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21650 Oxnard St., Suite 1600,

Woodland Hills, Calf. 91367;

818-348-7026; fax: 818-227-3400

1997 1996

Premium volume $569,500,000 $607,500,000

Gross revenues $52,500,000 $59,100,000

Employees 376 576

Commercial lines 100% 100%

Admitted business 55% 50%

Non-admitted 45% 50%

1996 figures reflect 12 months ending Sept. 30, 1996; 1997 figures reflect 12 months ending Dec. 31, 1997.

Staying ahead of the pack in a soft market requires a nimble competitor that can quickly innovate and jump on new opportunities.

That appears to be the strategy that No. 1-ranked surplus lines broker and wholesaler Swett & Crawford Group is following.

Just this spring, the Woodland Hills, Calif.-based wholesaler launched a facultative reinsurance facility for energy-related risks, such as utility companies and oil drilling operations, said David R. Hartoch, Swett & Crawford's president and chief executive officer.

"We are getting into areas where we have never been before, such as the reinsurance operation," he explained. "We are willing to look at those kinds of opportunities and act. I mean, we put (the reinsurance facility) together in 30 days."

With more admitted insurers hungry for business and more retail brokers owning wholesale units, Swett & Crawford is becoming more a creator and distributor of specialty products and not just a broker of deals with surplus lines underwriters, Mr. Hartoch said.

"I don't think that, as a wholesaler, you can offer retailers just general brokering services any more," Mr. Hartoch said. "You have to have expertise in certain areas, and you have to have exclusive products in certain areas."

Tough-to-place portions of risk management accounts continue to receive priority attention, and coverages such as employment practices liability continue to evolve.

Swett & Crawford recently introduced a new EPL form that covers third-party punitive damages and contains favorable jurisdiction wording for punitive judgment awards, said Rachel McKinney, assistant vp, underwriting manager and program administrator in Los Angeles for Swett & Crawford's EPL Exclusive Advantage program. In other words, the form promises full coverage even when some state laws prohibit punitive damages from being insured.

In order to provide that coverage, the insurer will typically appeal a judgment.

"What normally happens is it is settled along the way, and it isn't against the law to insure a settlement," Ms. McKinney said. "But if it isn't settled and if we should have to, we could pay you out of a jurisdiction where it is insurable."

Coverage limits up to $25 million are available under the program for all types of businesses. Swett & Crawford places the risk with Lloyd's and CNA Re in London, Ms. McKinney said. The wholesaler currently has about $10 million of premium in place.

"We also promise, once we expend expenses, we will not ask for them back under any reason, and I don't know of any other insurance company out there that says that," she noted. "We have very broad coverage."

Despite the soft market, Swett & Crawford remains competitive in placing EPL coverage. That's because of its expertise and its broad access to many markets, Ms. McKinney said.

Swett & Crawford also remains a big seller of directors and officers liability coverage. The wholesaler currently offers a "duty to defend" D&O form that provides more assurances the underwriter will pick up defense costs by eliminating areas of potential dispute contained in earlier-generation D&O forms.

Typical limits for the D&O product range from $5 million to $10 million, underwritten by Swett & Crawford on Lloyd's of London paper.

The wholesaler also has moved into new areas, such creating a new facultative reinsurance facility for energy-related risks.

Dallas-based International Technical Risks, Swett & Crawford's new reinsurance unit, can provide up to $25 million in coverage, Mr. Hartoch said.

The wholesaler formed the reinsurance unit when it learned that employees with expertise had become available for hire.

"In this business, people are the driver more than anything," Mr. Hartoch said. "You can have a growth area, but if you don't have the right people, it doesn't mean anything.

The creation of International Technical Risks comes at a time when Swett & Crawford is putting the finishing touches on its integration into the Aon Corp. family. In April 1997, Aon purchased Swett & Crawford's former parent, Minet Group. That made 1997 a year of transition from the old ownership to the new, Mr. Hartoch said.

Swett & Crawford's 1997 premium volume of $570 million was 6.3% lower than 1996 premiums. It also was below the 1995 premium level of $590 million.

In spite of the decline, Swett & Crawford maintains its ranking as the No. 1 wholesaler in the nation. And the reporting of lower premiums was anticipated, executives say, in part because some of its offices were merged into other Aon wholesale units (BI, Sept. 15, 1997).

While the transition distracted management and preoccupied employees, Swett & Crawford has remained agile enough to seize new opportunities.

It recently began developing products for nationwide franchise and distributor operations of larger corporations. It markets and sells the liability and property products to independent retail brokers, which then service those franchise and distributor operations. In some cases, Swett & Crawford provides the underwriting. In other instances, it brokers the coverages to a variety of markets. Coverage limits vary, depending on the industry and on client needs.

"We see it as an opportunity, because what we bring to the table is a national sales force that not too many companies can bring," Mr. Hartoch said.

Generally, corporations turned to Swett & Crawford after experiencing problems with other insurance programs for their franchises and distributors. Yet these corporations do not necessarily want to disturb the relationships between the franchise units and their existing retail brokers.

A beer manufacturer with about 1,000 distributors and a pizza restaurant chain are among clients that use the products.

Such products are also available for managed care companies that manage hospitals nationwide, said Thomas M. Comer, Swett & Crawford executive vp and chief operating officer in Woodland Hills.

Diversifying into other frontiers also has proved profitable.

Swett & Crawford in 1997 launched an earthquake insurance program for homes valued at $1 million and above. "That has done very, very well," Mr. Hartoch said. "In this market, you have to look at broader areas."

Even the California market for residential construction contractors, which used to be a very difficult market, has softened considerably, Mr. Hartoch said.

As for Swett & Crawford becoming a part of Aon, the integration is expected to be complete this year with the introduction of new computer technology. This has proved to be one of the biggest challenges of the takeover.

The new technology has caused some anxiety within Swett & Crawford. But the changes will help producers communicate with each other, and they will to be transparent to purchasers.

"1997 and part of this year are more about transition and positioning this company for what we want it to be in the future," Mr. Hartoch said. "It's a lot of change, and people don't always accept change readily."

But profitability is up, as evidenced by the more than fifteenfold jump in earnings, and so is employee enthusiasm, especially compared to last year, Mr. Comer said.

"Swett & Crawford is a going-forward company; there is no concern about that," he said. "There was a concern this time last year."

Business from Aon still accounts for about 5% of Swett & Crawford's book. The wholesaler operates as a stand-alone company, competing against other Aon wholesalers, 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 petrochemical 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 NAPSLO.