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Holdings ability to segment and assign the right prices to each class of risk is
near the top in the industry, which has much to do with their ability to garner market
share and to run the business profitably
Property & Casualty Insurance
Bristol West Holdings, Inc.
5701 Stirling Road
Davie, FL 33314
Craig E. Eisenacher, CFO
Interview conducted by:
Lynn Fosse, Senior Editor
Published - November 24, 2006
Craig Eisenacher has been Bristol Wests Senior Vice PresidentChief
Financial Officer since June 1, 2004. From December 2003 until June 1, 2004, he
was Bristol Wests Senior Vice PresidentCorporate Finance. Prior to
joining Bristol West in December 2003, Mr. Eisenacher was a Managing Director with
Century Capital Management, Inc., an investment management firm engaged in public and
private equity investing with a focus on companies engaged in insurance and financial
services. From 1996 through 1999, Mr. Eisenacher was Vice President of General
Reinsurance Corp. Prior to 1996, Mr. Eisenacher held several senior management
positions at insurance and reinsurance companies, including Treasurer and Controller of
the CIGNA Property and Casualty Group, Vice PresidentFinance of American
Re-Insurance Company and Senior Vice President and Chief Financial Officer of Prudential
Bristol West is a leading, publicly traded provider of liability and physical damage
insurance focusing exclusively on private passenger automobiles across the United States.
Sold exclusively through independent agents and brokers, Bristol West insurance products
provide customers the security of a comprehensive range of automobile insurance coverages
at competitive prices.
Bristol West philosophy stresses high quality and
responsive services to customers through product innovation and a broad array of systems
to support customers, agents and brokers alike. By continuously developing new and
improved processes for independent agents and brokers; and maintaining unmatched service
levels for customers, Bristol West is setting the new standard in automobile insurance.
CEOCFO: Mr. Eisenacher,
what has changed during the time you have been with the company?
Mr. Eisenacher: In terms of the company itself, I think
the level of sophistication has increased significantly, particularly with respect to
collection of data, analytics around that data and our ability to create competitive
profitable product through the use of data.
CEOCFO: Where are you
Mr. Eisenacher: Our company headquarters is in Davie, Florida
outside of Fort Lauderdale. We have several operations around the country. We have a
sizeable operation in Independence, Ohio; another one in Orange County California and
several claims operations in other parts of the company as well. Geographically, about 75%
of our business is California, Florida and Michigan. We are a non-standard automobile
insurer and those are the largest non-standard markets; those three plus Texas. The other
25% of our business is across eighteen other states. We have been shrinking in California
and more recently Michigan, but we are growing in the other states in which we
CEOCFO: Are there states
or areas that are changing their insurance needs?
Mr. Eisenacher: We may enter additional states in the
next year or two. We do not have any concrete plans or any particular time schedule. It
will depend more on market conditions for our products in other states and the market
generally as we go forward.
CEOCFO: What is special
about auto insurance from Bristol West?
Mr. Eisenacher: I think our ability to segment, that is
to assign the right prices to each class of risk, if you will, is, if not unexcelled in
the industry, very near the top. In our business, your ability to segment has much to do
with your ability to garner market share and to write the business profitably.
CEOCFO: Is that going
back to the analytics and what you talked about earlier?
Mr. Eisenacher: Yes. The other thing that is unique
about our company is that we sell only through independent producers. We do not sell
direct, and do not have captive agents and, as a consequence, we do not suffer from what
some companies suffer from in the sense of channel conflict with their producers. There
are some companies that sell both through independent producers and directly or through
independent producers and captive agencies. We attempt to avoid the channel conflicts that
go along with that.
CEOCFO: How do you grow
the number of independent producers?
Mr. Eisenacher: We have what we call territory
marketing managers for each state and the number per state will vary depending on the size
of the state. Their responsibility is to sign up new agents or brokers and to maintain our
relationships with the ones that we have. Therefore, they have targets and over time they
call on the independent producers and sell them on the Bristol West value proposition and
our differentiation and the things we have to sell and then sign them up as
CEOCFO: Is the industry
trend toward people buying direct and if so how do you counteract that?
Mr. Eisenacher: There seems to be a slight drift, and I
think it varies from market to market, toward people buying directly. I think a lot of
people want a trusted advocate or someone with the expertise to let them know what they
are buying and why they are buying and to guide them if they have a claim or other issues
with their policies or coverage or additional questions. We think that the independent
producer market will be around for a long time. However, there will be an ebb and flow
between direct and not direct or direct and producer-generated business or producer
relationships as the case may be. Most people believe that the independent producers will
be around for a long time.
CEOCFO: Tell me about
your Select 2.0 product!
Mr. Eisenacher: The Select 2.0 product is our latest
iteration and our Select 1.0 product actually has been a very successful product for us.
The differentiation for the Select 2.0 product is that we have our own proprietary credit
model, which is imbedded in the rating structure for Select 2.0. Historically, we have
bought credit scores from other vendors. Now we are obtaining directly the various
components that the credit score vendors use to develop a credit score and actually
fitting that data to our own policyholder database. Secondly, we are using our own
proprietary symbol set, which is insurance speak for vehicle factor; in other
words, some vehicles are inherently more risky than others are. Thirdly and perhaps the
most important of the three, is that this product is based on multivariate analysis. That
allows us to assess or price the risk simultaneously for a multitude of factors, which are
things like years of driving experience, make and model of vehicle, territory and some of
the other items that you want to rate.
CEOCFO: I noticed that
you have a philosophy of consistent superior customer and claim service; what do you do
that is different from your competitors?
Mr. Eisenacher: In terms of claims or customers
service, we have high standards and metrics in place to measure the quality of our
service, so we expect that all persons who are involved in an accident will be contacted
within a certain amount of time. We measure that and monitor the interactions between our
customer service reps and our insureds for items like processing and billing issues or
changing their make and model of cars. We get very high marks from our customers and
producers in terms of our responsiveness and accuracy.
CEOCFO: Will you tell us
about the financial picture at Bristol West?
Mr. Eisenacher: Bristol West went public in February of
2004. Prior to that time and through 2004, we were a heavy user of quota-share
reinsurance; now we are quite adequately capitalized from our IPO proceeds and profitable
as an organization. The automobile insurance business and particularly the non-standard
automobile insurance business, tends to be cyclical. We have chosen, as a cycle management
strategy, to not follow the market down. If that means our top line is going to shrink
during certain parts of the cycle, then so be it. We think it makes more sense to husband
our capital and deploy it when market conditions are favorable, and that is what we have
been doing. At the same time, we have been re-purchasing our stock. In 2005, we had two
authorizations from our board of directors for a total of $50 million. We have repurchased
approximately $45 million worth of stock through the end of the second quarter. Still, we
are conservatively leveraged with a debt to capitalization ratio of about 22%. We are
conservatively capitalized in terms of volume of business relative to our statutory
surplus where we are running at about 1.8. Our rate premium is about 1.8 times our
statutory surplus for the latest twelve months ending June 30th. We think we
are well positioned for the future; we have a great deal of financial flexibility and are
generating good returns on equity. Our return on equity for the latest twelve months
ending June 30th was 13.8%. While that has been turning downward, it is still a
very attractive return for the insurance business overall. Our balance sheet is strong,
our profitability is strong and we are looking for market conditions to improve. We are
looking to get some traction from our Select 2.0 product, which will help us as
CEOCFO: How is insurance
cyclical if everyone needs to have it?
Mr. Eisenacher: It is a chicken and egg type question,
I suppose. It seems that rates are at one level and some companies are making a
significant amount of money. Returns on equity are good and one or more competitors will
decide that they can increase market share by decreasing their rates. What that leads to,
initially, is rate decreases by one or several competitors who believe that they can write
business at a lower price and still make money. Generally, in our business, the tail on
the loss is fairly short, which is to say the claims for losses resulting from accidents
tend to pay out fairly quickly. Therefore, what tends to happen is that competitors with
inadequate rates realize that at some point, they raise their rates and the market
normalizes. The other thing that happens is there is a steady upward trend in loss costs.
There is social inflation with respect to jury verdicts. The cost of automobile repair
parts and the cost of repair also continually increase. Hence, there is a combination of
social inflation and economic inflation that tends to cause rates to become inadequate
without continually increasing rates. If companies do not increase their rates, in keeping
with the increase in loss costs, margins will become compressed.
CEOCFO: Are your
customers aware of the fact that you are consistent and steady in what you are doing, and
does that help with your retention rate?
Mr. Eisenacher: We want to be a stable market for our
independent producers. We have run into situations where a competitor may come into a
market with rates that are so low producers will say that they want to sell you, but they
cant. They need to do what is best for their customers and somebody else may have
low rates, so for now they are not going to be selling many of your policies. In terms of
our customers, we have noted over time that retention has been improving. Our rate of
cancellations has declined significantly over the last few years and our renewal rates
have increased as well. When a customer gets a large rate increase along with their
renewal notice, that provides them with an impetus to shop their policy to see if they can
get a lower rate. To the extent that our rates are fairly flat, we tend to retain our
customers better in that kind of environment.
CEOCFO: Address potential investors; why should they be
Mr. Eisenacher: We have several significant strengths.
Our ability to collect and analyze our data and to develop product and pricing algorithms
based upon that data, which permits us to grow in a competitive market while earning a
good return, is part of our overall strategy and a key aspect of our company. We are well
positioned for our future and we have demonstrated that we are disciplined and focused
underwriter. In terms of the market cycle, it is difficult to ascertain exactly when a
turn might take place or if a turn has taken place. Rate filings in most of the states
where we do business, have turned favorable, meaning there are more companies filing for
rate increases and neutral filings that for rate decreases and we think that bodes well
for the future.
CEOCFO: Any final
thoughts for our readers?
Mr. Eisenacher: I think at the outset, what is
important for people is that we manage this business for the long-term, which means we
want to maximize profits over an entire cycle. We do not believe in giving up rate in the
current environment. We have given up some top line as a result of that. We will continue
to be a disciplined underwriter. We will preserve our capital and we will be prepared to
take on additional business as the market improves. We have extremely capable people. We
continue to develop product and analytics. We are very proactive in terms of doing that.
If you put that all together it spells a bright future for Bristol West.
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