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John Hahn is CEO of EPIC Insurance Brokers & Consultants, a San Francisco-based retail brokerage owned by private-equity investor Oak Hill Capital Partners, which bought EPIC in July. One of the founders of TriCity Brokerage Inc., Mr. Hahn started on the wholesale side of the brokerage business. In 2007, a few years after Tri-City was sold, he founded EPIC with Dan Francis, a former executive at ABD Insurance & Financial Services Inc. The firm has grown substantially over the past 10 years and was ranked the 17th-largest brokerage of U.S. business in Business Insurance’s most recent ranking with about $250 million in 2016 brokerage revenue. EPIC earlier this year bought the retail operations of The Capacity Group of Cos. and recently announced plans to buy Frenkel & Co. Mr. Hahn spoke with Business Insurance Editor Gavin Souter about EPIC’s growth strategy. Edited excerpts follow.
Q: You added about 25% in revenue in 2016, and you’ve been growing in 2017 through acquisitions. What’s been driving that?
A: It’s a combination of acquisitions, producer recruiting and team recruiting. The Capacity deal gave us a specific platform in the Northeast, which was high on our to-do list. It also brought us some focus in and around the transportation space, which is of great interest for us. Historical loss ratios over the last few years have not been good, so we’re seeing a fair amount of rate increase in that space. We think that’s going to last for a while, so we want to be able participate on a bigger scale and be able to bring to our clients both loss mitigation and risk control capabilities.
Q: What will the Frenkel acquisition bring to EPIC?
A: Strategically it’s a terrific fit. It brings us a central, large New York City presence and a presence in some surrounding locations, such as Boston, that we’ve had our eye on for a while, and it brings us an upper-midmarket capability that fits right in with the core value of EPIC. It’s a terrific platform to begin to recruit people in the New York/New Jersey area, and it brings us a really terrific employee benefits platform that, from an employee benefits perspective, takes us to over $100 million in revenue. And their marine team and private client practice are just great fits and complementary add-ons for us. Then in some areas where they don’t have expertise and we do, we think there’s an opportunity to strategically expand their playing field by bringing in some construction talent and developing a construction practice in the Northeast, which currently they don’t have and is probably our biggest industry segment nationally.
Q: How do you differ from other private equity-owned brokerages?
A: We’re not in the velocity game of acquisitions. We’re not looking to do five-to-10 acquisitions a quarter. We’re not looking to just roll up revenue. Every deal we do, we want to be consistent with either business segments, specialty niches we already have established or it’s going to establish a new niche for us or a new industry specialty that we want to be able to mobilize behind. Or we’re going to get some geographic expansion that we think is important. We think they need to fit culturally as well as operationally and strategically, and it’s hard to find a lot of firms checking off all of those boxes. We’re willing to spend a lot of time in advance of the deal socializing with whoever the operators and owners are to make sure it would be a good fit for us and for them. When we get it right, we know that we’ve got a winning edge, and we know that there will be very little risk around integration. Our investors’ belief is that our above-market and above-industry organic growth is the driver of value for us, so everything we do is looking to make sure that we can maintain organic growth at 7% to 8%, which is two to three times the industry average, and also to be strategically connected with our clients in a way that our client retention levels and revenue retention levels are best in class.
Q: How do you achieve that organic growth rate?
A: We infuse capital and intellectual capital into each of our acquisitions to help them bring on talent, and that talent adds to what they’ve already been doing. We’ll invest as well in client resources and deliverables, so we bring a real risk management-like approach into the middle and upper-middle market in both property/ casualty and employee benefits, which most of our competitors don’t really do. We’re bringing long-term value to clients, whether it’s loss control or the claims side or the claims advocacy side. That will drive the stickiness, but it also leads us to new client engagements, and we have a very aggressive producer model that also really facilitates our producers being owners in the business. We have around 200 employee-owners out of 1,000 people, so they wake up differently every day, we believe, and they’re going to build value with us, and they’re able to earn equity and purchase equity. We see our producers are out trying to earn as much as they possibly can to be equity participants in our business.
Q: Where are you looking to grow in the future?
A: Our main growth over the next two to three years will be in and around the established regions we have, which are Northern and Southern California, the Southwest out of Texas, Southeast out of Atlanta, our Northeast platform, and up and down the East Coast and mid-Atlantic. Secondarily, we’ve invested a lot of money in our employee benefits business. We built a centralized consulting service model, and it’s really where clients’ pain is most acute, so we’ll continue to put firepower behind our employee benefits business. And then the goal for us in our specialty business is that we’d like that to be 40% or so of our business in the next couple of years (currently it’s about 30%), so we have designs on building out our current industry national practices, adding to the national practices we have and growing our program and products portfolio as well.
Q: What will EPIC look like in three to five years?
A: Our hope is that we’ll have each of our regional platforms in and around $100 million in revenue or more, so by definition the company would be about twice the size — so somewhere around $600 million in revenue by then. If the business could look 40% specialty, 30% employee benefits and 30% commercial property/casualty, I think that would be a solid mix for us. The goal from there would be to continue to stay private — we like the private equity model, we understand it — find a new sponsor in five years and look to take the company from $600 million at that stage, or whatever we are, to $1 billion. And at that stage, I think we’d have the scale to be relevant in more ways.
Constantine “Dinos” Iordanou is chairman and CEO of commercial insurer and reinsurer Arch Capital Group Ltd., in Pembroke, Bermuda. Mr. Iordanou plans to retire in March 2018, and the company promoted Marc Grandisson to president and chief operating officer on Jan. 1, 2016. Arch disclosed in a June 6 U.S. Securities and Exchange Commission filing that it would book a $38 million loss on facultative property cover for the second quarter of 2017. Mr. Iordanou recently spoke with Business Insurance Reporter Matthew Lerner about markets, trends and issues that are affecting Arch. Edited excerpts follow.