Richard Kerr founded MarketScout Corp., a Dallas-based managing general agent, wholesaler and insurance broker, in 2000 after holding senior positions at various brokerages. Last month, he was named CEO of Novatae Risk Group, an MGA, program manager and wholesaler. The company was formed to house the wholesale units of brokerage World Insurance Associates LLC, backed by private equity firm Charlesbank Capital Partners LLC, and to buy MarketScout. Business insurance Editor Gavin Souter spoke to Kerr about the idea behind the deal and his plans for the business. Edited excerpts follow.
Q: What is the background to the Novatae deal to buy MarketScout?
A: We had entertaining opportunities from various private equity firms to take on an investment and start acquiring other MGAs and wholesalers and roll them up. We had commitments from several people, and we sorted through them when I was able to meet with the people at World and Charlesbank, and we decided it could be a really good fit.
They had a vision to take what they already acquired and put it into a separate company, namely Novatae, and use MarketScout as a cornerstone to take Novatae to the next level. So that̵7;s what we did.
It’s currently a little more than $750 million in premium, which is a consolidation of seven or eight different acquisitions over the last two years. My job will be to set a direction for this company and keep it growing. We expect to be at $1 billion relatively quickly — we have a number of additional acquisitions that we’re targeting — and continue to grow from there. Ultimately, the plan is to get to $2 billion as soon as it’s reasonable, and if it’s not reasonable, we’re not going to grow as fast. It’s all about the people, so we look for the right people in the right places.
Q: What type of business is writing and placing the existing units?
A: There are a number of different MGAs, program managers and coverholders who write everything from oil and gas to cargo, to home value, art, jewellery, animal mortality, health care, general and professional liability of contractors, as well as all sorts of different real estate and special events . In addition to that, there are the traditional wholesale opportunities.
We’re going to take all of these disciplines and organize them into verticals and put them on the MarketScout exchange, which is a marketplace where independent dealers can come and connect with specialists and underwriters in a certain niche area.
Q: So will MarketScout be a central part of the scheme?
A: It will be our distribution platform. We have databased the retailers’ business and buying habits over the past 20 years. So that, for example, we know in Kansas which agents write tow truck drivers and where they are, what they’ve done and what their appetites are.
In addition, we will be looking for talented underwriting teams, which may be at an insurance company or one of our competitors, to bring them over to Novatae, with the footnote that we greatly respect non-competes and non-solicitation agreements.
Q: Apart from attracting people, what do the acquisitions look like?
A: We have several more that we will probably do by the end of the year, and we have a very robust pipeline and a well-funded facility to do a lot more in 2023 and beyond. We look at smaller deals and bigger deals; it depends on the right fit and personalities and things of that nature.
Q: Where do you see opportunity for growth?
A: It really depends on the individual teams or the particular business segments. It doesn’t really matter if it’s cargo or animal mortality or oil and gas. Right now the personal and commercial cat property market is a mess, and we’re blessed to have good capabilities in those areas and we intend to organize to help some of our dealer partners who are really struggling with it.
Q: There has been a lot of change and growth in the MGA sector in recent years. How does it change the dynamics of the market?
A: It will all be about segmentation. There will always be a generalist wholesaler who can get things done for you, but largely the way of the future will be like your doctor: you are a podiatrist or an anesthesiologist, you have a specialty and that is the path to Success. So, if you’re an underwriter and you underwrite coastal Florida real estate, that’s your expertise. That doesn’t mean you can’t be wholesale and do different things, but even there differentiation will come into play.
Q: How do you view the outlook for market conditions?
A: We have a problem with cat exposed properties and I think it will get worse before it gets better. But when this sort of thing happens, it’s usually the beginning of creative possibilities.
If you go way back when we had an excessive liability capacity crisis, that was basically the beginning of the genesis of many of the things that took place in Bermuda. There are a lot of really creative minds in this business, and they will come up with solutions.
In general, prices have continued to rise. They are still going up. Our market barometer shows that prices have risen on the personal side and the commercial side – transport, trucking, car liability are really tough.
Overall, the composite on the commercial side continues to grow at 6% to 8% and 4% to 5% on the personal side, and we expect that to continue broadly.
But it will be affected by the economy. If we are in a recession or about to enter one, that will affect interest rates. If interest rates accelerate significantly, we may even get back to the days 20 years ago when you had cash flow guarantees.
Q: So maybe there is hope for buyers?
A: There might be, but it depends on what sector you’re in, and some of those sectors are really struggling. I don’t see us going back to flat or no increases in the next 12 months