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MUTUALSUCCESS

ISSUES & ANSWERS:Mutual insurers, reinsurers, agents, brokers and service providers explain why this form of insurance company remains a key sector, how it has changed and how mutual insurers are managing risk, investments, claims and other operations

Interviewed Inside:

Jacque SchaendorfWSIA

Travis MacMillianXceedance

David GoodsonVoya

Robert BrianPartnerRe

Brian SecrettTokio Millennium Re

Sean BriscoePennsylvania

Lumbermens Mutual

WSIA members are experts. When you need a custom solution to a nonstandard risk,

look for help and choose a WSIA member to craft cost-effective, innovative solutions

for your specialty and nonstandard risks. A recent Conning, Inc. analysis concluded that

wholesale distribution does not increase the cost of the transaction to the insured, and

you deliver an expertly tailored solution. No surprises.

AVOID NASTY SURPRISES.

Find a WSIA member at wsia.org

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http://www.wsia.org

Issues & AnswersIssues & Answers

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BEST’S REVIEW • SEPTEMBER 2018 4

■The Wholesale & Specialty Insurance Association was formed in August 2017 as a result of the merger of the AAMGA and NAPSLO.

■ Serves more than 800 member firms representing some 1,500 offices and tens of thousands of industry professionals.

■Provides world-class member services serving the entirety of the wholesale, specialty and surplus lines industry.

compares premium and filings received by the 15 stamping offices in that given time period. The report was just released for the first half of 2018. It highlights that the total surplus lines premium reported to the stamping offices was approximately $15.7 billion through the first six months of 2018, which represents a 9.4% increase over the $14.3 billion through the first six months of 2017.

Approximately 2.2 million filings were made with the stamping offices during the first half of 2018, which is up 5.29% from the first half of 2017. At this time last year, in 2017, midyear growth of 6.6 led to calendar year 2017 growth of 6.4%.Even stronger midyear 2018 growth gives us confidence in an equally positive outlook for the balance of 2018.

Jacque Schaendorf, President of the Wholesale & Specialty Insurance Association Board of Directors, said after the merger of AAMGA and NAPSLO last year, “we now have a larger, more unified voice representing the entirety of the wholesale, specialty and surplus lines insurance industry.” The following are excerpts of an interview.

How is the merger of the two associations going?With the merger, we’ve definitely had a chance and an opportunity to simplify our menu of programs and services. We’ve eliminated the need for members to choose between similar offerings from the two legacy organizations. We now have a larger, more unified voice representing the entirety of the wholesale, specialty and surplus lines insurance industry. While we’re working on new ideas with a great deal of energy from our committees that come with this new association, we are also maintaining our focus on WSIA’s core member initiatives.

How does WSIA help members address the issue of talent and recruitment?The WSIA Career Development Committee conducts college outreach to improve awareness and understanding of the opportunities in the wholesale specialty and surplus lines industry for college students pursuing risk management and insurance studies. For example,during the last academic year, the Career Development Committee and the WSIA’s under-40 group volunteers reached 2,321 students with presentations about the E&S industry and the opportunities within our industry.

WSIA also has a highly structured summer internship program which hosts 17 interns annually. It’s a great program and a great opportunity. Each intern works with a wholesale broker firm and a company firm during the summer.

Interns are paid a salary by their employer firms, and then WSIA pays for their travel and their housing expenses. The WSIA Education Foundation also provides scholarships each year. For the 2018-2019 academic year, 21 students received scholarships totaling $105,000.

What is the surplus lines industry’s outlook?The Surplus Lines Stamping Office of Texas issues a biannual report on stamping office statistics. The report

One Voice

Jacque SchaendorfPresident of The Wholesale & Specialty Insurance Association Board of Directors

“ While we’re working on new ideas with a great deal of energy from our committees that come with this new association, we are also maintaining our focus on WSIA’s core member initiatives.”

Go to xceedance.com/SOS to get your SOS [email protected] • +1 (617) 531-2158 (USA) • +44 (0) 203 786 1225 (UK)

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■ Industry-focused consultancy and managed services company.

■ Strategic partner for operational transformation.

■ Delivers process and technology optimization.

Travis MacMillianChief Business Officer Xceedance

“Mutual insurers of all sizes would benefit from working with a company like Xceedance.”

Mutual Ties

changing, and mutual insurers are looking at how they can keep pace and embrace positive disruption in all facets of the business, including front, middle, and back office operations. For example, closely aligning the front office with distribution channels will help mutuals select risks and service policyholders more efficiently. It will also give mutuals more diverse capabilities, creativity, and resilience to attract new business and compete with other types of insurance organizations.

Also, streamlining the middle and back office with digital enablement and intelligent technologies allows mutual insurers to eliminate manual processes and drive new levels of productivity — so existing staff can create capacity and profitable growth opportunities to expand the company’s capital base.

Travis MacMillian, chief business officer at global insurance consultancy, Xceedance, said mutual insurance companies can benefit greatly from Strategic Operations Support or SOS. The following are excerpts of an interview.

Can mutual insurers expect to gain value from consulting companies like yours? Operational challenges are not determined by size or by budget. All companies, including mutuals, have them. We believe mutuals would benefit from working with a company that can address their needs through the use of Strategic Operations Support.

The focus of mutual insurers is on their employees and the preservation of capital because they may encounter obstacles to raising capital. So they have to grow the business through profitability. We feel Strategic Operations Support from Xceedance offers a strong and viable path to improving business conditions and profitability.

Can Xceedance and SOS help mutual insurers manage risk? We can leverage SOS to help mutual insurers in three ways. First, we can help to identify, categorize, model, and manage their catastrophe risks and exposures, which is a primary way to better protect capital.

Second, with the deep operational and technology experience embedded in SOS, we can help streamline and optimize processes and create capacity for mutuals to profitably grow the business without having to add resources. Our focus is on making the teams at mutual insurers more productive so they can grow without having to add staff. They can also utilize capital and capacity more strategically and with less risk — to accelerate growth without having to bring on additional resources.

The third way in which SOS can benefit mutual insurers is a focus on the essentials of front office workflows. Having the right processes and modern tools in place — from submission to risk acceptance, from binding to policy issuance — will make it easy and convenient for producers, agents, or brokers to place business with mutual insurers.

What are some of the unique opportunities and challenges for mutual insurers today?Mutuals play such an important role in the insurance ecosystem. From a farm mutual in one state, to regional, national, and global carriers, they all have different, often unique, approaches to the business of insurance and its challenges and opportunities. Clearly, the industry is

There’s nothing fixed about where tomorrow’s credit opportunities will emerge.

That is why we built a team of experts who have deep knowledge in

both traditional and specialized fixed income. The power of our diverse

perspectives is how we discover opportunity across the fixed income

spectrum and through market cycles.

To learn more about Voya’s unique approach to fixed income, visit

voyainvestments.com/fixedincome

Over 95% of our

fixed income assets

have outperformed their

benchmark for both

3- and 5-year periods.1

Above benchmark metrics are calculated on an annualized, gross-of-fees basis and include mutual funds as well as pooled and separately-managed institutional portfolios that fall within our traditional (long-only) commercial book of business that remain open as of 03/31/2018. If terminated and other non-discretionary and special purpose accounts had been included, results may have differed from that shown.

Source: Voya Investment Management and eVestment. ©2018 Voya Investments Distributor, LLC, 230 Park Avenue, New York, NY 10169. IM0409-41324-0419

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David GoodsonHead of Securitized Fixed Income Voya Investment Management

“The overall bent from an evolutionary standpoint within securitized markets has been one that has benefited investors overall, across subsectors by virtue of heavier regulation that, in the end, is going to protect investors.”

David Goodson, head of securitized fixed income at Voya Investment Management, says securitized credit allocations can be a strange fit for some investors. “Ultimately, the first thing potential users of this product must accept is that it is different, and that’s a good thing.” Following are excerpts from an interview.

How has securitized credit evolved since 2008?Evolution is a word that could summarize the post-crisis experience. There’s a number of dimensions concerning the evolution of securitized products. The most powerful that investors in the space have appreciated has been on the legislative and regulatory front. There, we’ve seen a seemingly endless number of regulations passed through since the crisis. Some legislative-driven, some driven simply by regulatory initiative, each one shaping the way that we accept and take risk in the space.

One is the whole notion of risk retention. Risk retention in the space was something that, pre-crisis, was virtually absent in the world of securitization. Dodd-Frank was the law that put into place risk retention. That world has transcended across all asset classes since the crisis, with one small exception—CLOs. That space, by virtue of a long-standing claim by one of the large lobbies within the securitized credit markets, won a court battle to actually have risk retention repealed for that major subsector.

The overall bent from an evolutionary standpoint within securitized markets has been one that has benefited investors overall, across subsectors by virtue of heavier regulation that, in the end, is going to protect investors.

How should plan sponsors think about securitized credit allocations?It can be a strange fit for people who are more accustomed to corporate credit. Ultimately, the first thing potential users of this product must accept is that it is different, and that’s a good thing. That offers investors in the space diversification to corporate credit, which is something that many plans actually lack. It’s got some equity market attributes, and it doesn’t necessarily trade with the most amount of duration, but ultimately, it is a fixed income asset class. You should view it as a diversifier to corporate credit within the fixed income portion of your portfolio.

Have prospective investors in securitized credit missed the boat, given the current state of the U.S. housing market?The opportunity is as compelling as it was five years ago. We have seen a high amount of spread tightening within the housing-related securitized subsector, namely residential mortgage-backed securities. That has been a breathtaking part of this post-crisis rally, but to think you’ve missed the boat is definitely a misconception. One great hallmark of the securitized space has been the absolute squeezing out of sources of volatility. That leaves the forward-looking experience from a return perspective looking still very attractive when adjusted for risk. In addition, from a distinctly fundamental standpoint, we are still early cycle in the housing market. In contrast, if you look at the increase of debt levels on the corporate credit side versus the extremely modest increase in mortgage debt, we are still lagging woefully in housing, which tells me we have a long runway to go before people can legitimately say they missed the boat.

A Good Fit

Focused on your goals. First.

partnerre.com





Robert BrianSVP, Multiline Portfolio Manager, PartnerRe

“Being a pure-play reinsurer sets us apart as it gives us the ability to serve, rather than compete with our clients for their insurance clients, their ideas or talent.”

■ A pure-play reinsurer.

■ Serving Asia/Pacific, Europe, North America, Latin America, the Caribbean and Africa.

■ Celebrating 25th anniversary.

Robert Brian, senior vice president, multiline portfolio manager, with PartnerRe said reinsurers are well placed to help mutual insurance companies grow their portfolios and to manage their risk aggregation. The following are excerpts of an interview.

What are the market dynamics of the reinsurance business currently?Mutual insurance companies are benefiting from a very com-petitive reinsurance environment as reinsurers compete for their business, attracted by their stable, low hazard risk portfolios that offer diversification away from national catastrophe and long-tail specialty casualty lines.

What do you see as the current challenges and opportunities for mutuals?Many mutual insurance companies are either thinking about, or starting to, implement state-of-the-art processing and data analytics systems within their companies. The paradox is how to create efficient IT systems while managing expens-es. While early outlay of capital tends to increase expenses, the long-term benefits, such as improved agency interface and better customer experience with better rating algorithms, will drive profit and long-term efficiency for mutual compa-nies. The early adopters of these models are already starting to see the benefits now coming through in their results.

Improving their systems is one way for mutual insurers to defend their traditional small-business portfolios from intru-sion by national stock companies.

How can reinsurers help mutuals to grow?Recently, we offered Quota Share reinsurance to one of our Northeast clients that had profit and growth potential in its portfolio but didn’t have the capital or capacity to grow on its own. Also, we’ve offered our key clients multiline aggregate reinsurance which further protects our mutual company cli-ents in years with multiple catastrophic event scenarios. This coverage allows for profit protection and sleep-at-night cover for our clients, and will help them to grow in the long run.

What differentiates PartnerRe in this market?This year marks PartnerRe’s 25th anniversary and we’ve cer-tainly evolved over the years from the mono-line cat reinsurer we started out as, to the global and diversified reinsurer we are today. PartnerRe today is a well-established reinsurance

company, with a strong balance sheet and the global scale and expertise to meet our clients’ needs across virtually all markets – including the mutual insurance market which has been an important segment of our portfolio for many years.

Being a pure-play reinsurer sets us apart as it gives us the ability to serve, rather than compete with our clients for their insurance clients, their ideas or their talent. As a privately owned company, we take a long-term view of reinsurance that allows us to think in decades rather than quarters and to develop long-term relationships with our clients.

Helping Mutuals to Grow




“Because mutuals have limited access to equity capital, they’re often more likely to value the capital benefits and volatility risk transfer that reinsurers bring.”

Brian SecrettChief Underwriting Officer Tokio Millennium Re

■ A subsidiary of the Tokio Marine & Nichido Fire Insurance Co. Ltd.

■ TMR primarily is engaged in property, casualty and specialty reinsurance and capital markets solutions.

■Maintains headquarters in Switzerland with branch offices in Australia, Bermuda, the U.K. and the U.S.

Brian Secrett, chief underwriting officer with Tokio Millennium Re AG (TMR) says mutual companies look for a balanced business relationship with give and take on both sides. Following are excerpts from an interview.

At the outset, TMR was a catastrophe reinsurer. Is it still?TMR started out as a monoline, catastrophe reinsurer. Today, we’re a client-focused, global specialist reinsurer. Since 2010, TMR put through a strategy to diversify both geographically and in terms of business growth. We established offices in the U.S. and Switzerland with direct access and a recognized presence to the U.S. and European markets. We’ve built a presence in specialty business in London. In Australia, our office in Sydney enables us to offer some risk transfer solutions which wouldn’t be available to nondomestic reinsurers.

As the property catastrophe business becomes more commoditized, our focus has been on increasing the spread of noncatastrophe business outside of Bermuda, enabling a more complete specialist, nonlife treaty product offering to our clients.

Over time, Bermuda’s contribution to our net volume has fallen from 100% down to about a quarter, while we’ve increased the number of classes of business written.

As a reinsurer, what’s attractive about working with mutual companies?In the relationship to TMR, mutuals show a greater commitment to continuity and put more value in personal interaction. Through your relationship, the insurer and the reinsurer mutually enhance their knowledge.

When it comes to the integrity of the risk, mutuals are almost always specialists in the risk that they assume. They often find a competitive edge in their local or product knowledge.

Clearly, because mutuals can have limited access to equity capital, they’re often more likely to value the capital benefits and volatility risk transfer that reinsurers bring.

What should a mutual company look for in a reinsurer, and what differentiates them?Mutual companies look for a mutually balanced business relationship with give and take on both sides. This comes about through knowledge sharing, principally sharing in the understanding of the operation of risk. And as a service

provider, reinsurers must provide access to risk transfer in as many forms as possible.To most risk managers, the security of a reinsurer is paramount.

What is the role of the chief underwriting officer in a global risk culture like TMR’s?It’s delivering effectiveness and living up to our promise with the client and the broker in whatever territory or line of business we do business in. It’s ensuring that governance and controls are robust across the whole organization and that they’re adhered to, while at the same time enabling an innovative and flexible risk transfer offering. It’s deploying our capital adequately while adhering to our limits to protecting ourselves and our client.

A Mutual Understanding

123 years have passed since we first started insuring the unique risks of wood-based businesses in 1895, but our core strategy remains the same – working together with wood-based businesses to protect their financial interests, sharing our success with our policyholders and helping brokers build a book of wood industry accounts.

WE INSURE: • Wood manufacturers and distributors • Lumberyards • Small to mid-sized sawmills • Building material dealers • Woodworking shops

Put our time in the wood industry on your side. Become a PLM Producer.

For over a century PLM has insured the success of the lumber, woodworking and building material industries.

AMERICA’S OLDEST AND LARGEST MUTUAL INSURANCE COMPANY DEDICATED TO THE LUMBER AND BUILDING MATERIAL INDUSTRIES.

HIGHLIGHTS: • No appointment required • No premium commitments or contracts • Easily Accessible Producer Portal • A.M Best rating of A- (Excellent) • Experts in the wood niche

Benjamin Franklin, Founder of America’s Insurance Industry





Sean BriscoeUnderwriting Manager Pennsylvania Lumbermens Mutual Insurance Company

“Our size and structure enable us to react and make changes quickly to the needs of our customers within the wood niche.”

■ Recognized insurance leader in the wood and lumber industry.

■ More than 120 years of experience solely focused on the wood industry.

■Insurance coverages and services specifically crafted for our policyholders.

Sean Briscoe, underwriting manager at Pennsylvania Lumbermens Mutual Insurance Company, said the company has insured wood manufacturers and distributors throughout the United States for over 100 years. The mutual insurer was founded by lumbermen for lumbermen. “We do wood and nothing else!” The following are excerpts of an interview.

Why does being a mutual matter to Pennsylvania Lumbermens?Being a mutual company gives us the freedom and flexibility to focus on our stakeholders’ interests, our stakeholders being insureds, employees and our board of directors as well as our reinsurance partners. We don’t have to worry about the daily market fluctuations as a publicly traded company would. This helps us to keep our ears to the ground regarding trends in the wood niche and our customers’ needs from a product and service standpoint. We also attend hundreds of wood manufacturing trade shows annually. We conduct a countless number of site visits with our insureds and we sponsor numerous wood-related association events each year. We do wood and nothing else!

Commercial auto is an industrywide concern. Why is that?We have noticed an increasing trend with regard to the amount of losses relating to distracted driving. A big part of this issue stems from texting and driving. We are making sure our field staff, both loss control and business development reps, communicate this concern to our insureds while doing site visits. We provide window clings to remind customers’ drivers to not text and drive, as well as avoid making calls while driving.

We have seen estimates close to $6.4 billion in premium leakage over the past six years for the commercial auto industrywide. Some of the bigger influences causing this are: the amount of rate charged per power unit, misclassification of vehicles and incorrect garaging addresses. In addition, we need an accurate understanding of the annual miles driven per vehicle. In years past, this may not have been tracked as closely but when you look at customers that are maintaining older fleets, the same vehicle that was driven 50,000 miles last year is being driven perhaps 80,000 to 100,000 miles this year. This can lead to increased frequency of loss. We are also noticing an increased cost in both physical damage as well as medical claim settlements.

How is the shortage of drivers affecting the commercial insurance industry?Our insureds are finding it hard to hire qualified drivers. How do you find the most qualified drivers? We’re recommending that our insureds use services similar to SambaSafety, which offers a continuous MVR monitoring process. We advocate that our insureds have programs in place for up-front vetting of drivers and continuous MVR monitoring.

A Mutually Beneficial Relationship With the Wood Industry

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