Approaching risk holistically leads to success for Canadian agency

Rough Notes, Jun 2000 by Pillsbury, Dennis H

Canadian independent broker is one of the two largest in the country

In October of 1998, Hunter Rowell, which was established in 1888, and Keilty Muntz & Beatty, with origins dating back to 1889, merged to form Hunter Keilty Muntz & Beatty Greg Belton, president and cochief executive officer of HKMB, attributes the company's success to a "focus on strong internal growth coupled with very strategic mergers, which have brought together unique, yet complimentary strengths of three very strong firms."

In 1987, while they were still in their late 20s, Greg Belton and John Hawkrigg, left their jobs in marketing at Wellington Insurance Company to purchase Muntz & Beatty, Inc., a firm that was established in Toronto in 1889. Using borrowed money, "we worked diligently to pay down our debt, grow our revenues and to learn the nuances of the insurance brokerage business, says Belton." By 1994, they had doubled the size of the agency and saw an opportunity to merge with another well-established downtown firm, Guthrie Keilty Bickerstaff. Robert Keilty and Neil Morrison, who were two of the nine shareholders at GKB, became partners with Belton and Hawkrigg in the new merged entity, Keilty Muntz & Beatty.

"By 1998, four years after our merger, we had doubled our revenues through strong internal growth," Belton says. "With tremendous consolidation taking place in the distribution side of our business, we identified an opportunity to significantly enhance our market position through a merger with one of our very strong competitors, Hunter Rowell, a firm which dates back to 1888. Bryce Hunter, a chartered accountant and now chairman of HKMB, was the fifth generation of his family to head up the Hunter Rowell firm. His daughter, Brooke, who joined the firm with significant international brokerage experience, having worked in Hong Kong, Sydney and Vancouver, brought significant depth and additional skills to the management team."

Today HKMB, located in the heart of Toronto's financial district, is one of Canada's two largest independent brokers with 130 employees and $100 million in premiums, 90% of which is commercial and 4% of which comes from life and benefits. (To put that in perspective, the agency handles more than 0.5% of the total premiums written in the country and more than 1% of the total commercial premiums.) The brokerage continues to show strong internal growth. Last year it grew in excess of 15%.

"We have tried to concentrate our growth on areas where we have the dominant or significant market position, one of which is the automobile leasing sector," Belton explains. "We have worked to develop numerous enhancements to our product and service offering as a way of enhancing our value to our customers."

A holistic approach to risk

"In our opinion, risk management can no longer be viewed from the narrow perspective of what we traditionally think of as hazard risk," Belton notes. "We do not believe that we can continue to grow and succeed in earning new business simply by cutting our competitors' premiums. By developing a more comprehensive understanding of a company's risks and its combined financial impact, we work to put together an integrated risk program. That includes strategic, financial and operational risks. We go beyond just reviewing insurance policies and work with our customers to craft the most efficient portfolio of risk financing solutions, which may include a blend of traditional insurance, finite risk, securitized coverage and identifying natural hedges in an organization as an offset to risk. Our exposure to this broader definition of risk came through our involvement in the automobile leasing sector when automobile leasing companies began to seriously look at the concept of securitization."

Securitization is a financing and risk transfer technique that involves a corporation selling a portion of its assets to a separate legal entity that is financed directly through public and private capital markets. It provides leasing companies with an alternative source of funds, (e.g., the capital markets) and helps them to achieve off balance sheet treatment, which frees up their capital, in addition to several other benefits. HKMB managing partner Neil Morrison heads up Capital Solutions Corp., a separate entity set up to convert "outside the box" capital markets opportunities into revenue by using traditional insurance products in new ways. Capital Solutions looks to enhance existing HKMB client relationships by offering an insurance or financial guarantee as an option to the client's putting up its own capital for a business risk it wishes to avoid or mitigate. To date, those products include automobile residual value insurance for banks, credit unions and auto lease companies, "FASB 13" cover for equipment lessors, credit enhancement for securitization conduits, specialty surety products and finite risk programs in Canada and the United States.

"If one of our clients is able to `borrow' an insurance company's balance sheet and secure lower cost of funds or `wrap' their financing obligations, we add real value to the relationship," Morrison explains. "These arrangements also entail direct interaction with our client's top management, which goes a long way to reinforce our value."