Although an acquisition—a $550 million deal for Darwin Professional Underwriters in mid-2008—kicked off Allied World’s U.S. expansion in the specialty insurance segment, in the years since Global Insurance CEO Lou Iglesias joined the company in 2012, U.S. growth has come in smaller steps: product launch decisions first, then staffing new offices with underwriters, and finally pushing the new specialty products out to distribution.
Executive SummaryAllied World’s Global CEO Lou Iglesias explains the office-by-office buildout of the carrier’s U.S. operations, which have resulted in average premium growth of 10 percent per year since he joined in 2012.
See also, related article: “Allied World’s Cultural Edge: Competing with Giants to Grow Specialty Business.“
“It’s just so satisfying to see from a business standpoint,” Iglesias said, explaining that Allied World’s return on investment from “launching the divisions in the regions organically” is higher than it would be if the strategy instead involved buying companies or teams.
Rather than paying out money, “what we’re investing is time. And we’re investing in understanding that before they grow into their shoes, we may lose a couple bucks in the first couple of years. But once they turn profitable, you don’t have to sink money into it,” he said.
The Darwin deal brought some small account primary professional liability to Allied World, complementing the Bermuda business that Allied World already had on the books—also focused on professional liability but for the high and middle excess layers of large accounts.
Adding to existing expertise in management and professional liability specialty insurance lines in 2012, new product divisions launched since Iglesias came on board include “primary construction and environmental, Defense Base Act business, and a programs group. At the same time, we expanded our distribution. That was a big part of the strategy. Today, we have offices in Chicago, San Francisco, all the major U.S. cities,” he said. Allied World currently has a dozen U.S. offices, including Miami, which services Latin America accounts.
The building process started by laying a solid product base—centrally—as a foundation. “Then, our plan was [to] push that out into the regions. Let’s find some office space. Let’s put leaders into those regions, and let’s put underwriting talent there that matches up with the broker resources in those regions.
“We took the products that we knew we were good at, like D&O and E&O and casualty and programs business, and we put physical underwriters into these regions.
“Today, our Chicago region is $250 million. San Francisco started from zero and is $100 million. Atlanta started from zero and is over $100 million.
“When you look at the growth trajectory, it’s a combination of getting underwriters who understand product, then establishing that [office], and then rolling [product] out to distribution. That was our plan: Understand it, make sure we’re good at it—specialty product mostly…And then once we know we’re good at it, start moving it out to the regions.”
A look at a hiring chart for the company shows the process at work, he said. “When I meet with my HR people, I tell them I want to see almost all of our headcounts not in New York. They should be in Atlanta. They should be in Dallas.
“We should be pushing the expertise out because we’re still so new. When I look at an office like Dallas, which is a couple years old for us, they do $60 million in premium. They have so much potential. We don’t have all of our underwriters there yet. So, I challenge our regional head there all the time, saying, ‘What new products do you need? You have the basic products. What else do the brokers have that, if we put an underwriter there, we know we can capitalize on?’
“I’m constantly challenging the regions to put that in their business plans.”
Iglesias said that Allied World’s distribution partners run the gamut from large brokers to wholesalers and smaller specialty agents. While Marsh, Aon, Willis and Lockton top the production list in Bermuda, large wholesalers like AmWINS, RT Specialty and CRC Group have also been important contributors to Allied World’s growth story in the rest of North America. “When we launched in the U.S., we didn’t have the distribution reach yet. So, the wholesalers acted as our distribution. And they still do today,” he said. For the programs book, Allied World taps managing general agents. “In a lot of ways, [they] are our aggregators for some of these smaller specialty agents that are out there.”
With a midyear 2017 change in Allied World’s organizational structure, Lou Iglesias became CEO of the Global Insurance operations. Reporting to him now are the following leaders in each of the regions:
- Joe Cellura, North American Casualty
- Christian Gravier, North American Professional
- Mike McCrimmon, North American Property
Europe and Asia
- Ed Moresco, Europe & the U.K.
- Michael Garrison, Asia-Pacific
- John McElroy, EVP, Global Insurance
- Bobby Bowden, Global Chief Marketing Officer (Distribution)
In addition, regional retailers have come into focus as new offices are set up. “When we put a team in Dallas or a team in Atlanta, now all of a sudden we’ll have relationships and access to the regional broker in Atlanta or Dallas that might not have a national presence. But now we have a person there.”
The office-by-office buildout in the U.S. also gives Allied World a chance to score different business from the largest brokers. “Marsh, Aon, Willis have local offices that, if we’re working centrally here, we’re not seeing a lot of business because it’s a local market. The wholesalers, too. They have offices in all these cities…If we have a person in these cities, the relationship develops more business for us. So, we do get a benefit from…having that physical presence.”
Together, North America premiums total about $2 billion currently, Iglesias said, reporting a figure for the U.S., Canada and Bermuda. “We’re really very mature in Bermuda. That’s where we started. We have the largest ‘direct’ writer on the island,” he said, referring to a comparison of its non-reinsurance book with that of other Bermudians.
Allied World’s roots as a Class of 2001 startup in Bermuda may explain the insurer’s focus on maintaining direct relationships with its customers—something that continues today. “In Bermuda, we write many Fortune 500 companies with sophisticated CFOs and risk managers [who] like to know their underwriters,” Iglesias said, reporting that the carrier meets with its customers—often together with broker representatives—in the island office. “In our [Bermuda] boardroom, we have two full walls of pictures of Allied World underwriters with their clients… In today’s marketplace—in any marketplace, but especially today—those relationships are critical,” he said, referring to the influx of capital from other competing sources today. “When you have that kind of relationship, it builds trust and it becomes a long-term relationship.”
Those types of customer relationships aren’t entirely unique but perhaps less common than they were in the past, Iglesias said, when asked if the face-to-face dealings with clients give Allied World a competitive advantage. Indeed, he said he learned the value of good client relationships earlier in his career at AIG. “It was a key component of what we did. That’s how I made a lot of my relationships and how I learned to interact with the clients.
“I’m not sure if it goes on as much today outside of [Allied World]. I think companies internalized a little bit over the past several years rather than externalized.”
Iglesias, who had been CEO of Allied World’s North America insurance operations since 2014, took on leadership responsibility for insurance operations in the rest of the world at midyear. That includes Allied World’s European operations in London, writing roughly $250 million in insurance premiums, and the Asia-Pacific operations in Singapore, Hong Kong and Australia, which represents another $250-$300 million in insurance premiums. Allied World expanded its presence in Asia with the $200-plus million acquisition of Hong Kong and Singapore operations of Royal & Sun Alliance Insurance plc, completed in April 2015.
Recent underwriting results in Allied World’s international business haven’t been on par with North America, with inherited problems in some lines and regions pushing the 2015 and 2016 combined ratios to 114.3 and 121.6 outside of North America, while that region’s combined ratios stayed below 100. (Editor’s Note: The U.S. book had its own challenges in 2015, with reserve charges in health care lines and property losses, for example, pushing combined ratios higher.)
But Iglesias isn’t overly worried. “It’s not really surprising because we’re still growing out some new areas, especially over in Europe. And we’re putting some systems in place in Asia to try to get more efficient on the expense side.” In addition, the thought process that applied in building out U.S. offices applies here, too: “Whenever you start something up, you expect it will not be profitable for the first couple of years because that’s an organic start. Over in our international platform, we have several of those. We’re still growing into that business.”