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Richard Kerr formed MarketScout Corp., a Dallas-based managing general agent, wholesaler and insurance exchange, in 2000 after holding executive positions at various brokerages. Last month, he was named CEO of Novatae Risk Group, an MGA, program manager and wholesaler. The company was formed to house the wholesale units of brokerage World Insurance Associates LLC, which is backed by private equity firm Charlesbank Capital Partners LLC, and to purchase MarketScout. Business Insurance Editor Gavin Souter spoke with Mr. Kerr about the thinking behind the deal and his plans for the business. Edited excerpts follow.
Q: What’s the background to the Novatae deal to buy MarketScout?
A: We had been entertaining opportunities from various private equity firms to take on an investment and begin acquiring other MGAs and wholesalers and rolling them up. We had commitments from several folks, and we were sorting through those when I was able to meet the folks at World and Charlesbank, and we decided that that could be a really great fit.
They had a vision of taking what they already acquired and putting it into a separate company, that being Novatae, and utilizing MarketScout as a cornerstone for taking Novatae to the next level. So that’s what we did.
It’s presently a bit more than $750 million in premium, which is a consolidation of seven or eight different acquisitions over the course of the last two years. My job will be to put a direction on this company and continue to grow. We expect to be at a billion dollars relatively quickly — we have a number of additional acquisitions we’re targeting — and continue to grow from there. Ultimately, the plan is to get $2 billion in as soon a time as is reasonable, and if it’s not reasonable, we won’t grow that fast. It’s all about the people, so we are looking for the right folks in the right places.
Q: What type of business do the existing units write and place?
A: There’s quite a number of different MGAs, program managers and coverholders writing everything from oil and gas to cargo, to high-value homeowners, fine art, jewelry, animal mortality, health care, contractors general liability and professional liability, as well as all sorts of different property and specialty events. In addition to that, there’s the traditional wholesale capabilities.
We will take all these disciplines and organize them into verticals and place them on the MarketScout exchange, which is a marketplace where independent retail agents can come and connect with specialists and underwriting facilities in a particular niche area.
Q: So will MarketScout be a central part of the setup?
A: That will be our distribution platform. We have been databasing retail agents’ books of business and buying habits for the last 20 years. So that we know in Kansas, for example, which agents write tow truck operators and where they are, what they’ve done and what their appetites are.
Moreover, we will be looking for talented underwriting teams, who might be at an insurance company or one of our competitors, to bring them over to Novatae, with the footnote that we very much honor noncompetes and nonsolicitation agreements.
Q: In addition to bringing on people, how are acquisitions looking?
A: We have several more that we’re probably going to do by the end of the year, and we have a very robust pipeline and a well-funded facility to do much more in 2023 and beyond. We’re looking at smaller deals and larger deals; it depends on the right fit and the personalities and things of that nature.
Q: Where do you see opportunity for growth?
A: It really depends upon the individual teams or the particular business segments. It really doesn’t matter if it’s cargo or animal mortality or oil and gas. Right now, the personal and commercial cat property market is a mess, and we are blessed with having some good capacity in those areas and we intend to organize ourselves to help out some of our retail agent partners who are really struggling with that.
Q: There’s been a lot of change and growth in the MGA sector over the past few years. How is that changing the dynamics of the market?
A: It’s all going to be about segmentation. There’s always going to be a generalist wholesaler that can get things done for you, but largely the way of the future is going to be like your physician: You’re a podiatrist or an anesthesiologist, you have a specialty expertise and that’s the path to success. So, if you’re an underwriter and you’re underwriting coastal property in Florida, that is your expertise. That doesn’t mean you can’t be a wholesaler and do different things, but even there differentiation is going to come in.
Q: How do you see the outlook for market conditions?
A: We’ve a problem with cat exposed property and I think it’s going to get worse before it gets better. But whenever things like this happen, it’s usually the beginning of creative opportunities.
If you go way back when we had the excess liability capacity crisis, that was basically the beginning of the advent of many of the things that took place in Bermuda. There are a lot of really creative minds in this industry, and they will come up with solutions.
Generally speaking, rates have continued to go up. They’re still going up. Our market barometer shows rates are up on the personal lines side and the commercial lines side — transportation, trucking, auto liability are really tough.
Overall, the composite on the commercial side is continuing to grow 6% to 8%, and 4% to 5% on the personal lines side, and we expect that to continue largely.
But it will be impacted by the economy. If we’re in a recession or about to go into one, it will have an impact on the rates. If interest rates accelerate significantly, we may even come back to the days of 20 years ago when you had cash-flow underwriting.
Q: So maybe there’s hope for buyers?
A: There could be, but it depends on the sector you’re in, and some of these sectors are really in trouble. I don’t see us getting back to flat or no increases in the next 12 months