Mr. Thompson said perceptions of conflicts of interest aren't the issue, since general agents managing programs are for the most part dealing with retail agents rather than with the general public directly.

“To the extent that we become owned by the carrier, we lose a lot of the entrepreneurial ability that we bring to the table,” said Mr. Thompson, whose 29-year-old firm manages 15 national programs, including its first program–daycare centers–and programs for senior living facilities, pest control services and tanning salons.

“When the carrier buys a program administrator, they look at it differently than when I buy a program administrator,” he continued, noting that THOMCO has acquired two companies and is in the process of acquiring a third.

One THOMCO acquisition detailed in an article on the firm's Web site was American Agency, acquired in 2004. The agency manages a program for private ambulances–a complement to existing allied health care niches like the one for senior living facilities already in place at THOMCO.

“When I buy, I'm looking at the program administrator's profits,” Mr. Thompson said. While a carrier looks at overall profit as well, the acquisitive carrier is more interested in zeroing in on the underwriting profit that the manager is delivering for its current program insurer as it looks to “flip the business.”

Essentially, the program administrator is “selling the profits of the insurance company that has been its partner to another insurance company–and that has in my opinion some very long-range consequences and could be very adverse for the industry,” he said.

The trend is growing, however, resulting in “some very rich program administrators that sold out,” he said.

Beyond the damage such acquisitions can do to established partnerships between program administrators and carriers, Mr. Thompson said “carriers are notoriously bad at being entrepreneurial.” He added, “In my opinion, [the M&A trend] will ultimately destroy a lot of the entrepreneurial spirit” that is the hallmark of program business operations.

Glenn Clark, the founder of Target Markets and the president of Rockwood Programs, a program administrator specializing in employment practices and nonprofit directors and officers liability programs, recalled pulling out of a deal to sell his business. The reason was concern that his spirit and freedom to pursue activities–that might not always line up exactly with a carrier's business plans–would be constrained.

Back in 2003, Mr. Clark had agreed to a deal with Houston-based HCC Insurance Holdings, but it hadn't been finalized. “I got chicken [and] at the last minute I told them 'I can't do it,'” he told NU E&S/Specialty Lines Extra. “'I like what I do, and you can't give me enough money to give that up,'” he said, recalling his conversation with the former chairman of HCC.

Mr. Clark explained that he was offered an “unbelievable” sum of money to sell out, noting that one impetus from the carrier's perspective may have been to protect an EPLI book he had moved to the company, to ensure he wouldn't move it in the future.

For Mr. Clark, who had bought Rockwood from its original owner, E.W. Blanch in 2000, one motivation for the deal was to get rid of all the debt he had taken on to acquire the firm. In addition, he believed he was getting a good partner in HCC, he said.

“But then I thought about it. What would my job be when I got done” with the deal? “Fly here for them. Fly there for them. Do this report. Do that report,” he speculated.

“I love the business,” he said, referring to the process of creating new programs, employing innovative marketing techniques and taking existing opportunities in new directions. “It's just fun,” he said, describing his enthusiasm for a new program for title agents professional liability that he launched in another program company he owns, Fox Point Programs.

“You'll hear me talk about [the] title agents [program] like it's a new toy. But I've only got about 10 policies,” he said, imagining some chief marketing officer at a carrier scolding him for wasting his time on a $10,000 policy.

At an earlier point in the interview, he recounted building programs such as Franchise EPLI and EPLI add-ons for regional insurers of businessowners packages. These were built from a pioneering EPLI program he created in the late 1990s and sold through a then innovative fax-on-demand quotation system for agents serving small employers.

Mr. Clark also described the entrepreneurial spirit of program administrators when he listed a defining quality of successful ones–having a “mentality of not being afraid to make a mistake.”

“At Rockwood, we've made more mistakes than we've ever had successes,” Mr. Clark said. “I'd hate to see my batting average. But we have the ability to make a lot of small mistakes and capitalize on successes in a bigger way.”

As an example, he said Rockwood has fallen into some of its niches fortuitously, pointing specifically to an errors and omissions product that started when he was given an opportunity to do life agents E&O that was sponsored by a large life insurer.

“It all went swimmingly until [the life insurer] tried to bully my [E&O] carrier around to do some things the carrier didn't want to do,” he said.

Even though the carrier nonrenewed the program, “we learned a lot about life agents” in the process, he said. “So we went open brokerage. Fast forward to today and I have 3,500 life agents with the same product.”

“Did I get in the business because I was good at it? No. I got in that business because I had one sponsor, I sold a whole bunch of stuff, I lost them [and had to] attack it another way,” he said.

HCC owns only 25 percent of Rockwood, leaving Mr. Clark with freedom to capitalize on successes and mistakes. “We had already done the due diligence,” he said, explaining that HCC's minority interest allowed him to get rid of all his debt. “They're a great partner,” he added. “They don't assert themselves. I run the business.”

Still, Mr. Clark and other Target Markets' members are bombarded with requests to sell out. “It's a disease right now,” he said. “I would say that every single program manager in Target Markets probably gets approached twice a month.”

Mr. Thompson, who also remains the majority owner in his firm, said he sold a 40 percent stake to a private equity firm about a year ago. “I didn't mind having a lot of net worth in the company. I just didn't want to have all of it there,” he said, explaining that the deal provided some liquidity.

Unlike Mr. Thompson, who continues to pursue acquisitions as a buyer, Mr. Clark takes pride in the fact that Rockwood has never bought another agency. “We started from scratch and built it up. Every premium dollar we have, we created,” he said.

For carriers' reactions to deals between managing general agencies and wholesale brokers, see related article, “Specialty Carriers Wary Of Stealth M&A Deals.”