View from the Top: George Stratts, Lexington Insurance
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George Stratts was named CEO of Lexington Insurance Co., the excess and surplus lines unit of American International Group Inc., in November 2017. The appointment came a few days after AIG President and CEO Brian Duperreault signaled that Lexington would be repositioned as a stand-alone entity, as it had been for much of its history, part of what Mr. Duperreault said would be AIG’s investment in specialist areas. Before heading Lexington, which is the largest surplus lines insurer, Mr. Stratts, who has been with AIG for 19 years, was global president of AIG’s property and special risks division and, prior to that, executive vice president of Lexington. He recently spoke with Business Insurance Editor Gavin Souter about the changes at Lexington and what brokers and policyholders should expect from the insurer going forward. Edited excerpts follow.
Q: What changes can we expect from Lexington?
A: First, Lexington is highly specialized in handling the most challenging risks and doing so in a way that meets the needs of clients and brokers in terms of precision and speed. Having that dimension of risk expertise and specialization together with precision and speed, that’s going to be the hallmark of Lexington going forward.
To help drive those changes, there are a few things we are undertaking. Capability and functionality within Lexington, in our recent past, was shared across AIG. So things like claims and operations, finance, actuarial and legal, all of those areas were ones that were shared across the broader AIG organization. When you think about Lexington, it plays solely in the excess and surplus lines marketplace, and that marketplace demands a view that is focused and dedicated to that line of business and not necessarily shared. So the first thing is standing up those components to help provide Lexington with end-to-end capabilities.
The second piece is making sure that we have the right product leadership. So bringing in that excess and surplus lines expertise to complement our existing capabilities will be an important component to building out and starting up the Lexington company as we go forward.
The third piece, and it really is a hallmark of excess and surplus lines underwriting, is how do we foster a culture of creativity and innovation? We need to do this at the deal or individual account level without compromising the underwriting direction and the underwriting integrity that the company requires. So having that deal creativity and innovation will then create a stronger foundation from which we can build product innovation and service innovation.
Q: Are you on a recruitment drive at the moment?
A: We are actively looking to recruit. We’re looking internally and we’re looking externally. We want the best talent available to position Lexington for the next chapter in its history.
Q: What will brokers and Lexington policyholders see that’s different?
A: With a dedicated unit that fully reflects Lexington and our complete commitment to the excess and surplus lines space, the first difference will be ensuring we have a more responsive platform that reflects the way the excess and surplus lines market behaves and operates. The excess and surplus lines market space requires us to be different and to be quicker, so that speed to answer, speed of decision is what we want to build on.
In addition, the specialized underwriter should be and needs to be far more empowered, and we need to make them accountable for that decision but at the same time we need to support them in a way that enables them to make good decisions — to make that call using the full technical tools they have available to them, but also using their expertise and judgment in helping with that call.
Our policyholders and our broker partners should also see more of a willingness from Lexington to provide tailored, creative solutions. We’ll develop them in a way that allows our clients to move forward but also make sure that we’re making the right underwriting calls.
Finally, with the end-to-end unit that I mentioned where you have operations, claims, actuarial and finance all aligned to support Lexington, policyholders and brokers should feel that speed of service — whether it’s policy issuance, claims response or claims expertise — to match the underwriting expertise in this most challenging space in the marketplace.
Q: Where are you seeing opportunities for growth?
A: The starting point is being a better partner to our brokers. If we’re aligned on how we help them solve their problems and not necessarily having them solve our problems, that’s a good starting point for us. And if we shift the view of our underwriters to be orientated that way, then that’s an important first step.
We need to be more responsive to the market. Excess and surplus lines is highly specialized but is also quick, and that speed of decision-making will foster growth. One of the ways that we’re thinking about supporting that is through our technology platform and our process organization. We’re piloting a program with some of our key wholesale broker partners that allows us to be responsive in a 24-hour or shorter time frame.
Also, we need to be responsive to the changing nature of our marketplace. In some of the areas that we see developing in the E&S marketplace — whether it’s sharing economy, the influence of robotics in manufacturing or needs for integrating coverages — we need to be ahead so that we’re able to respond. Having that forward view is important.
And if rates are improving, that will drive growth, and there is a need for rate improvement across the industry.
Q: Are you expecting rate increases?
A: We’re seeing rate improvement now, and our expectation is that segments of the business need it. It’s on a continuum, and some risks are handled very differently than others. If you look at the excess and surplus property marketplace, if you are exposed and you’ve experienced a loss, which a big portion of the market segment did, we are in need of rate correction and rate improvement.
If risks have performed well and their rate levels haven’t changed significantly over the past five years, they should have a differentiated deal. Others have seen substantive rate reductions and experienced real losses, and they may see different responses.
Q: Are you seeing increases on the casualty side, too?
A: Around auto liability and some other challenging areas within the casualty classes. So some more than others, but we are seeing some positive rate movement on the casualty portfolio overall.
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View from the Top: Mike Sicard, USI Insurance Services Inc.
USI Insurance Services L.L.C.’s acquisition of Wells Fargo Insurance Services USA Inc., announced in June, combines two top 10 brokerages and rewrites the rankings of the world’s top brokers. USI also recapitalized in March with Kohlberg Kravis Roberts & Co. L.P. and Montreal-based Caisse de dépôt et placement du Québec for $4.3 billion in what Chairman and CEO Mike Sicard called “a really different and innovative evergreen capital structure” where KKR chose not to put USI in a fund, but instead used its balance sheet to make the investment. He sat down recently with Business Insurance Reporter Matthew Lerner to discuss the Wells Fargo deal, USI’s plans and industry consolidation trends. Edited excerpts follow.
Q: How is the Wells Fargo transaction transformational for USI?
A: Separately, USI and Wells Fargo Insurance Services were each one of the 10 largest insurance brokerage and consulting firms. Now together, USI becomes one of the few largest and leading insurance brokerage and consulting firms globally, nationally and locally. Size doesn’t necessarily mean transformative, however, unless you can truly tap into the tremendous talent and world-class expertise of the professionals across the combined firm. That’s where I think the cultures of our two firms are so compatible and important. We’re coming together as a truly integrated one. We call it our USI One Advantage.
Q: What will be the greatest challenge or challenges in terms of integration?
A: We need to ensure a seamless transition for our clients with no changes to their policies and programs and continuity in their team. The good news is this is not our first experience. USI has done this over 200 times, and in 2014, we had the honor of doing a transaction with Wells Fargo for a portion of its insurance brokerage and consulting team members in 40 cities across the United States, so we have a prior successful path here to follow.
Q: Is there a timeline or any milestones in terms of the integration plan?
A: The first year is the most immersive period, where our team members get to know each other. We have had limited opportunity preclosing in this situation because of regulatory filings, regulatory approvals and the need to continue to operate as two separate independent firms. So, a lot will happen over the first year. With a transaction of this size, meaningful to USI, to Wells Fargo and to the industry, we had limitations on how much we can really do preclose.
Q: In terms of moving forward, what will be the key strategies for the combined company?
A: USI and Wells Fargo Insurance Services both started as small local agencies years ago, so we have a deep appreciation and understanding of the importance of local client commitment. Our key strategy moving forward will be focused on getting our collective teams out meeting with current and potential clients to introduce our expanded capabilities for those that know us and for those who we will now meet for the first time, including large risk management clients, middle market companies, smaller firms and individuals across property and casualty, employee benefits, personal risk, retirement solutions and programs.
Q: In terms of the brokerage space, are we going to see continued consolidation?
A: I do see the industry space continuing to consolidate, but it’s also changing, and that change will accelerate in the next five-plus years as people retire from the industry.
Q: Is this deal a singular opportunity? Are there other Wells Fargos out there? Will we see mega-deals that change the top 10 rankings?
A: I’d say yes and no. Yes, in that this is a uniquely large and exceptionally experienced and talented team of professionals across the country that has been connected together as a single firm, and that is rare in our industry. At the same time, no, in that there are over 30,000 insurance brokerage firms in our space in the United States and a nearly unlimited opportunity to partner with great firms and talent going forward. And USI will be very active in forging more of those partnerships going forward, and there are large firms, middle-sized firms and small firms that all can be exceptional partners going forward.
Q: That pace of consolidation, given the number of brokerages, will it remain the same? Are there any forces in place that would push it to accelerate or decelerate?
A: It’s driven by different forces at different time periods. There was a wave of consolidation driven for a period of time by public insurance brokers. There was a wave of consolidation for a period of time driven by banks getting into the insurance brokerage industry. Currently, the wave is being driven more by private equity money entering the insurance brokerage industry. So those waves have come from different investor partner parties, but the overall thrust and trend in consolidation has been pretty consistent over a long period of time.
Q: Do each of those consolidators have similar or different agendas?
A: I think different agendas. If you look at a strategic large public company, they will tend to be looking to add scope or scale to a part of a geography. But they’re already in the business, and so they know what they’re doing with the business, and they’re really looking, tending to fill in gaps and holes.
The bank-owned thrust that really is on the back end now, where banks tend to be more sellers than buyers of insurance brokerage agencies, was more of a total financial products thesis, in which all financial products could be part and parcel of a whole, with insurance brokerage and consulting certainly one important component of that. I think with the private equity firms, it’s different. There is more of a stand-alone recognition of the potential performance of insurance brokerage firms, both in their downside risk protection, but also their upside opportunity, and I think it’s been seen as a potentially solid investment vehicle for private equity firms even if that private equity firm itself doesn’t have a prior background or history in insurance brokerage. I think the investment community has found some success in the space, and that has engendered, I think, more interest from other private equity investors.
