10 LARGEST U.S.-BASED INSURANCE WHOLESALERS: SWETT & CRAWFORD GROUP

Swett & Crawford Group

21650 Oxnard St., Suite 1600

Woodland Hills, Calif. 91367;

818-227-3419; fax: 818-227-3410

1996 1995*

Premium volume $607,503,000 $589,617,000

Gross revenues $59,089,000 $57,492,000

Employees 576 551

Commercial lines 100% 100%

Admitted business 50% 45%

Non-admitted 50% 55%

**Restated.

Fiscal year ends Sept. 30.

As part of Swett & Crawford Group's integration into Aon Group Inc., the wholesaler will pass on $150 million to $200 million in premium volume to other surplus lines units of its new parent company, said David R. Hartoch, Swett & Crawford's new president and chief executive officer.

The divestiture of offices to other Aon units and the accompanying loss of premium volume could cause Swett & Crawford to lose its current spot as the nation's largest insurance wholesaler, Mr. Hartoch said. But Swett & Crawford is planning to hire producers and boost the size of its remaining offices and the premium volume they generate.

Mr. Hartoch took the reins of Swett & Crawford after Aon purchased its parent, Minet Group, in April, ending the uncertainty following The St. Paul Cos. Inc.'s earlier announcement that it intended to sell Minet (BI, April 14). Mr. Hartoch was president of Aon-owned wholesaler Sherwood Insurance Services.

The integration process is expected to be complete by year's end, when Swett & Crawford will wind up with 21 offices, seven fewer than it had before Aon bought it. As part of that integration, Swett & Crawford's California offices in Irvine, San Francisco and Woodland Hills will be folded into Sherwood Insurance Services' offices. A Swett & Crawford office in Chicago is combining with Insurance Brokers Services Inc., a Chicago-based unit of Aon. Swett & Crawford offices in Paramus, N.J., and Madison, Wis., will close.

AUSCO Inc., the seventh office, a Chicago underwriting facility for directors and officers liability and professional liability coverages, also will operate independently as a unit of Aon Specialty Group Inc.

Business fit and real estate logistics determined the merging and shifting of offices, Mr. Hartoch said.

Meanwhile, the proportion of business Swett & Crawford sees from Aon is expected to remain stable. Less than 5% of its business has come from Aon, while about 80% comes from independent retailers.

"I think our Aon business will increase with the same proportion as the rest of our business increases," Mr. Hartoch said.

The premium volume passed on to other Aon units means Swett & Crawford could move down in Business Insurance's rankings next year, while Aon's Sherwood Insurance Services could move up the list, he said.

In BI's rankings this year, based on 1996 premium volume, Swett & Crawford remains at the top. Total premium volume last year rose to $607.5 million from a restated $589.6 million in 1995. Gross revenues in 1996 grew to $59.1 million from $57.5 million the year before.

Swett & Crawford's premium total for 1996 received a boost from successful programs such as coverage for loss of sales due to food-borne illness, Mr. Hartoch said. The coverage was introduced in 1996 for restaurants and now is available for food manufacturers.

Development and sales of the product were helped along by recent news stories relating to food-borne illnesses, such as E. coli found last month in ground beef produced by Hudson Foods Inc. (BI, Aug. 25).

"It's just a product that has come together at the right time," said Daniel V. Colacurcio, executive vp for Swett & Crawford in Los Angeles. The coverage is underwritten at Lloyd's of London with limits of up to $50 million.

Late in 1996, Swett & Crawford also began placing coverage for racing teams that participate in the National Assn. for Stock Car Auto Racing. The coverage is placed with St. Paul and includes general liability and property coverage for the locations where the cars are housed and maintained. It also includes coverage for transportation of the vehicles to and from the race tracks and contingent liability for the team.

Swett & Crawford entered that market late last year when many of the racers already had signed insurance contracts. The wholesaler expects to see increased sales of the product this year.

"We hope that with the experience gained with writing just a few of the vehicles this past year, and now with the knowledge that we are now one of two major markets that are involved with this, that we will have a very successful sign-up in the coming year," Mr. Colacurcio said."We want to be a major player in this business."

Earlier this year, Swett & Crawford also began placing coverage for race cars other than those that participate in NASCAR. The coverage is for physical damage while the cars are being raced, and coverage for the cars' value is written by Stamford, Conn.-based General Star Indemnity Co.

Still, Swett & Crawford's 1997 premium volume is expected to total about $580 million, a decrease from 1996 attributable to St. Paul's spinoff and the integration, Mr. Hartoch said.

"Some of these divestitures have already happened," he said. "For example, Chicago and Irvine have already taken place, so we don't have the benefit of their revenue. Part of it is the problem that Swett & Crawford was on the market, so to speak, and that doesn't create great morale," he said.

Lower morale also has slowed the creation of new programs Swett & Crawford has relied on to keep premium volume up in a soft market. But, with the integration process nearly complete, the wholesaler is working to create programs.

For example, Swett & Crawford is negotiating with an insurer to provide quake coverage for high-value homes. Mr. Hartoch declined to identify the insurer.

Swett & Crawford also is working to make General Star Indemnity Co. an additional market for employment practices liability coverage. The additional capacity should benefit policyholders, Mr. Hartoch said.

Plans call for General Star to write the coverage while relying on Swett & Crawford's expertise for program development, marketing and underwriting services.

"I think that is one of the ways

this business is changing," he said. "Insurance companies are looking to outsource expertise to firms such as Swett & Crawford to develop, market and underwrite programs on their behalf. That has been done on a smaller scale before, but it is happening quite a bit now."

Primary limits of $1 million and excess limits of $25 million will be available under the new General Star EPL coverage, Mr. Colacurcio said. The coverage is expected to be available in 30 to 60 days.

With the acquisition of Swett & Crawford, Aon now has a national surplus lines distribution system it plans to infuse with support, Mr. Hartoch said. For example, new computer technology will help Swett & Crawford producers marshal the company's resources and respond quicker to retail customers, which in turn will benefit policyholders, Mr. Hartoch said.

"I have been to 15 offices in the last eight weeks," Mr. Hartoch said late last month.

"I think the morale generally is very high. People are excited about Swett & Crawford and some of the changes."

The wholesaler's producers are "really crying for technology, because Swett & Crawford has been operating sort of with one hand tied behind its back. They have not had the proper technology and equipment. They are going to have it," said Mr. Hartoch.

Aon also owns regional wholesaler Bryson Associates Inc. in Jenkintown, Pa.; and J.H. Blades & Co. Inc., a Houston-based wholesaler specializing in energy business.

But the Aon wholesalers will remain separate and compete against each other, because surplus lines brokers operate most efficiently as flexible, smaller, competitive units, rather than as behemoths, Mr. Hartoch said.

Swett & Crawford's specialties remain the same as last year. They include transportation; property and difference-in-conditions insurance; construction contractors general liability; D&O, E&O and professional liability; and programs for energy-related companies, such as pipeline contractors, drillers and service contractors, and for contractors working in petroleum chemical companies.

The wholesaler's top markets, which are not expected to change, include: American International Group Inc., Chubb Corp., CNA Insurance Cos., Lloyd's of London, Reliance Group and The St. Paul Cos. Inc.

Swett & Crawford is a member of the AAMGA and the NAPSLO.