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201 California St., Suite 1000,
San Francisco, Calif. 94111;
415-956-3236; fax: 415-956-1204
Premium volume $335,000,000 $263,000,000
Gross revenues $32,000,000 $23,800,000
Employees 245 147
Commercial lines 100% 100%
Admitted business 75% 75%
Non-admitted 25% 25%
It's been a hectic year at Sherwood Insurance Services, where employees have been busy absorbing segments of two acquisitions by its parent company, Aon Corp.
But with that integration now virtually complete, the wholesaler is a stronger company, said James W. Barnes, Sherwood's chairman and chief executive officer.
Aon's purchase of Alexander & Alexander Services Inc. in January 1997 brought with it A&A's wholesale unit, Alexander Howden North America, with Sherwood taking Howden's Western business and the rest of the business shared by other Aon wholesale units.
In May 1997 Aon bought the Minet Group, whose operations included wholesaler Swett & Crawford. Although Swett & Crawford remains an independent operating unit, Sherwood absorbed Swett's San Francisco, Woodland Hills and Irvine, Calif., offices.
"I would say 95%-98% of the work has been done," and now the company, staff and its business plans can move forward, according to Mr. Barnes. "It has been an incredibly busy year."
He likened the experience to "changing a flat tire on the highway at 65 mph."
The integration of the Aon acquisitions has required a 19-month retooling of staff, systems and programs, but the end result is that where Sherwood once had three offices, it now has five full offices and two satellite operations. Two of the full offices and two satellite offices have managing general agency operations as well, said Mr. Barnes, who said Sherwood has no further plans right now to either open or close any more offices.
Mr. Barnes said name tags were needed for the first time in the company's history when it held its annual meeting in October. "We won't need name tags this year," he added. "We've come to work very well together as a team."
At the same time, "I don't think it was that disruptive at all" to Sherwood's retail broker clients, said Mr. Barnes.
And now, Sherwood is back to its "original core business plan," said Mr. Barnes, which is to focus on property, casualty, construction and professional liability business. As a result of the acquisitions, "We have enhanced all four of these core businesses," he said. The wholesaler also continues to focus on program business, which cuts across all four segments.
The acquisitions helped boost premium volume 27.4% to $335 million in 1997, ranking Sherwood as the fourth-largest surplus lines broker and sixth-largest wholesaler overall. Gross revenues increased 34.5% to $32 million.
While Sherwood grew in 1997 because of the acquisitions, now its growth will have to come from its programs, he said. For this year, "We're on pace to do $350 million to $360 million" in premiums, or about a 4.5% to 7.5% increase, said Mr. Barnes. Revenues will total about $35 million, a 9.4% increase, he said.
However, he cautioned, "I'm not sure how valid these numbers are because a lot of the final restructuring was done the first half of this year. Next year will be the year we'll really have good, solid numbers," he said. "This whole merger is really a two-year process."
Between 1996 and 1997, Sherwood's staff also increased to 245 employees from 147. Sherwood's approach was to take everyone in, then look across the board for staff redundancies in functions, including systems, accounting and claims, said Mr. Barnes, who added Sherwood is now down to about 200 employees, and the process is complete.
For the remainder of this year and beyond, Sherwood will be what it has always been, albeit a stronger, bigger company that has acquired some talented people and established good, new relationships, said Mr. Barnes. "We'll continue to build on these."
Pointing to Sherwood's 20-year history of sustained growth, Mr. Barnes said the wholesaler will continue to seek out new sources of business, develop new products, use the best available people and "continue to be a very strong force."
Sherwood still takes pride in its independent stance, despite its Aon ownership. The company was founded by Don Sherwood in 1978 as a joint venture with Frank B. Hall & Co., which took over total ownership in 1989. Aon acquired the operation in 1992, when it bought Hall.
"Since Day One we have had a majority ownership position" by a retail broker, said Mr. Barnes. "We grew up in that system, and the owning brokerage has always accounted for just 25% to 30% of (Sherwood's) business, with the rest of the brokerage community accounting for the remainder," said Mr. Barnes. Last year, Aon accounted for about 28% of Sherwood's business, he said.
"We have always had a unique blend of independence and entrepreneurship, with the stability and financial resources of a major partner. We've never been a captive wholesaler," said Mr. Barnes, who joined the company 11 months after its founding 20 years ago. "It's been a unique blend, a very successful one and one which Aon is continuing."
One change occurring, though, is that with all the consolidation taking place in the industry, Sherwood is seeing relatively less business from other major alphabet brokers, who tend to favor their own operations, he said. Whereas alphabet- house business had previously accounted for about 15% to 20% of Sherwood's business, that will be down to about 5% by the end of the year, Mr. Barnes estimated.
"They're using their own wholesalers for delivery of their products, which is to be expected with this type of consolidation, and many of their own facilities," he said.
As a result, Sherwood's business is now more focused on the mid-range, local and regional accounts from independent local and regional retailers, with much of its national business coming from Aon.
"We will continue to see the large, national accounts, but only from Aon," said Mr. Barnes. He added, though, that "Nothing is forever."
Meanwhile, Sherwood continues to focus on property accounts, with a heavy emphasis on earthquake exposure. A total of 75% to 80% of its business includes earthquake peril coverage on difference-in-conditions or an all-risk basis, including flood coverage. Depending on how it is structured and how Sherwood is needed, business from these regional accounts could generate premiums ranging from $250,000 to $4 million.
Sherwood also is approaching its goal of a 50-50 split between its property and casualty business and already may be at about the 55-45 point, he said.
Despite the soft market, "Our retention rate is pretty good" at the "mid-60s," said Mr. Barnes, though he added this is hard to quantify because of Sherwood's absorption of the acquisitions.
Sherwood's Loxley Insurance Services subsidiary focuses on smaller commercial business and functions as an internal resource for Sherwood's brokerage operations, out of which it operates. A second subsidiary is Sherwood Construction Program Managers, which focuses primarily on wrap-ups and large construction projects out of Sherwood's Pasadena office and acts as an MGA for TIG Insurance Co.
Other Sherwood program business includes an earthquake program for small commercial risks for members of the Insurance Brokers Assn. of the West that provides up to $2.5 million in coverage. A national airport program offers up to $100 million in property coverage, up to $25 million in general liability coverage and up to $5 million in directors and officers liability coverage.
Still in the final stages of completion are programs for non-emergency medical transport and driving ranges, said Mr. Barnes.
Underwriting accounts for about 22% of Sherwood's revenues, which is "about where we want to stay," said Mr. Barnes.
Sherwood's top markets are: Scottsdale Insurance Co.; Associated International Insurance Co.; CNA Insurance Co.; First State Insurance Co.; Gulf Insurance Co.; RLI Insurance Co.; Western Risk Specialists; Royal Insurance Co.; Westchester Group; and Insurance Co. of the West.
It has underwriting authority for CNA; Gulf; National Casualty Co.; Scottsdale Insurance Co.; TIG; Twin City Fire Insurance Co.; Lexington Insurance Co.; and Connecticut Specialty Insurance Co. It also acts as a Lloyd's of London coverholder.
In addition to Mr. Barnes, other Sherwood officers are President Curt Biersch; Chief Financial Officer Kevin Schrage; Executive Vps Phillip Mazur and Sarah Corvin; and Vp Marion Woodbury.
Sherwood is a NAPSLO member.