Explaining USLI's mission “to be the best insurance company writing small-premium accounts” with 101 different insurance products, Mr. Nerney used the term “E&S” to apply to “individual-risk underwriting” for larger accounts.

“That kind of emotional underwriting isn't something that I've seen done well in my 30 years in the insurance business. To me, [a risk] is either good or it's not,” he said, suggesting that if a submission doesn't fit into one of the underwriting boxes for his company's products, his underwriters aren't going to seek creative ways to write it.

Paul Springman, executive vice president for Markel Corp., countered that “some of our companies have a saying that gray is our favorite color. We like things that fall in the middle. We like to have opportunities to talk with our clients. And we love to have to ponder,” and to come up with a solution different from a policy “that's just banged through the system in six minutes or less.”

“We love the term E&S. We love the fact that we are individual-account underwriters. That's our history and our passion,” he said, noting that Markel typically underwrites medium-sized accounts that are larger than those entertained by USLI but “below the radar screen of some of the mega-giants.”

The exchange took place in late February during a panel discussion at AAMGA University Weekend East in Philadelphia. The pair presented their opposing views at a session led by Bernie Heinze, executive director of the King of Prussia, Pa.-based American Association of Managing General Agents, who asked carrier executives to list some of the strategies they use, and that their MGA partners should use, to survive in the soft market–a topic sure to be taken up again at the AAMGA annual meeting in Phoenix this month.

“We like gray as well,” said Patricia Roberts, president and CEO of General Star Management Co. in Stamford, Conn. “So we try to come up with 10 new products each year, looking for gaps in the marketplace where we fill a need,” she said, highlighting a recent coverage launch for medical spas.

General Star writes on both an admitted and nonadmitted basis through General Star National and General Star Indemnity, with account sizes ranging from very small $300 accounts all the way up to multimillion-dollar accounts on the brokerage side.

Other market survival strategies, she noted, are “underwriting within your own circle of confidence” and systematically looking at costs. “You don't want to be underwriting something you don't understand,” she said, referring to the first strategy. “We systematically are programmed to pick up speed and find ways to increase our efficiency,” noting that her company is constantly looking at ways to get quotes and policies out more quickly.

Ms. Roberts and Mr. Heinze noted that while E&S was 14 percent of the overall commercial insurance market soon after Hurricane Katrina, the E&S share is steadily dropping–now down to 12 percent or less.

“There's just less buffalo for us to hunt,” Ms. Roberts said. “If yesterday a tough product that you were writing was a crane operator with horrible losses, now a standard carrier is picking that up. That's buffalo that's not in your real estate anymore, even if it belongs there–and much of the business we had probably didn't belong. That means that we all have to be better hunters–getting to the fundamentals. We have to have sharper spears. We have to run farther, and we're still going to eat less.”

“We're going to become better at what we're doing, but not [everyone] is going to make it,” she added. “We're determined to do everything we need to do on our end–and to help our [MGA and broker] partners do what they need so that we're all part of the folks that continue to eat and grow.”

Ms. Roberts told the MGAs that “like it or not, the real estate is just shrinking. You can be upset about it. In the end, that's just the way it is.”

That didn't sit well with Mr. Nerney. “We believe the professional wholesaler can in fact create more value with the retailer than just being a resource in difficult markets,” he said. “The real estate shrinks in soft markets, [but] if you're a survivor, you understand that eventually you have to adapt much differently to really survive.”

Mr. Nerney said his company completed 1,200 “customer-customer visits” in 2007–going out with its wholesaler and MGAs to the retailers they serve. “What we have found is that [retailers] are looking for a good partner. They're not getting their needs met from 'the standard markets.'”

“I have no idea what that term means,” he said. “We're an 'A-plus-plus' company. I think we're as standard as anyone else,” noting that USLI, a unit of Berkshire-Hathaway, has a superior A.M. Best rating.

He said some successful MGAs think the way he does. They're wired to think of themselves as “starters” rather than “role players” in the distribution system, he said, applying the term “role players” to those who simply react to market conditions. Such players believe they'll be growing at 30-to-35 percent in this market “because they have a different belief system,” he added.

ALWAYS IN THE GAME

Mr. Nerney, who used sports analogies to pepper much of his talk, said he wants his employees and agents to wake up everyday thinking they'll be starting the game, instead of waiting to be called in as a second-string replacement.

Company executives that react and decide to change philosophies in different markets “throw a lot of mixed messages” out to their players, he said.

“It's important for us to identify what it is we want to be, put a story together and a road map, and then try to get everybody on board to believe in it. That's what we try to do internally,” he said. “We are not doing anything different today than five years ago. If you really believe in fundamentals, you're doing them all the time.”

Coaxed by Mr. Heinze to reveal his three top fundamentals, he listed the following:

o Understanding what it is the company knows, referring to the fact that USLI knows its products and doesn't lapse into being an individual-risk underwriter.

o Figuring out how to get business into the company.

o Staying disciplined.

The discipline Mr. Nerney described was not limited to underwriting discipline but instead encompassed his broader concept of staying on an established course.

“A lot of times companies veer left or veer right, not necessarily because something is a good idea, but because they get tired of the path they're on,” he said. “It's very important for the leadership of an organization to stay energized and excited [about the path they've chosen]. That means being aware of what's going on, but not changing or getting everybody moving in a different direction every five or eight years.”

At USLI, the fundamentals are expressed as “community goals” that are shared and understood throughout the organization– and Mr. Nerney said he values MGA partners that demonstrate that same depth of understanding of “the company story.”

“I think there's way too much individualism going on in our [MGAs'] shops. There aren't enough where everyone is wearing the same uniform,” he said.

USLI has 170 wholesale/MGA distribution partners, and company representatives visited them 22,000 times since 2000, he said, adding that many MGA principals are hard-pressed to come up with an answer when USLI asks: “What is your story? How do you differentiate yourself from your competition?”

He described going to their offices with copies of their Web pages and those of their competitors with all the company names scratched out, only to find that they couldn't pick out their own from the stack, meaning the retailer can't distinguish them, either.

When interviewing four MGA competitors, “that retailer hears exactly the same thing four times. So instead of doing business with just one, they may do business with all four,” he said.

A DIFFERENT PLAYBOOK

The carrier CEO panelists had no trouble differentiating themselves during the four-hour AAMGA University session, whether they were talking about being involved in mergers, expanding internationally, or outsourcing parts of their business.

Mr. Springman, referring to Mr. Nerney's approach as basic “blocking and tackling,” said the current market demands a different strategy. “I think the market on both sides of the Atlantic right now calls for a few more trick plays than you had to call in 2002, 2003 and 2004 to win the game.”

Providing some examples from Markel's playbook, he listed:

o A move to automatic renewals for all loss-free accounts under $10,000 in the Shand division in Chicago.

o Combining property and casualty contract binding authority business “to make it easier for clients to find product” in the Essex division in Richmond.

o Hiring a new person to head a program unit for Markel Underwriting Managers.

o Reorganizing and introducing new products at Markel Southwest in Scottsdale.

“You have to stay a step or two ahead,” Mr. Springman said. “Tom [Nerney] built a great business model, but I disagree with it.”

Going on to say Ms. Roberts got the situation “exactly right,” Mr. Springman said that “you have to look a little deeper for opportunities.”

“You're being bombarded by one side with standard markets reemerging and taking part of the E&S traditional market. You've got unbelievable new capacity from Bermuda, London or onshore here in the United States,” he added. “I've got great competitors that sit at this table [and] they don't want to lose their market share either.”

He concluded that “frankly, the demand for product right now is a lot less than the supply that's out there. We just think you have to bob and weave and be a lot more nimble today than you did in the last three or four years.”