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Although Lockton Cos. L.L.C. has reported double-digit annual organic growth for 20 straight years, it wasn't until last year's $170 million acquisition of Alexander Forbes International Risk Services that the spotlight really began to shine on the Kansas City, Mo.-based brokerage.
"It sort of feels like an overnight 40-year success story," said Chairman David M. Lockton, referring to all the attention the brokerage has received since acquiring the London-based arm of South African broker Alexander Forbes Ltd., which thrust Lockton into the global scene.
Before the acquisition, which executives describe as an "out of the ordinary" move for the organically growth-driven Lockton, the privately held firm has quietly but quickly grown its operations at double-digit annual rates by relying on a strategy of recruiting and training top talent, who in turn service loyal customers.
Indeed, in an industry where producers and accounts tend to jump from firm to firm, Lockton enjoys a 95% client retention rate, while turnover in its professional client-facing ranks remains well under 5%, executives say.
"Our value proposition is not the same as others," said John L. Lumelleau, president and chief executive officer. "We are a company that takes a very long view of this business. It's not transient, it's not near-term, and it's not focused on any annual or five-year plan. It's focused on doing the basics necessary to get and keep clients, and you get and keep clients by getting and keeping great people."
It's a strategy that has served the brokerage well since the late Jack Lockton founded it in 1966 when he began calling on construction contractors as a one-man surety brokerage operation.
That one-man shop has since grown to more than 3,800 associates offering services and capabilities to more than 15,000 large and middle-market clients representing a number of different industries from health care to energy to real estate, although construction still represents about 17% of Lockton's annual revenues.
For its 2006 fiscal year, which ended April 30, 2007, Lockton reported $657.2 million in brokerage revenues, up 69.3% over the previous year. That propelled Lockton for the first time into Business Insurance's 2007 ranking of the world's largest brokers in the No. 10 spot.
Although AFIRS did account for most of Lockton's surge--about $200 million--Lockton's U.S. operations posted 13.8% organic growth in fiscal 2006, the 20th straight year of double-digit organic growth.
While executives say all three of Lockton's U.S. business segments--property/casualty, employee benefits and affinity--contributed to its rise in revenues, Lockton's benefit operation reported the biggest jump, increasing 28% organically to $106.5 million for fiscal 2006. Mr. Lumelleau said Lockton has placed a lot of attention on growing this unit.
"Our benefits business is now over $100 million in revenue, when three years ago it was just touching $50 million," Mr. Lumelleau said.
"I would see Lockton as one of the best sales organizations in the country," said Bobby Reagan, president of Reagan Consulting Inc. in Atlanta. "They've done an extremely good job of creating a sales culture and attracting top sales talent. They have provided the tools and resources as well as the compensation that are very attractive, and that has certainly helped them."
But with growth, opportunities arise naturally.
Last August, in an unusual move for Lockton, the brokerage announced it was acquiring London-based AFIRS in a $170 million transaction that not only provided the brokerage 31 offices in Europe, Latin America and Asia, but also brought it equity membership in the EOS RISQ brokerage network that expanded its reach to an additional 30 countries around the world.
According to Mr. Lumelleau, the opportunity to acquire AFIRS became a "strategic imperative" as it was "inevitable" that as Lockton continued to grow, an increasing number of its clients were going to rely on it to service them around the world, and AFIRS almost "exclusively" serviced Lockton's existing U.S.-based multinational accounts through a decade-long partnership.
"When Alexander Forbes determined that they wanted to take a different direction and were interested in knowing whether or not Lockton would be interested in acquiring the international risk services division, it really did become a strategic imperative," he said.
Under terms of the transaction, Lockton purchased 51% majority ownership in AFIRS, while Trident III L.P., an investment fund managed by Greenwich, Conn.-based Stone Point Capital L.L.C., owns the remaining minority interest. Lockton has call options on Trident's investment over the course of the next six years, which it said it intends to exercise and eventually own 100% of the operation (BI, Aug. 28, 2006).
Lockton International, which is run by CEO Stewart McCulloch, former CEO of AFIRS, and Chairman Mike Hammond, former deputy chairman of AFIRS, officially launched in November.
Since then, Lockton International has hired nearly 30 new associates, including four executive chairmen: Chris Brown, formerly of Marsh Inc.'s European risk management practice; Paul Jack, formerly with JLT Re; Julian James, formerly of Lloyd's of London; and Neil Nimmo, formerly of Marsh's U.K. FINPRO operation.
Most recently, Lockton hired Wael Khatib, former CEO of Market Insurance Brokers, as CEO, MENA, to lead its expansion in the Middle East and North Africa.
"We...always have been an aggressive organization when it comes to identifying and recruiting talented people. And in the international business, we're taking the same steps. It's a constant with us," Mr. Lumelleau said.
In May, Lockton International launched a Bermuda office to provide clients direct access to the insurance and reinsurance center. Ed Correia, formerly of Marsh, is heading up the new office with Philip DiMeglio, formerly of JLT Risk Solutions, and William Lowe, formerly of Aon Corp., joining as producers.
And in June, the company launched Lockton Affinity in London.
Executives insist that while the once smaller, national Lockton is now larger and more global in scope, the cultural underpinnings on which the Midwest brokerage were founded remain unchanged.
"We are a much larger company that is still grounded in the basics of taking care of our clients and our people," Mr. Lumelleau said. "We obviously made a very significant move in Lockton with our acquisition of Alexander Forbes, but Lockton as an organization hasn't changed an iota. Our key constituency remains what (it's) always been and that is...our clients, our people and the communities in which we do business. That will never change."
"My main goal going forward is to provide an alternative experience for insurance buyers," Mr. Lockton said. "We're large enough now that we have experts in practically every industry and every product. We may only have 80 D&O people vs. 800, but how many can one client use?"