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National Underwriter, Property & Casualty Edition
February 21, 2005
By Mark E.
Ruquet
The announcement last week by Willis Group Holdings that it had sold its
wholesale brokerage unit could portend a trend among retail brokers looking to
divest themselves of any conflict of interest, analysts say.
Willis has agreed to sell its only wholesale unit—Stewart Smith Group—to
American Wholesale Insurance Group Inc. Terms of the deal were not released.
Willis said it expects the transaction to be completed in the first quarter.
Stewart Smith writes hard-to-place, unique and specialty
coverages. Based in New York, Stewart Smith has 13
branches in major cities across the country, and produced approximately $900
million in premium placements in 2004.
AmWINS said the sale would afford it
greater opportunities to develop relationships with national retail brokers,
while diversifying the Charlotte-based wholesaler’s product offerings,
geographic presence and distribution force. The Stewart Smith acquisition would
bring AmWINS' total premium
placements to over $2.4 billion.
Mark Smith, president and CEO of Stewart Smith, will assume the role of
president of the AmWINS Brokerage
Division.
In a statement, Joe Plumeri,
chairman and CEO of Willis, said the sale is in keeping with the firm's emphasis
to focus on its retail brokerage operations, strengthening relationships there
while divesting itself of non-core operations. "In American Wholesale, we have
found a dynamic company committed to this important sector of our industry," he
said. "In only three years, their team has built one of the most respected
wholesale organizations in the country."
M. Steven DeCarlo,
AmWINS president and CEO, said the
acquisition expands the firm's geographic footprint in the Pacific Northwest,
Midwest and Southeast. "This acquisition strategically enhances our insurance
brokerage offerings to retail agents and brokers across the country. That said,
our new scale by no means replaces the importance of earning our stripes each
and every day—one account at a time," he said.
American Wholesale said it has received a financing commitment for this
transaction from Credit Suisse First Boston.
Steven Wevodau, principal with WFG.
Capital Advisors, based in Harrisburg, Pa., called Willis’ action "the beginning
of the industry becoming more reflective and sensitive to their position in
light of the investigations of New York Attorney General Eliot Spitzer and other
attorneys general. We are beginning to see and will continue to see insurance
brokers returning to their roots."
Concerns about conflicts of interest over wholesale brokerage holdings have
emerged because some argue that retail brokers could steer wholesale placements
toward their in-house units, picking up commission fees there in addition to the
retail commissions.
Prudential Equity Group issued an analysis noting that the sale would not have a
material effect on Willis' earnings. While Willis said the sale was to focus its
business on retail brokerage, Prudential speculated that the move was done in a
continuing effort to avoid conflicts of interest between retail and wholesale
units.
The sale, Prudential continued, could put pressure on mega-brokers Marsh and
Aon to do the same with their
wholesale units. Should Aon sell its
wholesale unit (Swett & Crawford),
it would impact earnings more than MMC
selling its unit (Crump), said Prudential, which added that it did not expect
MMC to sell its wholesale unit.
Shortly after Prudential issued its analysis, Aon
announced that it is indeed "exploring alternatives" relating to its ownership
of Swett & Crawford. The wholesale
brokerage has "a great future," said Aon
Chairman and CEO Patrick Ryan. "By exploring alternatives, we expect to
determine if Swett & Crawford’s
potential can be realized more fully under different ownership."
Perhaps bucking this perceived trend, Brown & Brown Inc. announced plans to
acquire Hull & Company Inc., based in Ft. Lauderdale. The Daytona Beach,
Fla.-based retail brokerage's acquisition would add an operation regarded as one
of the top-10 wholesalers in the nation, with approximately $63 million in
annualized revenue.
B&B said that after the acquisition, Hull—with 20 offices in nine states—would
continue to operate under its own name as a stand-alone operation at its
existing locations. No details of the deal were revealed.
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