Other people weren't out buying IT systems. “You're the only person doing any IT development, so you can get the systems a little more cheaply,” she says.

The same was true of the real estate market. “MGAs are all about managing expenses,” she says.

Rivera also notes that “it takes longer to build something from scratch than you think.” That means those who wait until the market turns to start building miss a chance to reap hard-market pricing benefits. “Hard markets don't last very long. They're a very fleeting moment in the history of the insurance world,” she says.

THINKING SMALL

In spite of that analysis, Rivera says she actually set out to build a company that would make money in both hard and soft markets. V3 did this by focusing on small accounts at a time when most startups were headed toward large-account business.

The focus helps to minimize the impact of big soft-market declines fueled by large-account competition. But it also caps the potential hard-market upside, she admits. V3 will still benefit from price increases, but small accounts “are never going to see the increases you get on large ones.”

Rivera notes that as her agency was defining its small-business appetite, the likes of Torus and Ironshore—on the carrier side—were moving in the other direction. It is probably hard for insurers to go below a certain size of account, because “they just don't have the internal cost infrastructure,” she reasons. On large accounts, “you get a return on your investment much faster.”

For V3, however, she sees another benefit of targeting a lot of small accounts in that those “wind up having a lot of credibility. There's not much volatility [and] you can do a lot of data mining and analysis” on the book, says Rivera, who started her career in the industry over 20 years ago in the actuarial department of American International Group.

After spending 15 years at AIG, where she ultimately served as president of AIG's American Home Assurance Co., Rivera went on to become president of ACE USA Group and then to lead QBE's specialty-program division.

During her last year at QBE, Rivera says the carrier purchased a lot of MGAs. Getting to see the operations from the “MGA side of the house,” she says, gave her a better appreciation for their work. “What they really did was specialize. They knew what they were good at. They knew what their niches were, and they really built on that and stuck to it.”

“After seeing that, I said if I had capital to build something from scratch, that's really what I wanted to play,” she says.

In late 2009, Rivera got the backing for V3 from F&S Ventures, a privately held insurance-investment firm led by Fox and Stanard. Fox, the former CEO of Benfield Group's U.S. reinsurance platform, and Stanard, the founder of RenaissanceRe, are also executives of TigerRisk, a specialty reinsurance brokerage.

ENTREPRENEURIAL, BUT NOT OPPORTUNISTIC

“We're really not an opportunistic MGA,” Rivera says. “If you look at what MGAs needs to do, it's hard for them to be opportunistic, because they have to support their companies in hard and soft markets.”

To develop V3's first program niche, Rivera dug into her AIG roots—where an early responsibility was serving as lead actuary for a miscellaneous professional-liability profit center. “That's a product area that I have known from my actuarial side usually does very well” through up and down cycles, she says.

At V3, the focus in on “small, truly miscellaneous professionals,” she says, describing target insureds as consultants with average premium sizes of $2,500—below most minimums of other E&O programs. “There are also not many miscellaneous professional MGAs out there, she adds, noting that others focus on real estate or insurance agents, for example.

The next V3 program launch was one for used-auto dealers in rural territories. Rivera says competition is more heated for new-car dealers with greater property values.

Next up was an Internet-based workers' compensation program. “Our goal is not to write hundreds of millions of dollars” as an insurance carrier would, Rivera says, noting that she was involved in the development of tools to sell comp over the Internet at AIG, ACE and QBE. “If we write $50 million for an MGA, that's a nice-sized program,” she says. “We believe that with a good Internet offering, with good classes and good state strategy, we can write a nice portfolio of profitable business.”

V3's most recent program is V₃antage EQ⁺ Difference In Conditions (DIC) program, launched last month for small commercial businesses with primary exposures on the West Coast and total insured values up to $10 million.

While Rivera stresses market differentiators, such as a small-account focus, NU asks her about the popularity of both auto-dealer and earthquake programs, which seem to be frequent targets of program-focused MGAs. How is V3 really different in these two areas?

Rivera responds that the MGA is not going to distinguish itself with “one home run. It's going to be doing the seven or eight things very well.”

On the auto program, DealerV3antage, she describes the combination of program leader Don Barrand, who is a 34-year veteran of the commercial-auto program space; seasoned underwriters “really knowing the business”; having an easy processing system to ensure timely responses on quotes; and specialized coverages. For example, the program has an optional “Red Flags” coverage, responding to damages a dealer might incur if a customer's identity is stolen as a result of dealer negligence.

“It's all those little cumulative advantages that add up,” Rivera says. She stresses that a key competitive advantage for V3 is seasoned underwriters, but notes that they needed to bring more than underwriting talent to join the V3 crew. “There are great underwriters out there that can put together the best underwriting guidelines in the world but never sell a piece of business,” she says, noting that V3 selected underwriters with proven distribution relationships. “You need to make sure you have that balance as an MGA.”

On the DIC program, Rivera says V3's competitive edge is its use of risk-modeling technology together with unique actuarial rating models and outputs like margin calculations that consider probable-maximum-loss estimates—all at underwriters' fingertips.

“We spent a lot of time building a very technical rating model” that has a direct feed out to RMS, she says, referring to the Newark, Calif.-based modeling firm. “We actually send data electronically out to RMS and it comes back to our rater on all of these small accounts. We fully model every location,” she notes.

“Rather than worrying about modeling the account, our underwriters are actually spending their time analyzing the output of the actuarial model,” asking why certain indications are high, others are low—and then selecting business “that is best priced for what it's doing to our overall portfolio.”

Rivera believes there's inconsistency in the way competitors price the business today. “So if we are consistently analyzing our portfolio, our goal is to really take advantage of those times when the market is charging more than it really adds to our overall portfolio” in terms of risk.