Stephen Sills start-up to target low excess layers

Stephen Sills’s specialty start-up with American Family will initially have a focus on writing low excess layers as it looks to build a sustainable professional liability, excess casualty and medical liability portfolio and get access to primary opportunities, The Insurer can reveal.

Sills is aiming to begin underwriting before the end of the year on American Family’s AM Best A XV rated paper, initially with an MGA structure and a capitalized reinsurer sitting behind the US insurer.

The former Cap Specialty and Darwin CEO is understood to have identified a management team that is expected to be unveiled in the coming weeks.

The executive has secured funding from private equity firm Gallatin Point as well as BlackRock, with the start-up’s management and American Family also investing in the agency and reinsurance vehicle.

In an interview with this publication, Sills confirmed that the new venture will initially have three major verticals: management liability (including commercial D&O, financial institutions, E&O and professional liability products; excess casualty; and hospital professional liability (including miscellaneous medical and large physician groups).

“The speed of getting into those areas depends on getting the right talent in the right positions,” he said.

The start-up will have access to non-admitted and admitted paper through American Family and is “guardedly optimistic” it can begin writing business before the end of the year.

The segments Sills is targeting with the new ventures are seeing dramatic rate increases in some classes and broad hardening in others, with no prospect of momentum easing in the near term.

Sustainable play

But the executive said that rather than just targeting short-term opportunities, he and his colleagues are looking at a long-term sustainable play to build a portfolio of quality risks.

That will see it initially look to put down $10mn or $15mn lines on low excess layers rather than making a capacity play in mid or high excess layers.

“There will be primary opportunities and there will be low level excess opportunities. It’s about proving ourselves to the market and seeing ourselves more and more on primary opportunities so we have a long-term sustainable business.

“American Family is one of the pre-eminent insurance operations in the country so there’s no reason why risk managers, brokers and wholesalers wouldn’t want a company of this quality on their placements,” he explained.

“American Family is one of the pre-eminent insurance operations in the country so there’s no reason why risk managers, brokers and wholesalers wouldn’t want a company of this quality on their placements”

Stephen Sills on targeting primary and low excess layers

Sills said that frequently participating in $10mn xs $15mn layers will allow it to eventually get an opportunity at primary layers “if the primary carrier stumbles”.

The move to initially target low excess layers in its three verticals is likely to be welcomed by brokers and insurance buyers.

A number of casualty and professional liability classes have seen carrier retrenchment in particular with the shortening of limits in primary layers and low excess often leaving gaps in placements that has had brokers scrambling to complete programmes.

As well as the potential for additional investment from its initial backers and the possibility of creating its own rated carrier, American Family could also take the venture in-house down the line under the terms of the agreement.

Sills described the mutual as “an organization that has been a pleasure to deal with”, and “incredibly responsive and fast-acting”.

Prime service and limited distribution

Sills also confirmed that the start-up will operate a limited distribution model with retail and wholesale brokers to access business.

“I’ve always been a believer in limited distribution. We don’t need practice quoting. We’ll be clear in our appetite and people will want to send things within our appetite,” he commented.

The model will also be built on “good thoughtful service”, Sills added.

The executive has a strong track record of building businesses, initially as the founder and CEO of Executive Risk, which he took public before it was eventually sold to Chubb in 1999 for $850mn.

He then launched Darwin in 2003 backed by Alleghany, which he sold to Bermudian Allied World in 2008 for $550mn in cash.

Most recently he was CEO of another Alleghany insurance subsidiary, CapSpecialty before leaving last year.