111 Monument Circle

Suite 3200

Indianapolis, Ind. 46204;

317-488-2500; fax: 317-488-2512

Internet: www.acordia.com

1997 1996*

Premium volume $2.98 billion $2.74 billion

Gross revenues $311,364,000 $285,904,000

Brokerage Rev. $311,364,000 $285,904,000

Brokerage: Retail 71.8% 69.8%

Wholesale 6.0% 6.9%

Reinsurance 0.1% 0.1%

Personal 8.5% 11.2%

Services 13.6%** 12.0%**

Employees 3,228 3,445

Rev./Employee $96,457 $82,991

Offices 91 91

* Restated.

** BI estimate.

After keeping a low profile for the past year, Acordia Inc. is getting back to basics. . .namely, making acquisitions.

But after eight years of operating as a publicly traded subsidiary of a mutual health insurance company, Acordia will for the first time be making deals as a private and independent property/casualty broker.

Acordia's management, together with the lead investment banking groups Knightsbridge Capital L.L.C. and Wand Partners Inc., bought $285.9 million of Acordia's predominately property/casualty operations from Anthem Inc. for $310 million last August. The deal severed Acordia's relationship with Anthem as its sole administrator of health care products. This health care business had generated $326 million of Acordia's 1996 gross revenues of $661.0 million prior to the MBO (BI, July 21, 1997).

Since then, executives have been quietly building Acordia's infrastructure as an independent company, a process they say is now complete.

While Acordia is now a privately held company with half the revenues it had in 1996, executives say its middle-market focus, autonomous culture and growth-by-acquisition strategy remains the same.

"Even though we've kept the same name and are no longer a part of Anthem, we still see ourselves with some of the same traditions that we saw when we started the company on the brokerage side in 1991," said Frank C. Witthun, president and chief executive officer, referring to Acordia's first retail brokerage acquisition of Robinson-Connor Inc.

Acordia was formed in 1989 by Anthem to serve as its health care administration and distribution arm.

"We still see ourselves as very entrepreneurial, very client-focused and very much a sales and service organization," Mr. Witthun said. "We really feel that we are differentiated from other national brokers, and that's one of the reasons why we've been very successful in attracting people, acquisitions and clients to Acordia."

Acordia has found its niche in targeting mid-sized companies-those with 150 to 4,000 employees or revenues of $10 million to $400 million-located in mid-sized cities.

And while the company is no longer as decentralized as it was under Anthem, executives say its localized hands-on approach with clients is no different.

Under Anthem, Acordia was made up of a network of individual Acordia companies that each had its own board of directors as well as a CEO who had strong incentives to grow the company.

While the incentives are still there, Acordia's offices now are organized under seven regions headed by seven regional executives.

In addition to its retail brokerage operation, Acordia performs health and benefit administrative services and has a stand-alone, multistate excess and surplus lines unit, American E&S Insurance Brokers.

Despite its more centralized reporting structure, "We still keep a small corporate staff and still push a lot of the decision-making having to do with sales and marketing of services at the local level because we still find that incredibly important for our clients," he said.

That strategy seems to be working.

Based on restated 1996 figures, Acordia's 1997 revenues increased 8.5% to $311.4 million from $285.9 million, making Acordia No. 7 in Business Insurance's annual rankings of the world's largest brokers. Acordia's revenues are generated entirely by brokerage and related services.

Roughly $10 million, or 39%, of growth is attributable to the three acquisitions Acordia made in early 1997 prior to the MBO, namely Bush Cotton Thompson & Scott in Kirkland, Wash.; Dorsey Inc. in West Palm Beach, Fla.; and Simons & Rose Insurance Agency Inc. in Boca Raton, Fla.

Roughly $16 million, or 5.5%, of Acordia's 1997 revenues was generated from internal growth, noted Keith A. Maib, executive vp and chief financial officer.

"I think anytime you go through the level of change in an organization that we went through last year and maintain any sort of internal growth, you've done very well, particularly in the marketplace we're in," he said.

Mr. Maib left Acordia at the end of June to become executive vp and chief operating officer of PennCorp Financial Group Inc. in Dallas.

PennCorp is affiliated with Knightsbridge Capital, one of Acordia's major investors.

At the time of last year's rankings, Acordia was in the process of negotiating the deal with Anthem and estimated it would pay $320 million for operations totaling $343.9 million in revenues. When the deal was completed, however, Anthem kept some health and workers compensation third-party administration operations, which brought revenues down to $285.9 million and the price down to $310 million.

In reflecting on Anthem's decision early last year to focus exclusively on health care and to sell Acordia's property/casualty business, Mr. Witthun said his first thought was that Acordia would be sold to an outside company.

But as soon as word got out in the marketplace that management was interested in buying the company, Mr. Witthun said interested parties probably backed off.

Mr. Witthun said the year-old relationship with Acordia's investors has been successful.

"We're right on target in terms of our financial projections with our investors," Mr. Witthun said.

At the same time, while Mr. Witthun said he enjoys running a private company, he would eventually like to take Acordia public again.

What is a little nearer in Acordia's future is rekindling its strategy of growth by acquisition.

Since 1991, Acordia has acquired 61 companies. Those deals, including such large acquisitions as Robinson-Conner, American Business Insurance Inc. and Bain Hogg Robinson Inc., have fueled Acordia's revenue growth in recent years and helped catapult the broker up BI's rankings.

Acordia's acquisition drive slowed down in 1996, however, when the company turned its focus on cutting its operating expenses in light of its first-ever profit drop (BI, July 22, 1996). That drive then came to a halt in February 1997 when Anthem announced it had retained Credit Suisse First Boston to explore the possible sale of Acordia's property/casualty business (BI, Feb. 10, 1997).

"We basically didn't do much at all in the way of acquisitions because the company was in the process of being sold," Mr. Witthun said, referring to the majority of 1997. And after management bought the company, "we had to have some months to actually do all the things necessary to run as an independent company," he said.

About three months ago, Acordia "started up again the acquisition pipeline," and the company currently is in talks with companies that represent in excess of $100 million in revenues, Mr. Witthun said.

"So we're back again, pretty aggressive in terms of growing the company and keeping our strategic plan in place," he said.

Mr. Maib noted that when management bought the company, it was clear that the strategic direction for Acordia was to continue to grow through acquisitions.

"When we capitalized the company, we put in a fairly significant amount of capital and the availability to do just that, to finance those transactions. So the company was capitalized absolutely with the intent to continue to grow through acquisitions," he said.

Acordia's first acquisition since becoming an independent broker came with Preferred Quotes/Pickering Insurance Services, a specialty direct marketing company for life insurance, which became part of Acordia's San Francisco office last month.

Mr. Witthun said Acordia soon will announce several retail brokerage acquisitions.

What is not likely to be in Acordia's direct future is a merger with another megabroker.

"I never say never about anything in this business, especially with all the consolidation that's taken place in the industry," Mr. Witthun said. "We would like to continue to grow, but it's more likely we will continue to grow by internal growth and acquisitions, and the acquisitions will tend to be those companies that are equal to or smaller than us."

In addition to acquisitions, Acordia also plans to grow internally, a difficult task in the continuing soft property/casualty market.

To do this, the broker is looking to acquire talented individuals, forge relationships with banks to distribute financial products, and beef up its program business.

"I think that when you cut through everything, at the end of the day we're all client-focused businesses, and to the extent that you add value for the client, you stay in business and you grow," Mr. Witthun said. "To the extent that you don't, you simply don't. And the only way to add anything for the client is to know their industries, know their companies, to have great educational backgrounds and to have great technical expertise. . . .To the extent we don't do a good job with those clients, they'll go to someone else."

One of Acordia's most recent people acquisitions was Charles L. Ruoff, former head of American International Group Inc.'s commercial accounts division of its domestic brokerage group but better known for his previous role as executive vp at Sedgwick Inc.

Mr. Ruoff joined Acordia in February as senior vp and chief marketing officer.

Mr. Ruoff is one of a growing number of former employees of broker Fred S. James & Co. Inc., which was absorbed into Sedgwick in 1989, now running Acordia.

In addition to Mr. Witthun and Mr. Ruoff, Robert C. Nevins, Acordia's executive vp and chief operating officer, and newly hired John C. Crane, who replaced Mr. Maib as Acordia's CFO July 1, also were formerly with Fred S. James. Mr. Crane most recently was CFO of Sedgwick Inc.

As part of its growth strategy, Acordia also is looking at forging relationships with banks to distribute financial products.

"We are looking at a lot of different strategies as to how we can best combine ourselves to expand our product line in the financial services line," Mr. Witthun said. "Obviously, we're looking at banks and different things like that."

Mr. Maib added that "one of the strategic things we accomplished with the transaction we did last year is that we have a number of financial partners that also brought some measure of strategic value to the company. . .namely banks."

As a result, Acordia is exploring various opportunities to distribute financial products with its financial partners, he said.

Another area of growth for Acordia comes in the form of program business.

"We're focused much more on program business than we have been in the past," Mr. Witthun said. "We've got a fair amount of it, but we're working really hard at expanding that. One of the things we think is helpful is bringing in someone like Charlie Ruoff, who has a huge background in that area."

Acordia executives also are contemplating how the broker will service its growing international clientele.

"There is a continued movement among mid-market businesses to become more global in their focus," Mr. Witthun said. "That clearly began some time ago and continues. We've always been able to work well with our global and international clients" through reciprocal arrangements with other brokers around the world.

While those reverse-flow arrangements are working well, Mr. Witthun does not count out the possibility of establishing a similar network to ExcelNet, which fell victim to the acquisition frenzy in the brokerage marketplace soon after it was established in 1995.

Under ExcelNet, Acordia, Dale-Parizeau Inc. of Montreal, CECAR of Paris, Bain Hogg Group of London, Inchcape Insurance Services of Hong Kong and Boels & Begault of Brussels, Belgium, referred business to one another and were linked through a proprietary risk management information system. However, in 1996 and 1997, Bain Hogg, Boels & Begault and Dale-Parizeau sold to Aon Group Inc., and CECAR sold to Marsh & McLennan Cos. Inc.

"It's something we're still thinking about doing," Mr. Witthun said of a similar network. "We're still working on it, but with all the changes we've had to go through, we haven't completed that at this point."