How does a US-based firm come to make an acquisition on the other side of the “big pond”? To understand how Applied Underwriters (Applied) came to acquire UK-based MGA Special Concept Risks (CSR) you have to understand the journey made by CEO Steve Menzies (pictured).
After graduating from Columbia with a degree in mathematics and engineering, he said, he travelled to Silicon Valley with a view to following the fortunes of the emerging inventors and investors in high technology. It was then that he came upon “extraordinary kernel” of an idea and spent several years developing a unique system for the underwriting of workers’ compensation insurance.
“Importantly, our tech systems were way ahead of the competition,” he said. “The company grew dramatically, so I established a servicing facility in Omaha, Nebraska in 1999. Within a few years, in 2006, Warren Buffet took notice of the company’s exponential growth and invested in it, keeping me as an owner and partner, CEO, and, uniquely, a direct report.
“It was a great ride, but by 2019 Applied Underwriters had become a channel competitor – a tough one – among Berkshire Hathaway’s own companies. We were branching out with all the force of entrepreneurial tenacity and courage that you might expect. Somewhat inevitably, I bought Berkshire Hathaway’s interest out and made a little bit of insurance history in the US.”
More importantly, however, this newly realised independence gave rise to a brand-new pattern of growth for Applied Underwriters. Now, only 17 months since that deal, the progress of the business is unmistakable. Applied’s recent acquisitions, beginning with its Berkshire buy-out in October 2019, have attracted new entrepreneurs to its door, and this was how its acquisition of CSR first came about.
In this case, Menzies said, both businesses saw a natural prospective collaboration between their enterprises. They have complementary sets of services as well as a highly talented team of people which will enable a seamless merger into a new formula for CSR. From the perspective of incoming businesses, he said, it is Applied’s insuring and reinsuring capacities, together with its solid back office in Omaha that encourages businesses to join them.
“[From our perspective], what made CSR the right fit, in a word is quality,” he said. “We see it on every level: sales, underwriting, networking, analysis, and just plain gut motivation - it is all there in this combination. And the fact that there is a luxury market component to CSR’s clientele fits a developing formula for Applied as we generate specialty concentrations in high-end market segments.”
The deal is the latest in a series of specialty market moves the business has made, he said, and further acquisitions are certainly on the cards for 2021. From his viewpoint, Menzies said he has seen that new potential partners are being drawn to Applied not just due to the transactions themselves but also due to its entrepreneurial spirit and the collaborative approach the business takes to partnerships, as well as the resources it can provide its partners.
“It is no secret, we have an agenda to acquire and we have many potential acquisitions and innovations on our drawing board. More will be announced in the coming months,” he said. “We will expand in non-US markets aggressively, and we will seek to diversify in those specialties we are confident we can handle well. After all, we are risk managers, albeit with a penchant for risk-taking under good circumstances. We do not do things we do not, or cannot, do well. That is a great guiding principle.”
Menzies noted that, while specialisation is not new, what is being seen today is a sea change in buying habits by top-level clients. They want much more than price benefits, much more than a smiling face, and much, much more than empty guarantees. He firmly believes that Applied’s ability to deliver real risk management services, real policy features and soundly priced coverage, together with profound and deep-seated sector knowledge will set it and its specialty market products both apart from any competitors and ahead of them.
“Optimism tempers our action,” he said. “[And], as chairman, I am now officially the top optimist among our team of 850 on four continents.”