Richmond National partners with select wholesalers to target low limit SME business

Richmond National Insurance Company CEO Joe Kavanagh has said the new SME-focused carrier has been launched to meet the needs of a select group of wholesalers that have become increasingly frustrated at the lack of options in the E&S space in recent years.

In an exclusive interview with The Insurer, the executive said the start-up’s focus on low limit SME business is intended to help fill increasingly large gaps that are appearing in the market.

Kavanagh unveiled AM Best A- rated E&S carrier Richmond National late last week, with support from Willis Re on reinsurance strategy and placement as well as analytics on modelling.

The Richmond, Virginia-based company has come to market with more than $70mn in start-up capital from investors including HF Capital, Bonhill Capital, WT Holdings and its senior management team.

Kavanagh leads the company as director, president and CEO. Prior to forming the new business he was at the investment banking group of Compass Point Research & Trading.

His career includes close to 25 years of providing investment banking services to the insurance industry, part of which has involved either supporting the launch or recapitalisation of specialty carriers.

“I’ve always had it in the back of my mind that at some point in the future, if there was a need in the market and I could surround myself with really good people and very experienced investors, then I would like to build an E&S company,” Kavanagh told this publication.

Six years ago, Kavanagh said he started to see signs that conditions in the E&S market were increasingly conducive to starting a new carrier.

While underlying premium growth trends and market combined ratios were some of the indicators that suggested to Kavanagh the timing might be right for that new E&S business, wholesaler frustrations regarding a lack of placement options were also a key driver.

“I started to hear from a number of wholesalers I have relationships with that the consolidation that’s happened within the E&S companies has really reduced the number of choices for wholesalers to go and place true E&S risk,” Kavanagh explained.

Low limit business focus

Richmond National’s initial focus is on writing low limit property, inland marine, casualty and contractors, excess casualty and professional liability coverage.

“Our focus is on smaller risks and smaller businesses – so you have a larger number of companies to work with as prospective insureds,” explained Kavanagh.

The intention is to build a book of business that is diversified both in terms of geographical and industry exposure.

“The ability to be relevant by producing or by putting out relatively low limits is really a good fit for how we’re planning on growing our business,” said Kavanagh.

“Most of the limits that we’re putting out are generally $1mn or less. We have the ability to put out larger limits in certain lines, but it’s effectively a relatively diverse book of low limit business.”

Kavanagh also said Richmond National will consider attractive opportunities providing it has the underwriting talent in place to support that business.

“The E&S business can change very quickly and we want to be in a position where we can accommodate opportunities that can arise from our wholesale partners,” he said.

“What we’re trying to do is build a successful, independent E&S underwriting company where we can build the business one policy at a time,” Kavanagh added.

Select group of individual wholesalers

As Richmond National noted in its launch announcement, the company is working with what it described as “a select group of appointed wholesale brokers” to source business. That group, Kavanagh explained, consists of specialist individual brokers rather than specific wholesale broking firms.

“We want to be relevant to our distribution partners, and we want our distribution partners to be relevant to us,” said Kavanagh.

“Our appointments will be different for each of the lines of business that we have, but they’re product specialists,” the executive said.

“It’s where our underwriters have long-standing relationships with certain brokers. Those brokers are product specialists, and they could be at smaller independent firms or they could be within a specific office or product area at one of the large wholesalers.

“We think that strategy for launching the company makes perfectly good sense,” said Kavanagh.

“We want to make sure we can be responsive to our brokers. Speed is a very critical component of success in this business, and we want to be able to respond in a very timely manner to submissions, either with a quick ‘no’ or have the ability to have our underwriters engage with the broker to find a solution that works best for the insured.”

Availability of talent

Key to developing the business was the availability of underwriting, IT and claims professionals, said Kavanagh. Richmond, where the new carrier is headquartered, is a rich pool of E&S market talent as the home to companies that include Markel and Kinsale.

Richmond National’s team is largely made up of former Markel and Kinsale executives. As Kavanagh noted, all of the hires have previously worked at start-ups.

Chief underwriting officer Phil Stephens was most recently at Great American Insurance Group, and brings more than 30 years of property and casualty underwriting experience - more than 20 of which in E&S - to Richmond National. Stephens also spent seven years at Kinsale when it first opened for business, leading its property and inland marine business. He has also worked for Markel’s Essex Insurance Company, Fireman’s Fund and Continental.

Nicole Waddill, formerly of Kinsale, has been named head of property and inland marine, while Bob Linkous, most recently at James River, is head of general and contractors casualty.

Elsewhere, head of excess casualty Bryan Farrar and head of professional liability Jeff Austin were both previously at WR Berkley’s Verus Underwriting Managers.

Further E&S growth on the cards

Richmond National’s launch comes at a time when market commentators and analysts remain bullish about the sector’s prospects.

As Fitch Ratings noted in a report last month, E&S direct written premiums (DWP) totalled $48bn in 2020. As a percentage of overall total US property and casualty DWP in 2020, E&S DWP surged to almost 7 percent, up from the roughly 5 percent seen in the previous decade.

During the first half of 2021, E&S DWP increased 23 percent year on year, Fitch said. That growth has largely been fuelled by admitted markets continuing to shed unprofitable, volatile business.

That expansion has seen a host of companies making a play in the buoyant E&S space, with Richmond National just the latest.

Earlier this year saw the launch of start-up Upland Capital Group, and LIO for example. They followed several start-ups and scale-ups already targeting the fast-hardening segment, including the rebooted and renamed StarStone US platform Core Specialty, Vantage, and the rebranded and repositioned Skyward Specialty, formerly Houston International Insurance Group.