Peerless Insurance and Safeco Insurance meet with PIA

Liberty Mutual Group declared 2008 a "fantastic year," according to Michael Christiansen, CPCU, ARM, president and CEO of Peerless, one of Liberty Mutual's multiple subsidiaries represented at a meeting of PIA New York and Connecticut leaders at your PIA Glenmont headquarters. Christiansen and other representatives of Peerless and Safeco visited PIA to discuss how the companies and their agents are faring in the wake of recent acquisitions; their perspective of the independent agency system's effectiveness and their strategy to maintain success in 2009 and beyond.

Christiansen was joined by Safeco Personal Lines Northeast Regional General Manager Victor Pepin, CPCU, CIC; Peerless' New York Commercial Lines Regional Vice President Joseph Headd, CPCU, ARM; and Connecticut/Rhode Island Commercial Lines Regional Vice President Paul Chmura in their meeting with PIACT Secretary Augusto Russell, CIC; past President John DiMatteo, CFP, CCPS; PIANY Director Eugene Sandy, CIC; and PIA staff.

Among Liberty Mutual's achievements, Christiansen reported total revenues for 2008 of $28.8 billion and a strong cash flow. "We want to get these numbers out to the agents," he said.

Safeco and Peerless are aligned with the trend. Safeco had the "best year that we've ever had" in 2008, according to Pepin, who reported a combined ratio of 91 percent; a great core book of business; stable employee base; and significant reserves. Peerless reported personal lines income of $305 million, which exceeded the company's top- and bottom-line expectations.

The company also recalled its purchase of Ohio Casualty and declared victory, as the acquisition resulted in no loss of agents; no loss of books; and resulted in 195 new agents for the Agency Markets business unit. Peerless touts July 2008 as a big accomplishment, marking its re-entrance into the Massachusetts personal lines market. The legacy Ohio Casualty agent force is primarily located in Massachusetts, Connecticut, New Jersey and New York with its highest concentration in Southern New Jersey.

With the closing of the Safeco acquisition last September, Liberty Mutual announced plans to use the Safeco brand for all of its Agency Markets personal lines business in eight regions throughout the United States. During this week's meeting, PIA leaders asked how agents can expect company mergers and subsequent integration will affect agents. They were told that for commercial lines, Agency Markets will maintain the eight regional company brands in their existing territories, including Peerless in the Northeast. Safeco's regional organization for personal lines will mirror the Agency Markets' existing commercial lines regions.

Coastal markets?

PIA also asked about the groups' coastal strategy in Connecticut and New York. "This is largely driven by reinsurance costs," Pepin said. "Coastal is one of our biggest risks, and we are dealing with it through underwriting and pricing." He said the company has sought input from its agents and decided to employ hurricane and windstorm deductibles; as well as offering credits for windstorm protection. "We are redefining territories," he said, determining pricing and modeling based on exposure. "We are not going to overreact," but he admitted, "it is a growing concern in the Northeast. Our goal with regard to coastal growth is not to exceed our overall state growth plan [in New York] . we want balanced growth in coastal areas." Pepin noted that Long Island, in particular, is an area of concern because competitors have pulled out of the area, creating increased demand.

Agency distribution system

PIA leaders also asked the company executives to offer insight on how the company perceives its sales distribution force, and if they are seeking to appoint new agents. They were told in light of the recent company acquisitions, the group does not expect to be making new appointments. Rather, said Pepin, "the ideal model will be fewer agents, bigger volume."

In Connecticut, the Safeco acquisition caused the need to reduce the company's agencies in the state, and seek successful, larger books, holding more personal lines business. "We are trying to approach reductions in an objective, performance-based way," said Christiansen, but he added "with flexibility; if appeals have come in, we've reconsidered."

For New York, the company's plan for adding new agents is similar to Connecticut. "We have appointed many new agents, said Headd. "Consequently, the need for new appointments is not urgent. The group said it is focusing on building its commercial lines book, which includes integrating the new agencies appointed through the Safeco acquisition.

PIACT Director Augusto Russell thanked Liberty Mutual for its continued support of the independent agency system, recognizing the company's announcement earlier this year that it will deliver its commercial-insurance products for midsized business exclusively through independent agents and brokers. He asked Christiansen and the other company executives to discuss how they feel the company and its agents should position themselves, in light of statistics that show 85 percent of personal lines business being placed with direct writers.

Chmura responded that the company recognizes these statistics are "auto driven." If you have assets, you are going to an independent agent. Independent agents control the account market.

Pepin added there's "a lot of upside for agents in terms of growth. Agents enjoy greater loss-ratio over direct writers and offer customers 'one-stop' shopping."

The group reported that Liberty Mutual addressed its need to grow in personal lines by offering customers access to its products through independent agents. The company still has some direct business, which Christiansen characterized as large commercial accounts, personal lines affinity groups, and some Internet sales.

Forecast: 2009 and beyond

PIA asked how the company is being affected by current economic conditions. Christiansen said it is "on plan for new business," and that they are confident of good underwriting. The company is experiencing exposure-based reductions in their plans, including a midterm reduction in vehicles. However, Christiansen says he sees the market beginning to change and the company sees opportunity to increase rates, predicting a low single-digit increase by 2010. "We're after rate-to-exposure," he said. "Agents can expect to see an increase in rates for coastal exposure, and overall more pressure to increase rates on homeowners, though the auto market remains "very competitive."

"Overall, we've carried momentum into '09," said Christiansen. Though the company expects similar challenges this year as in last, "New business is up; we are ahead of plan at this point for the year. We are well positioned and we feel confident. We see growth in policy count, and we're on track with our legacy plan our score card says we've done well."