CRUMP INSURANCE SERVICES INC.

7557 Rambler Road, Suite 350,

Dallas, Texas 75231;

214-265-2660; fax: 214-266-2661

www.crumpins.com

1997 1996

Premium volume $558,650,000 $522,550,000

Gross revenues $41,340,000 $38,669,000

Employees 337 339

Commercial lines 100% 100%

Admitted business 40% 40%

Non-admitted 60% 60%

The soft market is a hot market for Crump Insurance Services Inc.

Not that a little firming of prices wouldn't be welcome, but the Dallas-based wholesaler has learned to make the best of difficult market conditions.

"We had a record-setting year, the best in our history," said Marcus Payne, president and chief operating officer at Crump.

Premium volume, gross revenues and profits all saw healthy increases, despite soft-market pressures, he said. This growth was fueled partly by new business generated by a growing staff of producers.

A half-dozen Crump producers had "an outstanding year," Mr. Payne noted.

That's the key to Crump's success: an aggressive push to add talented producers who generate new business. That business is needed to offset premium declines that are common when existing accounts are renewed in the current soft market.

While Crump routinely retains 65% to 70% of its accounts from year to year, retentions contribute fewer and fewer dollars during the prolonged soft market. The wholesaler's retention rate was slightly lower in 1997 than 1996.

The broker has added 16 producers since October, part of its "continuing strategy to invest in new people and bring new people on board," Mr. Payne said. There's no single source for Crump's new producers, he said. "We're continuing on our aggressive posture we've had for a number of years to try and find the best people available in the marketplace. We try to find people who fit the Crump culture and we go out in the marketplace and look for those kind of people," he said.

"Our established brokers are certainly contributing too, but they have their hands full just renewing their business. And every time they renew an account, they renew it for 20% less" than the year before, he said.

Crump, owned by Sedgwick Group P.L.C., recorded 1997 premium volume of $558.7 million, a 6.9% jump from the year before. The increase comes after a slight rise of 0.5% in 1996 premiums and a 3.9% drop in 1995.

Crump's gross revenues increased by the same amount, rising to $41.3 million in 1997. The 1996 revenues were a fraction lower than in 1995.

Profits in 1997 showed a "substantial increase," Mr. Payne said, without revealing specific numbers.

Based on its 1997 premium volume, Crump retains the No. 2 position both among surplus lines brokers and wholesalers overall.

Marsh & McLennan Cos. Inc.'s recently announced plan to acquire Sedgwick means new ownership for Crump (BI, Aug. 31), a change that Mr. Payne says the broker believes "will affect us in a very positive way."

Mr. Payne said the deal allows Crump to "maintain our relationships and continue to build our business from our current agency base."

He said that with a "larger capital base" that the acquisition creates, Crump will be able to "invest aggressively in new programs, new skills and technology applications" to expand its business. "We don't foresee any changes in the way Crump will be run."

All premiums are recorded under the Crump Insurance Services banner, a change from past years, when figures were broken out for Crump and its smaller units. Crump Insurance Services was known until last year as Price Forbes North America. The name change came when Sedgwick Group sold the Price Forbes name and agreed to give up its use in the United States.

One Crump unit, Southern Marine & Aviation Inc., is seeing sharply lower premiums. While it remains profitable, the Houston-based energy unit's premiums fell by $30 million to $35 million in 1997 from $43.4 million the year before. Exact 1997 figures are not available because SMAI is making billing changes that will affect amounts attributed to that year.

Crump remains positive about SMAI, even though the energy unit's premium volume has declined in recent years. SMAI's cargo writings make up 3.9% of Crump's total book of business.

SMAI still has "a large book of ocean marine cargo," said Orville D. Jones, chairman and chief executive officer of Crump. "Because most of that is bulk cargo and because the price of oil is slipping, the rates and the premium are less because the value of the cargo is less. But it's still a very profitable operation for us."

SMAI offers up to $40 million in coverage for a single loss incurred aboard a single vessel. The coverage is written through an underwriting management agreement with Gulf Insurance Co. in Dallas, which shares the risk with London insurers.

For the same reasons as a year ago, "we're not doing a tremendous amount of energy business," Mr. Jones added. Many brokers are bypassing wholesalers by establishing their own energy departments, and competition for the business remains stiff.

Despite SMAI's reduced volume, Crump is on track to have another record year, with premium volume through June exceeding last year's mark of around $250 million, said Mr. Jones. "Our second half is usually stronger than our first half," he added.

Crump hasn't tracked first-half volume, but Mr. Jones estimated the total at around $270 million to $300 million.

New casualty business is helping Crump continue its strong run this year.

"We had a good year last year with our (directors and officers liability) business," said Mr. Payne. "It continues to do well."

D&O writings account for 12.2% of Crump's premium volume. General liability makes up 22.6% of the premiums, and umbrella liability is 9.8%. Professional liability coverages add 5.5%, and workers compensation risks amount to 2.3% of total writings.

New offices were established in Iselin, N.J., and Dallas to handle workers compensation business. The offices primarily place small workers comp risks, Mr. Payne pointed out.

Property insurance makes up the largest single chunk of Crump's premium volume, at 31.3%. Prices for those accounts are heading south, however, according to Messrs. Payne and Jones. Even earthquake and windstorm rates -- traditionally among the last to soften -- are falling, they said.

"Earthquake and windstorm had been hanging in pretty well," Mr. Jones remarked. "But this year we noticed a big (price) decrease."

Crump is seeing growth in Crump Underwriting Services, a Dallas-based managing general agency it established three years ago to provide binding authority for its offices throughout the county. "We've been building it, and it's begun to prove our decision in putting it together was right," said Mr. Payne. "It's a facility; it's not a profit center that exists on its own. It's to serve the rest of our offices."

The facility is expected to be expanded to market new programs as Crump develops that strategy, Mr. Payne said.

Crump's Alternative Risk Division had a slow year, "but it is picking up and is getting better as we go," according to Mr. Jones. "As with any new project, it has started off slow, but we have high expectations of it."

The division, created in 1996, is the exclusive marketer for a Bermuda-based rent-a-captive. Three programs, called COMPASS I, II and III, are available through the facility. One is written for individual risks, another for groups and associations, and a third for agents, brokers and managing general agencies.

The division offers all lines of coverage, underwritten by Star Insurance Co. or Savers Property & Casualty Co., admitted and non-admitted units, respectively, of Meadowbrook Insurance Group in Southfield, Mich. Transglobal Insurance Ltd. in Bermuda reinsures the coverage.

The program for agents, brokers and MGAs has been the most successful of the COMPASS offerings, Mr. Jones noted. It lets them provide coverage for existing clients while realizing a greater return from participating in the rent-a-captive than generally is available from commissions.

Crump is looking to put together more new insurance programs, a popular way to garner new accounts. Toward that end, a program director was hired in a newly created position. Bruce Slapper, previously a vp and Western marketing manager at Hilb, Rogal & Hamilton Co. in Phoenix, is responsible for Crump's efforts in crafting new programs. He reports to Mr. Payne.

"All of our markets seem to want programs and seem to think the way to grow in this business is through putting together different types of programs," Mr. Payne said.

In addition to Messrs. Payne and Jones, another top executive at Crump is Patrick R. O'Brien, executive vp and chief financial officer.

Crump is a member of NAPSLO and the AAMGA. Mr. Jones is incoming president of NAPSLO.