group. Arrowhead should give Brown & Brown much stronger presence in the Southern California market.

Confie Seguros

New York

Four years ago, with the backing of experienced insurance private equity investor Genstar Capital, brokerage CEO John Addeo created Confie Seguros. The start-up was unusual because it targeted the growing Hispanic retail insurance brokerage firms, primarily in the personal lines and middle-market property and casualty business. Addeo and his team have put together, through more than a dozen acquisitions, a national platform that has more than $160 million in revenue with more than 275 retail locations. Although it has an acknowledged focus on personal lines including auto, it has a growing small commercial business base and is well on its way toward establishing itself as one of the leading brokerage firms focused on the Hispanic market. Addeo is an insurance brokerage veteran. He founded and was president of Alliant Resources which he built up to more than $200 million in revenue. Prior to Alliant, he was president of USI where he made more than 90 acquisitions and built it into the sixth largest U.S. broker. This could well be a critical year for the new agency. It's time to see the platform bring the kind of accelerated growth that the company and the market anticipate.

Edgewood Partners Insurance Center

San Mateo, Calif.

Five years ago, Dan Francis, former CEO of ABD Insurance & Financial Services, and John Hahn, former president of BYSIS Commercial Insurance Services, formed Edgewood Partners Insurance Center, or EPIC for short, with the backing of private equity firm Stone Point Capital. The two brought extensive experience in the high tech and biotech markets along with experience in employee benefit brokerage. Both firms were based in Northern California and EPIC today continues to be based in the high-tech corridor. As with any private equity investment, as the investment matures and grows, the private equity owners begin look at their options although there is no talk right now about any possible exit strategy. The firm grows "the old fashion way" -- largely through organic growth and not acquisitions. It's anticipated that EPIC will continue its fast pace with strong industry practices in construction/real estate, hospitality, energy, transportation/logistics and healthcare. The company continues to add producers and expand its operations.

Glatfelter

Insurance Group

York, Pa.

Based in rural Pennsylvania about 100 miles from Philadelphia, Glatfelter has become one of the largest program administrators and specialty brokers in the United States. Its core business dates back to when the founder first insured a volunteer fire department. Since then it has built up, though both internal growth and acquisitions, an enviable national public entity practice which services state and municipal governments, special government districts, public school systems and water, sewer and irrigation authorities. It also has a healthcare and a religious institution practice. CEO Anthony Campisi hired at the end of last year Art Seifert, a well-respected program executive, to head up his program business operations. The closely-held, privately-owned company has a stellar reputation. If the economy turns around, and governments can resolve some of their long-term fiscal issues, 2012 could be a critical year for growth. Although there has not been any talk of it becoming an acquisition target, it would probably command a premium in the current marketplace.

Insurance Office

of America (IOA)

Longwood, Fla.

IOA has been bucking a trend in the insurance business. The agency has developed a brokerage platform based on the idea that if you pay successful producers and partner agent/brokers well -- really well -- growth and revenues will follow. The platform, which now supports more than $550 million in premium revenue, encourages its broker-partners by allowing them to buy stock in the privately-held agency and participate in the profits. The company pays brokers 60 percent of the commissions on all new and renewal business. The compensation structure expands the ability of partner brokers and agents to increase their profits when working with IOA. Its most recent development is the creation of IOA National, an alternative to the sale of an agency to a private equity group or another publicly-owned agency. In addition, IOA owns a number of related and unrelated businesses ranging from Environmental Underwriting Solutions to Match Up Promotions LLC. Brokers are intrigued by the opportunity and the platform has created increasing buzz throughout the brokerage community.

Integro Insurance Brokers

New York

With some fanfare six years ago private equity investors, led by insurance legend Bob Clements, created Integro Insurance Brokers, a small agency that targeted large-account brokerage in competition with Marsh and Aon. The company recruited the two top execs from Marsh to start up the operation along with a slew of top- tier brokers from the biggest agencies to staff the operation. But after three years, the new brokerage firm had not yet performed at a level consistent with expectations and its CEO resigned. Former Marsh executive Peter Garvey, then Integro's second in command, became the new CEO and its current president.Integro embarked on an extensive cost-cutting program and narrowed its focus although it still targets large accounts. Since then, the turnaround has been significant with the firm returning to profitability and growing revenues. It has also made a series of small, strategic investments. Last year, founder Clements died although his equity group and son John remain one of Integro's major investors. The coming year offers Integro the ability to build on its more recent success and continue its emphasis on larger accounts with complex risks. Now, six years after its start, the original investment has matured and should be yielding increasingly positive returns.

Ryan Specialty Group

Chicago

No list of agencies to watch would be complete without the mention of Ryan Specialty Group, a wholesale and specialty broker that is just two years old and started by Patrick Ryan, the founder of mega-broker Aon. Ryan Specialty has mounted an aggressive acquisition campaign acquiring both companies and individual brokers with significant books of business, and remains the talk of the business. In the process it has also acquired some legal challenges, especially from CRC, the second largest wholesale broker, which sued Ryan over the raid on its brokers recruiting an estimated 50 CRC producers to join Ryan Specialty. Investors have poured hundreds of millions into the Ryan Specialty operation and, as with any start-up, the return on investment will be sometime in the future. The coming year looks to be more of the same. Ryan began 2012 with yet another acquisition ? Global Special Risks, a specialty underwriter owned by Willis. In a significant development last year, Aon reportedly decided that it would use just two wholesale brokers, down from about 100 a few years earlier. Ryan, and giant wholesale broker AmWINS, were the two firms that made the cut.

THOMCO

Kennesaw, Ga.

The end of 2011 saw another eye-popping acquisition when Markel, the specialty insurer, bought THOMCO, a leading specialty program manager with 20 exclusive programs. The THOMCO acquisition could have an impact on the program market if Markel opts to underwrite a higher percentage of THOMCO's business and take over some of its exclusive program contracts with other carriers. Most of THOMCO's programs will be moved to Markel paper, and both companies are taking care to ensure that the quality, the service and the competitive pricing they offer remain unchanged. Greg Thompson, the firm's chairman and one of its founders and the former president of the Target Markets Program Administrators Assn., will continue to lead the organization along with THOMCO president Bob Heaphey.

THOMCO reportedly underwrites more than $170 million in gross premium in its 20 national programs, which include programs for medical transportation, fitness clubs, pest control operators, tanning salons and childcare centers.

February 21, 2012

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