FM eyes opportunities for Velocity to deliver E&S solutions for mutual clients

By James Thaler, David Bull

June 30 - (The Insurer) - FM CEO Malcolm Roberts has said newly acquired Velocity Specialty Insurance Company (VSIC) will initially run as an independent subsidiary, but its mutual parent is looking for ways to augment its products with surplus lines solutions.

E&S carrier VSIC, which currently provides capacity to Velocity Risk Underwriters (VRU), has already benefited from an upgrade to A from A-minus by AM Best after being bought by FM in a deal that closed last month.

The deal was announced at the same time as Ryan Specialty’s $525 million acquisition of property catastrophe-focused MGA VRU from private equity sponsor Oaktree Capital Management.

In an interview with E&S Insurer, Roberts said the decision to buy VSIC came at a time when FM was exploring E&S market opportunities and had been seeking to acquire a monoline balance sheet free of casualty exposure that had been primarily used for property business.

The opportunity to acquire VSIC came along as Ryan Specialty, which has historically avoided acquiring balance sheet businesses, was looking to acquire Velocity’s MGA operations.

"This one popped up right in a period where we were looking at it again," Roberts said.

"I was personally saying we may have been, you know, a little late to the dance."

INDEPENDENT AND AGILE

VSIC was launched by VRU, founded and led by Phil Bowie, two years ago as the MGA pivoted to a hybrid model which it said would give it greater control over underwriting, policy forms, pricing and claims management, as well as increased flexibility, speed and customisation.

Roberts asserted that FM intends to let VSIC operate independently to maintain its agility.

"One thing I've asked them to do is let the company run itself for a year or two… so as a subsidiary, not a business unit of FM," he said.

He emphasized the importance of preserving VSIC's agility and speed.

"The reason it's called Velocity is it's quick, it's agile, they've got new systems. They can do things quickly. You put it into the big, lumbering FM machine, analyse it and slow it all down."

He added that FM could then leverage its scale in areas such as reinsurance buying to the benefit of VSIC.

When asked about capital support, Roberts indicated FM would provide backing as needed.

"Let's say there will be capital available for the right return as we see it," he stated.

"We’re trying to walk before we run, because these lines are so small" compared to what FM writes in its primary business, Roberts said.

"That's why I want them running it," he continued, adding that FM has installed one of its senior executives, Sean Bishoff, as president of VSIC while retaining existing CEO Bowie.

"We have Appalachian, we're good to go with surplus lines. We've had it forever. It sits dormant with nothing on it. So my decision has been, 'Do, I throw a few hundred million (dollars) at that and try and start it up? Or do I acquire something that's already going?'

"I could have thrown money at this, and I promise you, three years from now, we'd have been still chipping away steadily. FM versus that. We're moving. We're agile, they're growing."

BRINGING SURPLUS LINES SOLUTIONS TO MUTUAL CLIENTS

Roberts highlighted the strategic value of the acquisition for serving mutual clients as he said it would be the avenue for wholesalers to access FM.

"Can we find products that augment our mutual customers?" he said.

"Is there something else we can do here when they have needs we can't service in the mutual? Can we use this carrier to go solve that need for us?"

VSIC continues to maintain a capacity relationship with VRU, but FM will keep its options open with regards to writing open market business, said Roberts.

He said that currently the carrier’s capital is fully committed to the VRU book, but FM could infuse capital and even look get it onto the higher ratings of its parent.

The executive pointed to other areas that FM could benefit from following the VSIC acquisition.

"There's stuff we can learn on the tech space that I think there's stuff we can transfer into our Affiliated book.

"So I see a lot of accretive value going both ways. But I would say this will be a space where we're not going to set goals. We will lean in and lean out based on the market cycles."