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THE INCUBATOR INITIATIVE In this issue of the magazine, we will turn our attention to the Incubator Initiative.
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THE CHART EXCHANGE DUES MODEL We occasionally get inquiries from firms interested in joining CHART. Why, they ask, does the organization charge annual dues to its membership?
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SPOTLIGHT: EVOLUTION INSURANCE BROKERS
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The Incubator Initiative: A Key Benefit of CHART Exchange.
JLT Re, the reinsurance broking and consultancy, has appointed Francesca Marc-Antonio as global head of Client Relationship Management.
FINAL DAYS BEFORE UK REFERENDUM Tensions have increased in the days leading up to the UK referendum where Britain will decide whether they will stay or leave the European Union.
LLOYD’S & OTHERS DONATE TO CANADIAN WILDFIRE RELIEF “The Lloyd’s market is committed to supporting the people of Fort McMurray. We are closely monitoring the terrible and continuing catastrophe surrounding Fort McMurray and the impact on the people involved.
JLT RE HIRES MARCANTONIO AS GLOBAL HEAD OF CLIENT
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HOW CAN A SYNDICATE BENEFIT FROM CHART? The article shows the life cycle of growing and aging companies.
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OFFICIALS WARN AGAINST BREXIT EFFECTS Those who support a vote to leave the EU criticize Mike Carney, Bank of England Governor, for overstating the financial threat.
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CHART OBJECTIVE #3 Assist Risk Takers in Finding New U.S. Distribution Partners
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CHART EARLY ADOPTERS BILL OF RIGHTS RESOLVED by the Coverholders, Prospective Coverholders, Risk Takers, and Vendors assembled, that the following Articles be proposed as amendments to the Declaration of Interdependence.
News 24
HOW CONSUMER EXPECTATIONS ARE CHANGING In The Insurance Industry, Anticipating Customer Service Expectations May Be The Key To Customer Retention...
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BREXIT VOTE POSES POTENTIAL JOB LOSS June 23rd marks Britain’s vote to leave the European Union. Lloyd’s of London is one of many influential businesses to voice their concerns...
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GOVERNOR TOM RIDGE TO DELIVER KEYNOTE ADDRESS The CHART Exchange today announced that Tom Ridge, first U.S. Secretary of Homeland Security and 43rd Governor of Pennsylvania, has accepted an invitation to deliver the Keynote Address at the organization’s fall event.
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LONDON TIME – PERSPECTIVES FROM A FIRST TIME VISITOR...
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UNDERSTANDING CHART EXCHANGE The CHART Exchange is a dynamic, new membership o r g a n i z a t i o n dedicated to growing the U.S./London marketplace
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PART 3: INSURANCE DISTRIBUTION CO. MERGER & ACQUISITION PROCESS - A COMPREHENSIVE ANALYSIS & GUIDE M&A Sell-Side Process Overview There are 3 distinct phases of the M&A Process from a seller’s prospective.
June-July 2016 VOLUME 1 - ISSUE 4 Publisher:
CHART Exchange Glenn W. Clark, CPCU
Membership Services Matt Basile
Advertising:
Tyler Cichewicz
Managing Editor: Tyler Cichewicz
Contributing Editor: Frank Huver
Subscriptions: Tyler Cichewicz
Prefer to Read The CHART Exchange In PDF Format? Download PDF Version HERE
Layout, Design & Circulation: Ron Manera AdMax Corp., Inc.
CHART Exchange info@chart-exchange.com 3001 Philadelphia Pike Claymont, Delaware 19703 www.chart-exchange.com 302-765-6001 Last Issue:
Traveling on the inaugural CHART Goes to London trip (CGL) was an exhilarating experience in many ways. Mark Stroop describes the trip and the event.
Cover Image Credit: Creative Commons
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Message From The Earliest Adopter
THE INCUBATOR INITIATIVE The Incubator Initiative provides yet another practical demonstration of the concept of Exchange in action.
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ast month’s edition of The CHART Exchange Magazine saw the beginning of a series of articles highlighting the key benefits our organization brings to its membership. The initial piece focused on the Market Finder Facility. As you’ll recall, this exclusive feature is designed to match new product/program ideas submitted by insurance agents with those Lloyd’s Syndicates possessing the most compatible risk appetites.
That’s why we launched the Incubator Initiative. Several London Coverholders (firms with existing underwriting authorities) have expressed a willingness to partner with our new members as a way of expediting the launch of a new program to market.
The Incubator Initiative provides yet another practical demonstration of the concept of Exchange in action. The Coverholder contributes something of value – underwriting authorities, licensing status, backIn this issue of the magazine, office capacities, etc. – in order we will turn our attention to the to participate in the success Incubator Initiative. A number generated from the new endeavor. of domestic insurance agencies are attracted to CHART because We ask that prospective client of the access it provides to the agencies first meet with one of the London marketplace. Many of CHART team members. Peter Foley, these firms already possess the (an experienced Coverholder, business strategies, technical agency owner, M&A expert, five expertise, distribution channels, star general for CHART and Early etc. needed to launch a successful adopter) has agreed to lead our program. Unfortunately, they lack incubator and mentoring program. the most important ingredient: Peter articulates the rationale the delegated underwriting behind the CHART approach. “We authorities provided by Lloyd’s of operate on a basic philosophy that compatibility (‘chemistry’) London. 6 March 2016
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Glenn W. Clark, CPCU Publisher & Earliest Adopter
Take some time to read through the “CHART Exchange.” We’d love to get your feedback and have you join us as an Early Adopter.”
www.chart-exchange.com
CHART Exchange
CHART’s initial involvement in facilitating the Incubator Initiative is provided at no charge to member agencies. Formal business plans and vendor partner services can be contracted at reduced fees.”
between the prospective client and suited to assist the agency in mentoring agency is of paramount bringing the new program to market. The assessment will importance. also suggest CHART vendor From my experience, it is extremely partners who may be able to help rare to have any type of partnership address specific areas of need – succeed unless it is established with actuarial, claims administration, complete candor and openness. marketing, legal, licensing, systems Very simply, it is not worthwhile development, etc. for either party to expend the time and energy to effectively try to cram ‘a square peg in a round hole’. Early on the alignment of interests between the prospective client and mentoring agency is developed”. The initial interview gives our team the opportunity to assess both the business opportunity and level of support the mentoring Coverholder or market is being asked to provide. Is the expected distribution to be local, regional, or national in scope (licensing and compliance)? Does the prospective client have the underwriting resources necessary to handle the anticipated workload? Are there any capitalization issues that need to be addressed? Is the opportunity a fit for London or is there a more efficient mechanism to get the deal done (ART, RPG’s, etc)? Once the evaluation process has been accomplished, our team will provide an outlined recommended plan of action. This document will identify the strategies and Coverholder(s) or markets best
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Our involvement in the process leads to match making between the specialist and the mentor coverholder (or market) that can help them to grow their specialty. Parties are free to negotiate and structure an arrangement that maximizes return for all involved. Please note that CHART’s initial involvement in facilitating the Incubator Initiative is provided at no charge to member agencies. Formal business plans and vendor partner services can be contracted at reduced fees. The benefit to be highlighted in our next edition of The CHART Exchange Magazine: Cross-Sell Opportunities.
Glenn W. Clark , CPCU
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CHART Exchange
THE CHART EXCHANGE DUES MODEL
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e occasionally get inquiries from firms interested in joining CHART. Why, they ask, does the organization charge annual dues to its membership? In order to answer that question, we need to take a closer look at CHART’s history, current situation, and future strategic plans.
Francis J. Huver, SVP, CFO
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The event held in Philadelphia PA last October provided a practical demonstration of the viability of CHART. The session attracted 330 syndicate, insurance agency, and vendor representatives. 152 separate appointments were set between risk takers and producers; these meetings generated over two dozen potential business opportunities. The vast majority The Past of these proposals would have never been submitted to London The concept of CHART began without CHART. in January of 2015. The idea: to launch an entity that would serve Unfortunately, an event of this as the catalyst for expanding the magnitude could not have been U.S./London marketplace through produced without a significant the identification and pursuit of up-front financial commitment. new business opportunities. We Over $775,000 was invested from knew accomplishing this objective a small group of visionaries – would require an innovative CHART’s Earliest Adopters. These approach: establishing a forum funds were required to reserve the through which Risk Takers and meeting venue, secure adequate agencies with existing delegated hotel accommodations, advertise underwriting authorities the event, and establish a website. could personally interact with At some point, these entrepreneurs prospective Coverholders. This will need to be reimbursed their environment would be conducive investment. to a free exchange of ideas about new coverage offerings, underThe Present served market niches, and other potential program opportunities. The success of the October
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CHART Exchange meeting served as a validation of the concept. Based on this substantiation, the founding A d o p t e r s decided to turn CHART into a permanent membership organization. Additional funds were required to hire dedicated staff, retain legal/accounting professionals to establish the new entity, and market the group to our target audience.
What CHART will look like in 2017 and beyond is largely up to the membership. They will decide on the exclusive benefits and features being offered to the group. Possibilities include scholarships, internships in London, and access to an array of products only available through CHART.�
Dues provide an income stream to cover the cost of day-to-day cost of organizational operations. It also allows us to reserve venues for our 2016 events, such as the recent CHART Goes To London (CGL) meeting or the Second Annual CHART meeting scheduled for October 3 – 5 in Baltimore, MD.
The Future
What CHART will look like in 2017 and beyond is largely up to the membership. They will decide on the exclusive benefits and features being offered to the group. Possibilities include Establishing a permanent scholarships, internships in organization also allowed London, and access to an array of us to move forward with the products only available through development of several member CHART. benefits. The Market Finder Facility helps align new product/ Of course, vetting and program ideas with Syndicates implementing these new benefits possessing the most compatible require funding. The steady risk appetites. The Incubator stream of income derived from Initiative provides a fast-track the payment of annual dues will mechanism to expedite the allow CHART to continue to serve launch of new business ideas its membership. into the marketplace. The CHART Mart provides members with access to alternative distribution channels for their products.
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Spotlight
EVOLUTION INSURANCE BROKERS Evolution Insurance Brokers see the purpose and function of CHART as a forum to create business that is mutually beneficial, while also recognizing the competitive edge it gives them in the market.“
by Tyler Cichewicz
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uccess usually follows when a business finds ways to create mutually beneficial relationships and outcomes for themselves and others. This is true for Evolution Insurance Brokers, a full service excess and surplus lines brokerage that offers an array of products and services directly to consumers. The foundation of the brokerage’s success is in their ability help individuals and businesses access the excess and surplus market.
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Flexibility and resilience are central to Evolution Insurance Brokers’ ability to craft customized coverage solutions for a wide breadth and scope of hard to place risks. Specializing in placing distressed, nontraditional and challenging risks, Evolution Insurance Brokers has become a source individuals and businesses depend on for insurance solutions. The Opportunity In Challenge
needs of our clients, Evolution Insurance Brokers is able to see the opportunity in any challenge.” Evolution Insurance Brokers uniquely situates itself as a brokerage within Prime Insurance Company, an excess and surplus lines carrier, which gives Evolution Insurance Brokers direct access to underwriting expertise and risk management assessments. This access allows Evolution Insurance Brokers to be responsive to changes in the market in ways other brokerages cannot.
Paul Kulon, a marketer at Evolution Insurance Brokers, says, “Whether a hardening or softening of the standard market, the emergence of Much like any business, plateaus new risks and trends or the shifting are abhorred at EIB. Evolution
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Spotlight “Lloyd's is the world's specialist insurance and reinsurance market, bringing together an outstanding concentration of underwriting expertise and talent. it is often the first to insure emerging, unusual and complex risks. Around 80 syndicates are underwriting insurance at Lloyd's, covering all classes of business. together they interact with thousands of brokers daily to create insurance solutions for businesses in over 200 countries and territories around the world. Lloyd's insures the majority of ftse 100 and Dow Jones industrial average companies.” From the EIB website: www.eibdirect.com
work ethic to raise its profile among businesses and individuals as a premier and distinguished excess and surplus lines brokerage. Their effort centers on a commitment to customer service and capacity to provide insurance solutions that are seldom found elsewhere.
CHART A Competitive Edge Evolution Insurance Brokers see the purpose and function of CHART as a forum to create business that is mutually beneficial, while also recognizing the competitive edge it gives them in the market.
Coverholder Status
The CHART Exchange welcomes more members like Evolution Coverholder status with Lloyd’s Insurance Brokers because of their of London has been one way long term vision to recognize that Evolution has raised its profile. building relationships today will The connection to Lloyd’s alone sustain business in the future. gives additional credibility, but the real value for Evolution Insurance Brokers is the outstanding concentration of underwriting expertise and talent Lloyd’s affords. Since Evolution Insurance Brokers constantly strive to strengthen its relationship with Lloyds and expand opportunities with U.S. CHART insurance professionals, joining the CHART Exchange is an obvious choice.
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Insurance Brokers aim to grow and “As Early Adopters,” Kulon says, “We improve their business in ways that see promise in the CHART mission.” will enhance their responsiveness to the market others depend on. Already Evolution Insurance Brokers prioritize face-to-face “We strive to be seen as a trusted communication and know that resource for those in the property relationships are established and and casualty insurance lines of maintained best in person. CHART business,” Kulon says. also sees value in face-to-face communication and has made it a Kulon’s remark is prefaced by cornerstone of its foundation. Evolution Insurance Brokers’ tireless
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For More Information, Contact NetRate Systems at 517.347.4900 www.chart-exchange.com
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News
LLOYD’S, TOKIO MARINE KILN, AEGIS AND QBE DONATE TO CANADIAN WILDFIRE
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JLT RE HIRES MARCANTONIO AS GLOBAL HEAD OF CLIENT
LT Re, the reinsurance broking and consultancy, has appointed Francesca MarcAntonio as global head of Client Relationship Management. This new role will see MarcAntonio become a member of the JLT Re Global Executive Committee, working closely with her senior colleagues to coordinate relationships and service offerings with JLT Re’s global and national clients.
his joint donation will help those affected by the recent wildfire that has damaged Fort McMurray and surrounding Marc-Antonio will join JLT Re as areas Sean Murphy, President, soon as she has completed her contractual obligations with Swiss Lloyd's Canada, said: Re and will be based in the New “The Lloyd’s market is committed York office reporting to Mike to supporting the people Reynolds, global CEO of JLT Re (part of Fort McMurray. We are of the Jardine Lloyd Thompson closely monitoring the terrible Group plc). and continuing catastrophe surrounding Fort McMurray At Swiss Re she was senior vice and the impact on the people president, head of US P&C Broker Marketing and head of the Global involved. Broker Group. In that role, she “We want to ensure that as well was responsible for fostering the as providing this donation, we ongoing strategic development are able to process all insurance and monitoring of Swiss Re’s claims as swiftly as possible. relationships and growth with Lloyd’s has an important role in global brokers. Prior to joining Swiss supporting and working with our Re in 2000, Marc-Antonio worked network to expedite settlement at a number of global brokers, most of claims, and anyone in need of recently Guy Carpenter. assistance should get in contact.” “Francesca brings a different 14
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perspective to our business combined with an excellent market reputation and a dynamic focus on creating the right opportunities and responding to changing client needs,” commented Reynolds. Marc-Antonio said, “This is an exciting new opportunity, and I am enthused by the team at JLT Re and its proposition. I look forward to supporting deep client relationships so we can offer the right services in a way that helps clients meet their business objectives.” About JLT Re JLT Re’s trusted team of 700 colleagues worldwide combines market leading expertise and proprietary analytical tools with the freedom to challenge conventions. Deep specialist knowledge and extensive experience of both the reinsurance market and clients’ own industries and sectors enables JLT Re to ask smarter questions, innovate and deliver better results tailored to meet client needs. JLT Re is part of the Jardine Lloyd Thompson Group plc. www.jltre.com
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News
FINAL DAYS BEFORE UK REFERENDUM
T
ensions have increased in the days leading up to the UK referendum where Britain will decide whether they will stay or leave the European Union.
his stance on immigration in the US where he has taken a stance against undocumented immigrants. Immigration is also an issue in the BREXIT debate as some of those in favor of leaving the EU have expressed their concern about the influx of Syrian refugees.
Farage was criticized for funding a billboard image of crowd of Syrian refugees and a caption that reads, “Breaking point.”
Supporters of remaining in the EU say that the financial repercussions of leaving the EU would be devastating. Already, US stock markets and Like Trump, Nigel Farage is a European banks have begun to businessman turned politician. prepare for a vote either way.
Polls show that UK voters are closely divided; however, support for a vote to stay has only a slight advantage over a vote to leave. The weeks and months leading up to this vote, celebrities, politicians and business leaders have made known their opinions as to how British voters should vote. Recently celebrity athlete, David Beckham, voiced his support to remain in the EU; “For our children we should be facing the problems of the world together and not alone.” Beckham’s support mirrors US President Barrack Obama’s appeal to the British voters that Britain should remain in the EU during a period of instability. Donald Trump, the presumptive Republican nominee, supports a vote to leave. “I would personally be more inclined to leave, for a lot of reasons like having a lot less bureaucracy,” said Trump. Trump’s support is consistent with
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CHART Exchange
HOW CAN A SYNDICATE BENEFIT FROM CHART?
by Glenn W. Clark, CPCU
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e belong to an organization of CEOs called Vistage. The group serves as a private peerto-peer advisory board. Earlier this month, we had Ian MacDougall (ian@corplife.com) – an expert on Organizational Lifecycle Stages – address the audience. His presentation focused on three questions: 1. What does it take to make a great company? 2. What are the “trip hazards” or challenges to #1 above? 3. What causes a company to “age”?
“At the current churn rate, 75% of the current Fortune 500 Companies will be removed from the Index by 2027” – Ian MacDougall How would that apply to Coverholders and Risk Takers? Every mentally young business has a driver called “E”. “E” can be defined as the entrepreneurship of the enterprise and requires other “E”s to make ideas happen (energy, execution, exceptionalism). When organizations lose their “E”, it accelerates the aging process. What are the top reasons for the loss of “E”?
1. Satisfaction with how things are today – happy with the status quo. The exhibit below shows the life cycle of growing 2. Content with present market share and aging companies. NOTE: in the context of this 3. Loss of a true entrepreneur from the ranks. illustration, aging is a mental – not chronological – 4. The mental age of key employees has become concept. Young companies can be prematurely old “old”. and more “seasoned” firms can be mentally young.
Ex’-change: to give up something of value in order to obtain something of greater value.
Adapted from: Adizes: Corporate Lifecycles (Edgewood Cliffs, NJ: Prentice Hall 1988)
Lloyd’s of London is chronologically the oldest insurance marketplace in the world. It is comprised of over ninety Syndicates: some both chronologically and mentally young; others have been around longer but maintained their youthful mentality. One of the BEST ways of maintaining and growing a company’s “E” is to partner with other “E-rich” entities.
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CHART Exchange Refer back to the Lifecycle exhibit provided earlier. The CHART Exchange has graduated from the “Courtship” stage in 2015 when we held our first Declaration of Interdependence Event last October in Philadelphia PA. Over three dozen new London program deals were surfaced in those sessions. We thank the 330 Early Adopters who made our “courtship” of London a success. In 2016 CHART has become a living, breathing infant. We are growing and developing into a full-fledged membership exchange built to give each member a competitive advantage. Our goal for 2016 is to progress to the Go-Go stage where we become vital partners for like-minded, growing companies and Vitamin “E” to some of the mentally aging firms who seek to reverse that trend.
Syndicates should take the following brief, ten-question quiz to determine if they fit the CHART Exchange model. www.chart-exchange.com
CHART EXCHANGE SELF-AUDIT QUESTIONNAIRE DESIGNED FOR LONDON RISK TAKERS Ask yourself these ten questions. Is your Syndicate: 1. Seeking to develop new sources of business flow, without alienating existing distribution channels? Yes No 2. Interested in hearing about new product or program ideas from the originator of the concept – discussed in an open, unfiltered environment? Yes No 3. A life-long innovator as opposed to a self-professed expert in the status quo? Yes No 4. An adherent to the idea of “Exchange” – that some expenditure of resources or effort is required to obtain a greater return? Yes No 5. Willing to leave egos “at the door” and interact with product distributors (agencies) and vendor specialists as equal partners? Yes No 6. A “hunter” of new opportunities…as opposed to a “gatherer” of other people’s efforts? Yes No 7. A creative deal maker who would prefer to be at the birth of a new idea rather than the “life support” for a losing program? Yes No 8. Confident enough to articulate its risk appetites, capabilities, and specializations to an audience of U.S.-domiciled agencies in an interactive forum? Yes No 9. Seeking to attend events in the U.S. that are 100% London-centric? Yes No 10. Looking to join an organization that guarantees a quantifiable return? Yes No
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ISN’T IT TIME SOMEONE CHART Exchange BRIDGED THE GAP
MIND THE GAP
IN THE U.S./LONDON MARKETPLACE? London is home to the oldest, most recognized insurance brand in the world today. Many innovative, cutting-edge products are available through this insurer. Unfortunately, many U.S. agencies do not know how to access the marketplace.
Become a member of the CHART Exchange! Let the Coverholders And Risk Takers (CHART) Exchange bridge the knowledge gap. We are an organization dedicated to serving the needs of the U.S./London marketplace. Insurance agencies can expect the following benefits by becoming a part of our group: • Personally interact with Risk Takers (syndicates) and existing Coverholders • Obtain market finder assistance for new program or product ideas • Fast track the launch of a new business plan through our exclusive incubator program • Expand your existing portfolio and product distribution channels • Network with peers Visit our website — www.chart-exchange.com for a full list of benefits and instructions on how to become a member.
Join Us for The Second Annual CHART Meeting in Baltimore Make plans to attend the Second Annual Coverholders and Risk Takers (CHART) Exchange meeting on October 3-5, 2016 in Baltimore MD. Meet with representatives from various Lloyd’s syndicates as well as vendors who support this unique niche. The three-day event will also feature panel discussions, informative workshops, and new product presentations.
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News
OFFICIALS WARN AGAINST BREXIT EFFECTS by Tyler Cichewicz
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ith Britain’s vote to leave the European Union fast approaching, The Bank of England has reiterated its warning that such a vote could cause economic fallout. Moreover, the BoE added that a vote to leave the EU could also hurt the global economy, which other British financial institutions and businesses have concurred. BoE raises the point that global stocks and government bonds in many countries have hit record lows in anticipation of the referendum vote on June 23rd. The Bank’s Monetary Policy Committee says that there, “Are
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also risks of adverse spillovers to ‘leave’ vote believe that leaving the global economy.” the EU will have better long-term benefits. Those who support a vote to leave the EU criticize Mike Carney, Even those in support of Bank of England Governor, for remaining in the EU do not see overstating the financial threat. Britain’s relationship with the Carney’s response is that he has a EU as flawless. In fact, many duty to report the threat he sees. of the same leaders who warn against the dangers of leaving As of six days out of the the EU admit that Britain’s EU referendum vote, polls show that membership has apparent British voters slightly favor a vote negatives; though the idea that a to leave. A decision that many ‘leave’ vote is rash and will have government, international, and negative results remains their business leaders have tried to stop stance. citing financial uncertainty, poor economic effect, and security The BoE and other financial against terrorist forces as reasons institutions have said that the why leaving the EU is a bad idea. referendum vote, Brexit, is the most immediate economic threat However, voters in support of a right now.
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Chart Objective #3
CHART OBJECTIVE:
Assist Risk Takers in Finding New U.S. Distribution Partners
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t is helpful to think of CHART as the bridge that connects U.S. agents/agencies to the London market. When visualizing this concept, be mindful that the bridge has two lanes and also serves as a way for Risk Takers to identify/ pursue new business opportunities domestically. The CHART Exchange is dedicated to serving the needs of all parties operating within the U.S./ London marketplace.
currently administers four different line slips. We will note here that Rockwood was not the sole beneficiary in this instance. The Risk Takers who agreed to support the agency were rewarded with several successful/ profitable programs and a long-term business relationship with a U.S.based product distributor.
The CHART Exchange seeks to replicate the Rockwood “experience” for each of the Syndicates who join the organization. Every Risk Taker partner will be guaranteed a minimum number of appointments Allow us to elaborate through the re- with domestic insurance agencies telling of a real life experience. wishing to propose new product or program ideas to Lloyd’s. Our Glenn Clark – CHART’s “Earliest London Brokers will take on the role Adopter” and owner of Rockwood of facilitator in the process. They Programs - began doing business will compile information about the with Lloyd’s 15 years ago. At first, the London market was a mystery. The process tribunalization (securing Delegated Underwriting Authorities) was completely foreign to an agency accustomed to doing business with domestic insurance carriers. Fortunately, Rockwood was mentored by a knowledgeable London Broker (Barry Cook, then employed by Rattner Mackenzie). The agency’s investment in time and effort to obtain the requisite authorities has certainly paid dividends; Rockwood 20
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a Risk Taker can expect will be dependent on several factors. We will do our best to have qualified pre-set meetings for each Syndicate representative. Example: a firm sending a five-person team will have fifty (50) individual appointments set for the meeting’s first day (October 3). This will leave much time for further follow-up with the most promising connections during the event as well as helping CHART to maximize attendance at the workshops/panels on the 4th and 5th. It would be naïve to suggest that every proposal presented at the meetings will be accepted. The new product/program may not fit the unique underwriting philosophies of the Syndicate, or perhaps the business plan needs to be finetuned. The important thing is that Risk Takers will have the opportunity to evaluate new production sources that might never have been submitted to the London marketplace without CHART.
Keep in mind also that both the submitting agency and the Risk Taker are free to utilize the London Broker of their choice to concept (Program Questionnaire), finalize any new business transaction identify Syndicates with the most compatible risk appetites, and surfaced through CHART. schedule meetings. If this CHART Exchange Objective The appointments will be planned appeals to you, please visit our for the next CHART event scheduled website or contact info@chartfor October 3-5, 2016 in Baltimore exchange.com for more information MD. The exact number of meetings and registration application. TABLE OF CONTENTS
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THE EARLY ADOPTERS
BILL OF RIGHTS PREAMBLE The CHART Exchange begun and held at the City of Philadelphia, between Monday the twelfth and Wednesday the fourteenth of October, two thousand and fifteen. RESOLVED by the Coverholders, Prospective Coverholders, Risk Takers, and Vendors assembled, that the following Articles be proposed as amendments to the Declaration of Interdependence. ARTICLES in addition to, and Amendment of the Declaration of Interdependence, proposed by the Early Adopters and ratified by the Coverholders, Prospective Coverholders, Risk Takers, and Vendors attending the CHART Exchange event. FIRST AMENDMENT (Freedom of commerce and peaceable assembly). The CHART Exchange will foster growth in the U.S./London market by providing a forum through which Risk Takers and Coverholders can interact with domestic insurance agencies in the pursuit of new business opportunities. The event shall also provide a series of workshops moderated by CHART’s Risk Taker and Vendor partners. All attendees are expected to peaceably assemble at these sessions to expand their skillset and show support for the presenters. Participants shall be respectful of the efforts put forth by the moderators by not setting appointments during the times allotted for workshops. Ample time has been provided before and after scheduled events for holding individual meetings. CHART attendees are expected to follow the precepts of the “Golden Rule”: do unto others as you would have them do unto you. Individuals must be supportive and respectful of other participant’s efforts before presuming the same treatment from them. SECOND AMENDMENT (Right of attendees to bear business cards). Participants will be protected against spam and other forms of solicitation through the judicious and limited distribution of attendee lists. Business can best be conducted across long distances by first establishing the partnership through personal interaction. Participants shall network with others in attendance as a means of identifying new opportunities. THIRD AMENDMENT (Protection from enduring non-business activities). The CHART Exchange shall not schedule golf outings, formal dinners, or other social events, as these serve to distract attendees from the core purpose of getting business done. All participants are given the freedom to make their own plans after meeting hours. FOURTH AMENDMENT (Protection from unreasonable constraints on attendee time). The CHART Exchange shall be respectful of all attendees by making optimal use of the time they have allotted to participate in the event. Meetings shall start promptly at 8:00 AM. The agenda shall provide content designed to facilitate growth within the U.S./London market.
Im
FIFTH AMENDMENT (Due process and freedom from self-aggrandizing participants). The CHART Exchange shall recognize that all attendees are experts within their particular field of endeavor: risk evaluators/underwriters, product distributors, service providers, etc. As such, the meeting will be deemed as an assembly of peers. All participants are expected to check their egos at the door as part of the event registration process. Business casual shall be the dress of the day. SIXTH AMENDMENT (Judgment of new ideas by a trial of peers). All attendees shall have the right to submit their new business/marketing ideas for consideration within the Shark Tank/Dragon’s Den competition. Submissions shall be evaluated based on the innovative nature of the idea, viability of the product, and premium potential. Style points will also be awarded for the originality of the presentation itself. The winner shall be determined jointly by a panel of experts and the other attendees. The grand prize: $10,000 (£6,400). The Shark Tank/Dragon’s Den competition is sponsored by Iris Insurance Brokers. SEVENTH AMENDMENT (Civil treatment for all attendees). All participants shall have the right to expect civil treatment from all other event attendees. Moderators shall be shown respect by not having to compete with individually scheduled appointments during the times allotted for workshops. All attendees shall be granted the freedom of not having to be recipients of spam or other solicitations due to limited distribution of participant lists. Each Early Adopter is considered a full partner. EIGHTH AMENDMENT (Freedom from cruel and unusual keynote speakers). The CHART Exchange shall not retain the services of celebrity speakers to deliver speeches unrelated to the growth of the U.S./London market. Tuesday’s keynote address shall be presented by Jeff Tobe, a nationally sought after for his expertise in improving corporate profits by changing the customer experience and retaining great talent. Wednesday’s opening remarks shall be provided by Mark Cloutier, CEO of BRIT Insurance Holdings. Mr. Cloutier has extensive experience within the various aspects of the insurance transaction: as a risk-taker, product distributor, and as a vendor supporting the industry.
NINTH AMENDMENT (Enumeration of rights shall not be construed as anything critical of the great forces that build our profession). CHART recognizes the valuable role other association groups (AAMGA, NAPSLO, PLUS, TMPAA, IIABA, Trusted Choice, etc.) play within the U.S./London market. CHART shall honor the contributions these fine organizations already make and facilitate dialogue amongst risk takers, established Coverholders, U.S.based insurance agencies, and vendor partners as a means of surfacing new business opportunities. Further, the CHART Exchange shall elevate the role London Brokers play in mage credit: Lloyd’s of London the insurance transaction. Once an agreement on a new concept discussed at the meeting has been reached, risk takers and/or insurance agencies shall be encouraged to select the broker of their choice in order to transform it into a formal agreement. TENTH AMENDMENT (Powers of Risk Takers, Coverholders, Potential Coverholders, and Vendor Partners). Except for the Amendments articulated in the CHART Exchange Bill of Rights, attendees are free to pursue new business opportunities amongst themselves. Carpe Diem – Seize the Day!
Analysis
HOW CONSUMER EXPECTATIONS ARE CHANGING In The Insurance Industry, Anticipating Customer Service Expectations May Be The Key To Customer Retention
by Tyler Cichewicz
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oday’s technology increasingly connects areas of consumer’s lives that were previously unconnected. Instantaneous access to information and products, in general, can account for one reason why consumer expectations are changing in the insurance industry. It is becoming more apparent that consumers evaluate their satisfaction in one industry with their experience in another, even if those industries are unrelated.
For instance, Amazon.com, the online seller, won its sixth consecutive 24/7 Wall Street Customer Service Hall of Fame; a 1,500 person poll of a business’s quality of customer service. Amazon’s success with customers comes in larger by its patented services to anticipate consumer’s needs, stocking warehouses near customers with products related to that customer’s previous purchases, even before any purchase have been made. This anticipation is one way that Amazon leads all industries in customer satisfaction and serves as an example that the insurance industry can to other insurers, but in comparison learn from. with other industries. The responsiveness of a business like Insurers differentiate themselves Amazon has raised from competition by nature of consumer expectations their service, which is the real draw across all industries. for the consumer. Service, in the Now, in order to stay insurance industry, hinges on the competitive, insurers promise of provisions for an insured must make efforts to during a crucial time. The insurer’s give the insured fast responsiveness to this promise and effective service with the insured makes up the bulk not only in comparison of the insured’s experience.
Image Credit: Creative Commons
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Image Credit: Creative Commons
Age old characteristics of customer service like insurance representatives speaking with the insured on the phone still hold for some of the consumer experience. What may be more important for the insurer is to set reasonable expectations for the insured and to align themselves properly with outside services and vendors that understand this goal of the insurer. Reaction to the consumer’s needs, www.chart-exchange.com
in any industry, is necessary. However, reacting to the anticipated needs of a consumer is a detail that sets industry leaders like Amazon apart. Moving forward, it is always beneficial to evaluate the responsiveness of a business for nothing more than to give proper expectations to the consumer. Dissatisfaction bordering anger occurs when the expectations TABLE OF CONTENTS
of consumers are not met; and in today’s world consumer expectations are not separated amongst industries. Insurers face the challenge having their responsiveness measured on the same scale with other, dissimilar, industries. By delivering accurate timelines and promises to the insured, insurers can begin to set the standard in service. JUNE-JULY 2016
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News
BREXIT VOTE POSES POTENTIAL JOB LOSS by Tyler Cichewicz
In February, Lloyds released a Those in favor of leaving the EU, statement that contingency plans ‘Brexiters,’ claim the costs of the EU une 23rd marks Britain’s vote were in place as a vote to leave do not outweigh the benefits of to leave the European Union. would negatively affect Lloyds’ membership. Supporters of a vote Lloyd’s of London is one of offices in other parts of Europe. to leave cite that the money Britain many influential businesses to Additionally, foreign investment pays into the EU would be better voice their concerns about the is expected to drop should a vote spent on new industries. fallout should Britain abandon to leave occur, most likely due to the EU. the uncertainty such a decision Without the EU, Britain could would have on Britain’s economy. pursue international trade deals International figures, including without being hindered by the EU’s U.S. President regulations. The reasons Barack Obama, have given by Brexiters expressed similar underlie a belief that concerns and have Britain’s economy, urged Britain’s voters without the EU, could to consider not only better suit the country’s the economic fallout, needs. Overall, a but also the affect a persisting belief that vote to leave would leaving the EU will give have on the security Proud supporters of CHART the UK a sovereignty of Europe at a time that will make it more when tensions are competitive in the high in the middle global economy exists. east.
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Specifically, Lloyds says that 34,000 jobs in the insurance business are threatened if Britain leaves the EU. This concern does not include the tens of thousands of jobs indirectly associated with the insurance world that will be at risk as well. 26
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Serving coverholders’ needs since the 1930s … and into the future Bespoke solutions Packaged lines Enhanced commissions Web-based platforms US domiciled marketing office Access us through 170 Lloyd’s brokers
www.atrium-uw.com
AtriumUw Atrium Underwriters Ltd
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As of June 8th, based on an average of 6 polls gathered by ‘What the UK Thinks,’ Britain is virtually split even between a vote to stay or leave. Roughly 51% favor a vote to stay whereas 49% want to leave the EU. Polls this even, do little to predict an accurate picture of the outcome of the www.chart-exchange.com
CHART Exchange
GOVERNOR TOM RIDGE TO DELIVER KEYNOTE ADDRESS AT THE SECOND ANNUAL CHART EXCHANGE EVENT
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Image Credit: Creative Commons
he CHART Exchange today announced that Tom Ridge, first U.S. Secretary of Homeland Security and 43rd Governor of Pennsylvania, has accepted an invitation to deliver the Keynote Address at the organization’s fall event.
including market interdependence and the opportunities/challenges inherent with doing business at great distances.”
globally recognized experts who offer clients strategic counsel on identifying, preparing for and mitigating cyber risk.
Gov. Ridge was The CHART (Cover Holders And Risk first elected to Takers) Exchange was established Congress in 1982, in 2015 to serve as a forum through serving six terms as which London markets could the representative interact directly with U.S.-based from Pennsylvania’s insurance agencies. The Second “Despite its relatively 21st Congressional Annual CHART Summit will take recent emergence, our District. He was place October 3-5 at the Marriott organization is already one of the first Baltimore Waterfront Hotel in being recognized Vietnam combat Baltimore MD. The meeting agenda as a driving force veterans elected will include a series of workshops in the U.S./London to the U.S. House designed to initiate constructive marketplace”, says of Representatives. dialogue and information-sharing Glenn Clark CPCU, Mr. Ridge was twice on an array of insurance-related Gov. Tom Ridge “Earliest Adopter” elected Governor of issues. Breakout sessions will of CHART. “Our Second Annual Pennsylvania from 1995 to 2001. address such practical topics Summit will bring together some He fulfilled that role until the as regulatory compliance, the of the ‘best and brightest’ minds tragic events of appointment Despite its relatively within this distinctive industry September 11, 2001, process, and niche for three days of discussion when he became recent emergence, new product and collaboration around the the first Assistant our organization is already s u b m i s s i o n identification and pursuit of new to the President for strategies. being recognized as a business opportunities”. Homeland Security. He later became the driving force in the U.S. - I n t e r e s t e d “We are especially gratified to have first Secretary of the London marketplace.” parties can Governor Ridge participate in this U.S. Department of learn more ground-breaking event”, continues Homeland Security. about the CHART Exchange and Glenn. “His impressive resume the upcoming meeting event includes work in both the public Mr. Ridge is currently the founder in Baltimore by accessing our and private sectors. This experience and Chairman of Ridge Global, website at www.chart-exchange. makes him uniquely qualified built to help organizations com. Glenn Clark can also be to address those issues that are decrease security risks. Gov. contacted directly at 302-765important to our membership, Ridge has assembled a team of 6001. www.chart-exchange.com
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Perspective
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LONDON TIME – PERSPECTIVES FROM A FIRST TIME VISITOR TO THE CITY & “SQUARE MILE”
raveling on the inaugural CHART Goes to London trip (CGL) was an exhilarating experience in many ways. I will touch on three of them in this column: 1) The unique cast of characters who participated in the event; 2) an orientation to the operations of Lloyd’s of London; and 3) the on-site experience of the unique setting and business pace experienced at the worldrenowned insurance hub of the London Market.
drive new business growth in the US/London marketplace.
group represented by Lloyd’s Syndicates, Lloyd’s Brokers, US based MGA’s and Agencies, and Excitement is the common theme strategic Vendor Partners mixing it which rises to the surface early up, and sharing exciting business in any new venture/partnership/ ideas in a combination of structured alliance, and the CHART goes to sessions, informal groups, and London trip was no exception. Led individual venues for two full days and moderated by CHART “first of action. adopter”Glenn Clark and the CHART team, in conjunction with the One of the highlights of the program sponsors, ANV, Brit, C.J. Coleman, was a guided tour of Lloyd’s of DTW1991, Iris Insurance Brokers, London’s home office, located just JLT Re, Novae and Wilson Elser, the a few blocks walking distance from agenda came alive and proved to be our hotel. Edwin Lloyd, starting May 9-10, 2016, sixty-two US educational, enlightening and fun, with his popular coffee house in based agent and vendor partners but most importantly, there was 1688 on Tower Street, provided the travelled to London and convened a non-stop atmosphere centered impetus to migrate this gathering at the Doubletree in the Tower around discussion and opportunity spot of ship captains to a group district to experience an event- for new business opportunities. of underwriters who in 1787, packed agenda focused on the The picture should begin to unfold established the Society of Lloyd’s, primary purpose of CHART – to if you imagine a small-interactive which today has become one of the most recognized insurance brands in the world and the world’s specialist insurance market. About the Author:
Mark Stroop, Sales Executive at NetRate has helped MGA’s, Carriers and Agencies with technology solutions that streamline the process of generating new and renewal business for 20+ years.
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The tour provided an inside view of the operations, including several of the icons; The Adam room, Lutine Bell, Loss Book. The history of each of them was described in color by the cheery Lloyd’s guide. A replica of the “slip” that insured the Titanic was displayed along with the signatures of the 50+ underwriters who made up the $1 million policy. Today, www.chart-exchange.com
Perspective Led and moderated by CHART “first adopter” Glenn Clark and the CHART team, in conjunction with the sponsors, ANV, Brit, C.J. Coleman, DTW1991, Iris Insurance Brokers, JLT Re, Novae and Wilson Elser, the agenda came alive and proved to be educational, enlightening and fun, but most importantly, there was a non-stop atmosphere centered around discussion and opportunity for new business opportunities.”
backed by capital and regulated by certain governing bodies. A large part of the business is transacted in the City of London, which is technically a city and county within London. The City is a major business and financial center, and the insurance industry is focused around the eastern side of The City, which is home to Lloyd’s and many of its participating brokers and syndicates. London’s equivalent to Wall Street, colloquially known as the “Square Mile”, is where you will find representatives from approximately 92 Syndicates, 60+ Brokers and insurance specialists from all points of the globe.
Buildings and offices are located in close proximity, so many meetings are traveled to by foot. Streets with names like Fenchurch, Lime, and Lombard Streets, to name a few, is where international insurance professionals are continuously one can see similar negotiations negotiating business. The pace is taking place between brokers and fast and fluid as the players work and underwriters in the famed “boxes” negotiate through submissions, considerations, and located on several floors in the capacity Whether architecturally renowned Lloyd’s syndicate forecasts. building. Anyone who has made deals are consummated or not, insurance a career should consider most conversations end with a taking this tour; much like a lifetime mutual “cheers” knowing the next baseball fan would enjoy a tour conversation is right around the and an opportunity to experience corner. Cooperstown. The CHART model is setup to London Market business is benefit London Risk Takers, Brokers, comprised of commercial and and US-based Coverholders, while wholesale specialty risks written facilitating expansion within the through brokers or direct through US/London marketplace. This is several different entities that are primarily accomplished through www.chart-exchange.com
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the finding of new opportunities that fit the model, not competing against existing channels. The first CHART goes to London trip certainly provided the setting, forum, and agenda where interested parties from all groups could gather and discuss new business opportunities. While relationships and effective business meetings can take place and be productive domestically or in London, I highly recommend newcomers to the London Market try to make time for a trip across the pond to experience The City, business environment, and culture first hand.
About NetRate:
NetRate Systems, Inc. solutions include cloud-based portal, high performance submission, underwriting, rating, easy quote and policy document generation, data analytics and integration with 3rd parties for the Property and Casualty insurance marketplace, primarily in the MGA, Program Administrator, Coverholder and small/medium carrier environment. NetRate products include nationwide rating of ISO® General Liability, Property, Business Auto, Crime, Inland Marine, BOP, as well as NCCI Workers Comp. NetRate also offers custom programming of all lines of business, including Professional Liability. For more information, go to: www.netrate.com. JUNE-JULY 2016
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NEWS
UNDERSTANDING CHART EXCHANGE
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Interested in learning more about our organization…but don’t know where to start? Click on each of the links to understand the CHART Exchange concept in ten easy steps.
he CHART Exchange is a dynamic, new membership o r g a n i z a t i o n dedicated to growing the U.S./London marketplace through the identification and pursuit of new business opportunities. Our innovative, “out-of-thebox” approach drives new program and product proposals to Lloyd’s – submissions that would not have been presented to the Syndicates without us. CHART complements – not competes with – existing distribution channels operating in the marketplace. Interested in learning more about our organization… but don’t know where to start? Click on each of the links below to understand the CHART Exchange concept in ten easy steps. 1. Rough Notes Article. The CHART Exchange was featured in the March 2015 edition of Rough Notes Magazine. This piece provides an excellent overview of the concepts and core principles of the organization. 2. The CHART Exchange Inaugural Annual Meeting Video. In order to provide a practical demonstration of the CHART concepts in action, we hosted a meeting in Philadelphia PA in October 2015. This video provides a brief overview of the event, including testimonials from some of the 330 individuals who participated. 3. 2015 Year In Review/2016 Strategic Plan. Shortly after our inaugural meeting, our team published an
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NEWS overview of the milestone events occurring in 2015. This document also articulated our vision for the new membership organization for 2016 and beyond.
Coverholder…or an Agency wishing to do business with London? Complete this application for membership. 9. Risk Taker/Syndicate Partner Application. Complete this form if you are a London Risk Taker.
4. A.M. Best Interview. CHART’s “Earliest Adopter” (Glenn Clark) was interviewed by A.M. Best earlier this year to learn more about the organization. This is probably the best encapsulation of what we’re all about.
10. Vendor Partner Application. Here is the application for those firms catering to the needs of those who specialize in the U.S./London marketplace.
5. CHART Goes To London (CGL) Video. In May 2016, Glenn W. Clark a contingent of 62 Agency Earliest Adopter and Vendor Partner member representatives traveled to London. This group met with 92 individuals from 40 different Syndicates in order to demonstrate how CHART can be a catalyst for new business growth within the U.S./London marketplace. This short video summarizes the results of that meeting. 6. The Second Annual CHART Event. Our next meeting is scheduled for October 3-5, 2016 at the Baltimore Waterfront Marriott. We expect 500 participants at this year’s meeting. Do you want to be one of the 300 Agency, 100 Risk Taker, or 100 Vendor Partner representatives in attendance? This link accesses the meeting pages from our CHART Exchange website. 7. CHART Exchange Digital Magazine. Did you know that CHART publishes an e-magazine, distributed monthly to over 40,000 domestic insurance agents and 3,500 Lloyd’s Syndicate personnel? This subscription file will approach 100,000 recipients by year-end 2016. View all of our editions here. 8. Agency Member Application. Are you a current www.chart-exchange.com
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Still have questions? Feel free to write to us at info@chart-exchange. com. We look forward to welcoming you as a member of the CHART Exchange!
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EXCHANGE
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TO CONTINUE TO RECEIVE THE CHART EXCHANGE! JUNE-JULY 2016
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Analysis
INSURANCE DISTRIBUTION COMPANY MERGER & ACQUISITION PROCESS MGAs, MGUs, E&S Agencies, Wholesalers, and Ancillary insurance Businesses
Phase 1: Preparation
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he first phase is about defining key objectives and goals. Common objectives include monetizing your investment, enhancing revenue structures or streamlining expense structures through an acquisition, growth of the firm through access to new markets and new products, access to capital or private equity, or access to distribution. Outside business
M&A Sell-Side Process Overview
There are 3 distinct phases of the M&A Process from a seller’s prospective.
Figure 1
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histopher M. Hughes serves as Managing Director of Insurance Distribution for Merger & Acquisition Services, specializing on insurance agencies, MGAs, MGUs, E&S agencies, wholesalers, and ancillary insurance businesses. Mr. Hughes comes to Merger & Acquisition Services, Inc. with over 10 years of insurance and legal experience, working on engagements with Property / Casualty and Life / Health insurance distribution businesses. He previously served as an advisor for a boutique firm in CT where his exclusive focus was on insurance distribution companies. In addition, Mr. Hughes spent 7 years as a senior product manager for Hartford Financial Services Group (“HIG”) with full P&L accountability for specialty products, and as director of HIG’s internal retained asset and structured settlement departments. Prior to The Hartford, Mr. Hughes practiced commercial litigation in Boca Raton, Florida. Mr. Hughes was honorably discharged from active duty in the United States Marine Corps (USMC) in 1992, after serving with E Company, 2nd Battalion, 8th Marines, 2nd Marine Division. While in the USMC, he served as an infantryman in the 1991 Northern Iraq operations: Provide Comfort, Encourage Hope, and Force Hope. Mr. Hughes has earned a J.D. degree from Northern Illinois University, a M.B.A. from the University of Connecticut, and a B.A. from the University of West Florida. 32
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interests are another common objective, as well as strategic opportunities, such as joining a start-up private equity firm that is growing through acquisitions. Once you figure out your objectives – you can move on to the next step of the preparation. In the following step, you’ll assemble a team of advisors that normally consist of a Merger & Acquisition advisor and Key Executives within your company (possibly a CFO, COO, or HR Executive). You’ll have transaction attorneys, as well as accountants and CPA’s. Then you will finish up with the last steps and come up with a valuation and make a decision. Working with your Merger & Acquisition advisor, you’ll come up with an agency valuation structure that’s acceptable to you as well as realistic in the market place. In the example below – It is an agency valuation showing the multiple of EBITDA, EDITDA, and Valuation range. (see Fig. 2) Once the goals and objectives of the owner have been determined, and a valuation of the firm completed, the next point is to make the decision of whether to move forward with the M&A Process or not. Figure 2
Phase 2: Marketing
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rom a Seller’s perspective, the primary objective in this phase of the M&A Process is to maximize the value that a buyer will pay for the business, and minimize the execution risk. Here is the process that best achieves these objectives: (1) define the target market of buyers that will pay the best price and/or value for the business, (2) develop and execute a marketing strategy to attract the best buyers, (3) prepare a Confidential Information Memorandum, and (4) conduct a Controlled Auction, or other deliberate strategy to sell your business to the best buyer. (See Fig. 3)
Figure 3
See Agency Valuation Page 34 www.chart-exchange.com
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marketplace, and have made significant investments in platform agencies, including, Acrisure, HUB, Risk Strategies, Integro, Assured Partners, to name a few. This influx of Private Equity investments, fueled with low interest rate debt, as created a 30 to 50% premium in the market for independent insurance distribution firms. This is the highest priced market that has existed for the past 30 years.
AGENCY VALUATION Defining the Target Market
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he first step in the Evaluation Phase is to Local and Regional Buyers: Local and Regional define the target market. There are three (3) buyers can also be relevant buyers broad categories of buyers: (1) for smaller books of business, smaller Strategic/National Buyers, (2) Private To obtain agencies with revenues of less than Equity, and (3) Regional/Local. To the best $2MM, and producers that are looking obtain the best offers for the firm, the offers for the to move to a different firm. logical process is to attractively market the business to those buyers that can firm, the logical In certain circumstances, Carriers realize the most value for the business. process is to Partners, as strategic partners, are attractively market looking for distribution as well (AIG, Strategic or National Buyers: The K2/Aegis, Markel, and HHC). strategic buyer is usually a company the business to that is growing by acquisition or those buyers that With an eye on the different types of companies in the same industry that can realize the buyers you will define exactly what can derive additional value from most value for the your agency and book of business look acquisitions of companies in their like, the size and carrier mix of each of industry. In the insurance industry, business.” your product lines, the profitability of certain agencies and companies will each business line, your geographic place an additional or “strategic” value on particular footprint is, and other agency specific information. books of business. Generally speaking, strategic or Using this information, you will define the best target industry buyers will benefit the most from the “right” market for your business given the buyer types acquisition, and will pay the most value for the available. business. When defining the Strategic Buyers – you’ll look at National Brokers such as BB&T, Willis, Brown & Marketing Strategy Brown, AJG, MMC. Private Equity: Financial buyers are Private Equity Groups (PE), that are looking for investments and higher equity rates of return. These would include Abry Partners, Odyssey, and Kohlberg & Co. as recent examples. Private Equity firms are interested in making 20 – 30% rates of return on their investment and can be found looking for companies and investments with Earnings or EBITDA of $500,000 and more. In the past three years, private equity firms have been the most aggressive buyers in the insurance distribution 34
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fter the target market has been identified, a cohesive marketing strategy will be put together to reach the intended target market and describe the business opportunity. The first step is to create a blind profile of the company or Fact Sheet, which will describe the last 3 to 5 years of revenues and earnings, the expense structure, and client base and carrier mix, as well as projections for the next 2 to 5 years without revealing the name or location of the business.
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Analysis Example of a Blind Profile or “Fact Sheet”
PROJECT SAWBONES
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he Fact Sheet presents facts of the Company, such as that most of the business is in the Northeast, although the Company is licensed throughout most of the U.S. The Fact Sheet also shows the last 4 years of revenue as well as the EBITDA. It displays how much of the company’s income is contingency or bonus income. The Corporate highlights section includes when it was established, what type of entity it is—whether it’s an S-Corp, C-Corp or LLC.
See Agency Valuation Page 36 www.chart-exchange.com
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Continued From Page 35
AGENCY VALUATION
buyers in each category depending on the target market, and contact them on a confidential basis providing the basic information contained within the blind profile. For the most effective campaigns, either narrow focus to 3-5 strategic buyers or have a broader audience of 15-30 strategic buyers that have a high likelihood of being interested in the How many employees there are, major carriers or acquisition of the firm. After the business profile markets, major products or services that the agency has been created, and a target market has been provides, as well as the distribution or marketing established, you will develop marketing documents which will include a Confidential Information provided by the Company. Memorandum, Nondisclosure Agreements. Then After a blind profile has been created, the next step in the final stage, you will execute a Controlled is to selectively develop a list of the top prospective Auction.
Example of CIM Table of Contents
Figure 5
See Agency Valuation Page 38 36
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environment where there are multiple buyers bidding for the business, with each buyer knowing that there are other buyers, but without the terms or price of the other offers being disclosed. A range of buyers with different motivations for purchasing the company
AGENCY VALUATION
Controlled Auction - Multiple Buyers = Maximum Value
Confidential Information Memorandum
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he Confidential Information Memorandum (“CIM”) is a complete description of the business, its financials, its structure and history, and description of all aspects of the business. This document is only sent to approved buyer prospects that have signed a Non-Disclosure Agreement. The CIM is similar to a 10K report that is filed by publically traded companies with the Securities and Exchange Commission.1 The first step in developing the Confidential Information Memorandum is to gather all of the documents and information that will be needed. The next step is to put together a first draft of the Confidential Information Memorandum, which will include all of the information contained within the documents, summarized in charts and graphs, with properly footnoted sources of information. The CIM can be anywhere from 15 – 75 pages long and a qualified investment banker will work with you in preparing this document. Once the Confidential Information Memorandum has been professionally edited and approved, it is prepared for distribution to pre-screened buyers. The final stage of the evaluation phase is to create a controlled auction.
Potential Buyers submit their best offer because they do not know what other bidders are offering.
Active Solicitation of Interest: The first step in creating a Controlled Auction is to execute your marketing strategy. The blind profile will be sent to the target audience developed earlier. Ideally, the target audience should have a number of qualified, strategic buyers. This is where Non-Disclosure Agreements are signed and the Confidential Information Memorandums are sent out.
Price and Terms: The Controlled Auction is designed to allow the market to generate the price and terms of the offers. Qualified buyers are screened to ensure that they have the financial wherewithal and sufficient interest and experience to consummate the purchase, and are asked to submit their best proposals. 2 The CIM will contain all of the necessary information that a qualified buyer will need to develop a proposal with a price and terms that reflect the value of the firm to that The Controlled Auction buyer. Because the qualified buyer knows that there are other strategic buyers, and that the firm has been he most consistently effective way to achieve prepared and properly marketed to those buyers, it is the maximum price for your business is to in his interest to submit his best offer up front rather create a controlled auction for the business. than “starting low”. The Controlled Auction is a process where a business is marketed to a specific target audience to create an
T 1
For examples of 10K reports, and what a Confidential Information Memorandum may look like, see www.sec.gov/ edgar , and select a publically traded company such as HIG or AON.
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All qualified buyers must sign a Non-Disclosure Agreement (“NDA”) to obtain a Confidential Offering Memorandum
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AGENCY VALUATION
Phase 3: Sale
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he first part of the Sale Phase is Structuring the Deal. The main components of the structuring the deal are cash and equivalents at closing, any promissory notes – also known as seller-financing, any earn out arrangements which are variable compensation based on the performance of the Principal meetings: After qualified buyers have signed agency and the future time frame – the general earn Non-Disclosure Agreements, had an opportunity to out is paid on either revenue, EBITDA, and is paid over review the Confidential Information Memorandum, a period of 2-3 years in general, and lastly Employment meetings with the firm owner(s) will be arranged. or Consulting agreements, including Non-Compete These meetings are used by both parties to gain an agreements. The same time you are signing an LOI, the understanding of each other’s goals, motivations, buyer will deliver a due diligence request for you, and and character. The objective of the meeting is to give both the buyer and the seller confidence in each other that they are considering doing business with, clarify any issues and or answer additional questions. Letters of Intent: During the first 30 – 60 days of the Controlled Auction process, qualified buyers are requested to send a signed Letter of Intent (“LOI”) that outlines the price and terms of their offer. The LOI is a document that spells out what assets are being purchased (or shares of the company in the case of a stock sale), the purchase price, and the terms of the offer. All qualified buyers that have signed NonDisclosure Agreements, reviewed the CIM, and met with the Principals will be requested to submit their best offer through a signed LOI by a certain date. In most scenarios, this will result in multiple qualified buyers submitting their best offers. Once a buyer and a seller sign a non-binding LOI, they also agree to a “No Shop” Provision, where the seller will stop all negotiations with all the other buyers, will not solicit, nor discuss selling their agency to any other buyers during this exclusivity period and will work exclusively with this buyer to make the deal happen. This is generally the only provision in LOI that is binding. www.chart-exchange.com
that is when the due diligence process begins. The Due Diligence process covers three main areas of focus; financial, operational, corporate/legal, due dilligence. There may be a different advisor for each one of those from the buyer’s side and from the seller’s side. Lastly, the same time that due diligence is being conducted with those various parties, you’ll have the contracts. The buyer’s attorney is generally the party that delivers the first set of contracts and the most important one is the purchase and sale agreement, whether that’s an asset purchase agreement or a stock
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Analysis Continued From Page 39
The M&A Process is an exciting time for the owner of an insurance distribution firm. There are a number of obstacles to avoid, numerous internal and external negotiations to consummate, and invariably there are some surprises along the way. I hope that you have found this article useful and informative. The next article will be an in depth review of the Due Diligence and Contracts involved in a M&A transactions.
AGENCY VALUATION
purchase agreement, along with any employment agreements, consulting agreements, non-compete Cheers, agreements, or the owner(s) of the seller, and any Chris notes or earn outs that are part of the agreement. Then finally – you have the closing date, the logistics, and dates set to accomplish different parts of this – When does Due Diligence end? When do the final negotiations of the contracts end? How are we going to close? Are we going to have a physical closing or a virtual closing? How is the owner’s transistion going to go forward? And, the accountability of various parties – whether it’s attorney’s, principals, the M&A Advisors, or accountants. This process can take anywhere about 30 days to get through.
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Below is the timeline of the probable time to complete the whole transaction.
Projected Timeline to Complete Transaction
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