THE SCHINNERER GROUP INC.

2 Wisconsin Circle, Chevy Chase, Md. 20815; 301-961-9800;

fax: 301-951-5444;

www.schinnerer.com

1997 1996

Premium volume $445,000,000 $444,000,000

Gross revenues* $37,100,000 $37,100,000

Employees 298 305

Commercial lines 100% 100%

Admitted business 95% 95%

Non-admitted 5% 5%

*BI estimate.

Efficiency, innovation and easy access are how The Schinnerer Group seeks to enhance customer service in an ever more competitive market.

And, despite continued rate erosion and the loss of some accounts, the strategy appears to be paying off for the Chevy Chase, Md.-based underwriting manager, which has been able to wrest double-digit rate increases in two of its core programs.

Schinnerer's goal is to "develop products and services that relate to emerging risks," said Homer M. Sandridge, executive vp of Schinnerer, which is a unit of J&H Marsh & McLennan's Seabury & Smith. That has meant both enhancing existing programs and adding new ones, including a new kidnap and ransom program.

Schinnerer maintained its longtime position as the top underwriting manager and moved up one position to rank third overall on Business Insurance's list of top wholesalers.

Schinnerer experienced a year of nearly flat premium growth, registering $445 million in 1997, an increase of only $1 million from 1996. As evidence of the continuing soft market, premium volume for the first six months of 1998 dropped nearly 5.9% to $225 million from the $239 million generated during the same period in 1997.

BI estimates that Schinnerer's gross revenues remained flat in 1997 at about $37.1 million.

"We're finding the market continues to soften even though we try not to dwell on it," said Mr. Sandridge.

"Our focus is customer service, both to the brokers that we serve and to the policyholders that they serve. Our goal is efficiency, because the more efficient we are as a company, the more money we can make, both for us and our customers," said Lorna Parsons, senior vp. "Our goal is to be innovative and to be very easy to access. We're focusing on services that help make their bottom lines grow."

"We continue to be heavily admitted lines. We always have been, but the change over the past two years is that we are very capable and use E&S lines in appropriate situations," said Mr. Sandridge. Schinnerer acts as an underwriting manager for CNA Insurance Cos., Gulf Insurance Co., Zurich-American Insurance Group, Employers Reinsurance Corp. and United Educators Risk Retention Group, a Vermont-domiciled captive.

Schinnerer launched several new programs to meet the demands of its customers in the difficult market. One of the biggest breaks from Schinnerer's traditional business is a new kidnap and ransom program, with limits of up to $60 million. The program demonstrates the underwriting manager's desire to keep up with the demands of its increasingly global customers, said Mr. Sandridge. It is being offered by Schinnerer and Travelers Corp.'s Gulf Insurance Co. unit in partnership with Lloyd's of London's Hiscox syndicate and international security consultant Control Risks Group.

A new miscellaneous professional errors and omissions program -- the Smart Source -- is designed to "provide coverage for brokers who are seeking markets for professional liability for things that we have not historically done," said Mr. Sandridge. Smart Source is "basically a wholesale facility" because "no single market could cover enough of the emerging risks," he said. Some of the professionals covered by the facility include computer software, health care and human resources. Limits vary according to what risk is being underwritten.

Schinnerer enhanced some of its core programs as well last year to provide better service. For example, United Educators added a new foreign accident and evacuation coverage for its members, reflecting the popularity -- and potential risks -- of overseas student programs, said Mr. Sandridge.

United Educators "is continuing to grow, but in a competitive environment," he said. The program, which encompasses about 1,100 institutions, including some private high schools as well as two- and four-year colleges and universities, doubled the excess liability limits it offers to $50 million. Capacity for educators legal liability remains at $25 million.

United Educators also offers a new property insurance program in conjunction with the general liability program in partnership with General Re unit Genesis and the Wausau Insurance Cos. The policy provides blanket coverage for total insured values of up to $400 million.

Mr. Sandridge said United Educators has been able to get rate increases in the 10% range for United Educators legal liability, increases he credited to a "very loyal and educated customer base."

Schinnerer's flagship architects and engineers program, now in its fifth decade, underwent several enhancements. Perhaps the most notable was the creation of the Premier program for midsize companies with annual billings of $500,000 to $5 million. The program, underwritten by CNA, offers limits of up to $30 million.

Capacity for Schinnerer's long-running architects and engineers liability program was increased to $30 million, said Ms. Parsons. "CNA keeps saying, 'Sure, we can do that.' Frankly, we can do almost any limit our customers want."

The program has undergone other enhancements as well, she said.

"We've removed pretty much the asbestos and pollution exclusions that went in in the mid-1980s. We're back to 1984 coverage -- it's progress." In addition, "one of the advantages right now of our architects and engineers program is that it doesn't have any Y2K exclusions, and we're not planning on putting any in there, because the engineers especially have done a lot of work with traffic lights, medical facilities, airports and a hundred other things that potentially could be affected."

She noted, however, that while the program has more customers than ever before, the average premium is dropping.

To enhance another core program -- real estate -- Schinnerer recently launched an E&O commercial real estate program for large commercial firms, said Richard Walk, senior vp. This E&S program, written by CNA, offers limits of up to $10 million.

"Until now, everybody who was in this arena used just their miscellaneous E&O form. They didn't have a specific real estate product. As far as we know, this is the first one intended to target the real estate industry specifically and the property transfer mechanism that is inherent in large commercial and large residential firms," he said.

Limits have remained at $2 million for Schinnerer's real estate professional liability program, which is underwritten by CNA, he said. "Our volume has dropped in real estate" because of "tremendous consolidation" in the industry, Mr. Walk said.

Nevertheless, Schinnerer has been able to get double-digit rate increases in "what traditionally has not been what I'd call a loyal customer base," he said.

The fourth mainstay of Schinnerer's book of business, non-profit D&O, "has been essentially flat over the past year." The program, also underwritten by CNA, offers limits of up to $10 million.

Schinnerer launched a new service called Quick Quote last year to speed up the quote/order process, said Mr. Walk. He called it a form of self-rater designed to help small associations.

"Competition is fierce, and premiums are so small in that arena that it makes it very difficult to grow. It's generally profitable business, so everybody's in that arena," he said.

Houston-based AMGRIP, which came under the Schinnerer umbrella when its parent, Johnson & Higgins, merged with M&M in 1997, has become increasingly integrated with Schinnerer, though it maintains a separate identity, said Mr. Sandridge. AMGRIP offers two basic products -- a range of municipal coverages and a school leaders liability program, he said.

Mr. Walk said Schinnerer has responded to customer desires by making increased use of interactive technology to get information and applications. "In surveys to our customers, we found they want to access us in this fashion; they're not that interested necessarily in talking to a person on the phone every time. They like to use the Web."

Schinnerer also has established distribution teams that visit broker customers, said Mr. Walk, who serves on a team. Schinnerer has more than 8,000 broker customers, he said.

"We see what makes them tick and what their desires are. It's really eye-opening to find out what they really want, as opposed to what we think they want."

Mr. Walk said the only program Schinnerer has recently dropped was a financial planners liability program for which demand did not meet expectations. He added, though, that a relatively new program for security professionals underwritten by Zurich-American has grown steadily since its inception.

The Schinnerer Group consists of Victor O. Schinnerer & Co. and ENCON Underwriting Agency Inc., both in Chevy Chase; AMGRIP in Houston; ENCON Insurance Managers Inc. in Ottawa, Ontario; and Schinnerer & Co. Ltd. in London. It also has offices in Chicago, San Francisco and Toronto.

In addition to Ms. Parsons and Messrs. Sandridge and Walk, Schinnerer's top managers include: Vincent C. Santorelli, president; Richard W. Horner, senior vp; James Smith, president-AMGRIP; Denis Shillington, president-ENCON; Campbell Scoones, managing director-Schinnerer U.K.