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Now this is the law of the jungle--as old and as

true as the sky;

the wolf that shall break it must die.

As the creeper that girdles the tree trunk, the law

runneth forward and back--

For the strength of the pack is the wolf, and the

strength of the wolf is the pack.

--from "The Law of the Jungle,"

by Rudyard Kipling

It's fitting that George L. Estes III, known as Geo (pronounced "Joe") to most people, connects the Kipling poem so closely to his business philosophy. This artistic soul Estes never identifies himself as the wolf, but it's clear he sees his strength coming from his "pack"--fellow co-founders Kevin Costello, president and chief operating officer, and Dawne Ware, executive vice president and chief financial officer.

This team, led by CEO and Chairman Estes, last year created Sparta Insurance Co. in Hartford, Conn. Sparta, an acronym for Specialty Program and Risk Transfer Alternatives, boasts an executive management that is thoroughly schooled in alternative risk with decades of combined experience at Discover Re.

Estes, 59, is a formidable figure with silver hair slicked back past his ears and crisp, monogrammed, cuff-linked shirts, but a certain twinkle in his eye betrays another side of him that offsets the serious one. That, and the orange tie bedecked with little bears chasing yellow butterflies.

The bit of an eccentric side is only one aspect of his energetic personality. It's easy to see why he enjoys the rush of starting new companies, and his years of experience proves that he's good at it too.

While Estes is probably most often connected to founding Discover Re in 1990, his experience goes further back. He held a number of positions at General Reinsurance Corp. from 1978 to 1989, playing a key role in the initial planning and development of the company's entrance into the alternative risk transfer market. But the roller-coaster ride didn't start until he guided Discover Re's formation.

Estes started with Discover Re when its initial venture-capital funding in 1990 was $22 million. When purchased by USF&G, it came with a price tag of $85 million. Product lines have expanded along the way to include primary property and workers' compensation, but alternative risk transfer has always been the company's forte.

Today, the company has 300 employees and writes nearly $1 billion in business. In 17 years, Estes saw several changes in leadership, a challenge, but one that he embraced. Discover Re was acquired by USF&G Corp. in 1995, itself bought by The St. Paul Co. and, later, Travelers.

"I was in startup mode the entire time," he says. "That's called survival--17 years in four totally different cultures."

Estes was taught survival at a young age, 8 to be exact. He was sent by his father, an aeronautical engineer, to Papplewick boarding school in England, and later returned to his hometown of Hartford to attend the prestigious Kingswood-Oxford School.

Estes credits his rigorous private-school education, including years playing rugby and football, with teaching him valuable life skills of team orientation and adhering to high standards. He's also been kept in check by his wife of 37 years, Laura, who's given him an "unfair competitive advantage" considering her impressive 25-year career in investment management at Aetna.

OLD KID ON THE BLOCK

Maintaining a bit of independence along the way is probably what kept him going with Discover Re for so long, he says. But eventually, that went by the wayside. Conflicts arose as the parent companies grew and new leadership became a bit domineering.

It only helped Estes, Costello and Ware decide to go forward with a more independent model at Sparta, while maintaining the strong foundation of successes at Discover Re.

And Estes being a few decades older seemed not a hindrance in the process, but a stimulus. With the eagerness of a young wolf on the hunt, Estes found starting a company this time around much easier, he says.

"I've really been in the alternative risk business for close to 30 years," he says. "That's all I've ever done. Most of the guys who started with me are 15 feet under the sod. People call me Grandpa."

And Grandpa sure got a kick out of the headline, "A New Insurance Kid in Town," on the August 2007 article about Sparta in The Hartford Courant. The "kid" part might be a stretch, but the "new" part is accurate in several ways.

Sparta writes commercial property and casualty programs produced and underwritten by third-party program managers for middle-market customers. The company operates in two business segments--one being ART program business of primary commercial auto, general liability, property and workers' compensation, which risks are reinsured by captive companies; the other is specialty program business providing primary insurance in those four lines for insureds in groups whose exposures are fully insured by Sparta.

"We believe we are the only unbundled single source of program business," says Estes. "There are places, big companies, that offer captive insurance over here and in another part of their shop they offer program business, but nobody offers it in a customer-centric way. I think that appeals to a lot of our customers because they're not exactly sure where they are in the risk continuum, whether they want to take a lot of risk or they don't."

President and COO Kevin Costello, who Estes describes as the most "cerebral" of the three-person team, says when starting Sparta it was important to look at strategies that have been successful in the past, but to also look at what business tactics to stay away from.

Knowing what you don't want is just as important as knowing what you do want--and the Sparta executives did not want to be heavily dependent on reinsurance. The model, Estes says, is totally different than past alternative risk models.

"We're eating our own cooking," he says. "In other words, we're not passing it on to reinsurers. If it's good enough for us to write, it's good enough to keep."

One item on Costello's list of must-haves is technology, a focus that comes easier to new companies because there are no legacy systems holding them down. Sparta invested in a policy administration system from vendor Insurity. The system is based on Microsoft's .Net framework that easily integrates with other systems and boasts features such as real-time policy processing for the administration of new business, endorsements and renewals.

"On the policyholder systems, we're two generations ahead of our competitors, there's no question about it," Costello says. "Every day we're getting feedback from our customers that it is so much better than what they were dealing with."

Sparta is marketing its programs to producers with program and alternative risk experience, national and regional retail brokers, insurance intermediaries, captive managers and consultants--like Marsh, Aon and Willis. Estes won't go into detail, but claims the response from the marketplace has been very enthusiastic, due to the length of experience of the company's founders.

IT'S SHOWTIME

Starting a successful company means you need money. Getting money means dozens of nerve-wracking presentations to bigwigs at private-equity firms. At the end of 2006, Estes was hitting the pavement on Wall Street. But he wasn't nervous--he was in his element.

The Williams College alumnus has been involved in theater since his prep-school days. With a cousin as a playwright, he's produced and underwritten productions too. In 1998, he was one of the founders of the Williamstown Film Festival, the Cannes or Sundance of northwestern Massachusetts.

He's got friends in the entertainment business also, including schoolmate John O'Hurley, best known for his part on Seinfeld as Elaine's boss J. Peterman. In Hartford, he takes the occasional walk-on role, most recently as a portly solicitor in The Christmas Carol.

Fundraiser was just another role for Estes, and his comfort with addressing intimidating businessmen was made evident in the speed with which the money rolled in. By March 2007, he had received commitments for nearly $280 million in private-equity capital--coming from investors like Corsair Capital, Goldman Sachs, York Capital Management, Primus Capital and KBW Capital Partners.

"I was cautiously optimistic," says Estes. "I've raised money before and I've raised it in tougher times--during the Gulf War--when we were all younger and didn't have the experience or the technology that we do today."

Costello's skin may have been a bit thinner than Estes' during the more than 50 presentations, as he recalls some particularly harsh statements and pointed questions posed by potential investors.

"It was funny," Costello says. "We'd get in the elevator and look at each other like, 'Can you believe they just said that? Man, we got to start writing this stuff down.' "

So, under encouragement from Estes, Costello began keeping a journal of the nasty comments. "I've been through it before, and I told him, 'Enjoy the journey,' " says Estes.

Their work, of course, was not over yet. Although the capital was secured, it was contingent upon an A- (excellent) rating from A.M. Best Co. Inc., as well as the purchase of the shell company American Employers Insurance Co., a 52-jursidiction licensed subsidiary of OneBeacon Insurance Co.

Estes says it was the ratings process, considering Best's scrutiny of new ventures, that was a bit more challenging than raising the money. All that came together in August 2007.

For Estes, though, it wasn't a time to celebrate and relax. He's already in the thick of serving new clients, and he couldn't be more pleased.

"The process is galvanizing," he says. "There's no time to breathe, and that's what makes it so exciting."

And with that, this wolf begins howling at the moon.

ERIN GAZICA is associate editor of Risk & Insurance®.

March 1, 2008

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