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Meadowbrook Insurance Group, Inc. (MIG) |
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CEOCFO Current
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This is a printer friendly page! Restructuring
has enabled Meadowbrook Insurance Group to get back to the basics of their original
business plan of providing specialty risk management products and services to commercial
accounts across fifty states through eighteen branch offices BIO: Mr. Cubbin has extensive experience in the formation
and operation of stock and mutual insurance companies, onshore and offshore captive
insurance companies, self-insurance funds, and public entity pools. He is a frequent
speaker at industry forums on the Alternative Risk market, captives, rent-a-captives, and
specialty program business. He joined Meadowbrook Insurance Group after
practicing law at the Detroit, Michigan offices of Plunkett & Cooney, with a focus on
insurance and reinsurance issues, professional liability claims, municipal liability, and
products liability. He is a graduate of Wayne State University and holds
a law degree from the Detroit College of Law. He is a licensed attorney in the State of
Michigan. CEOCFOinterviews: Mr.
Cubbin, where was Meadowbrook Insurance Group when you became its CEO and what changes did
you orchestrate? Mr. Cubbin: “As a result of some financial challenges that emanated out of the very soft market that the property/casualty industry experienced in the 90s, we have had a great opportunity to restructure and reorganize the company over the last two years. We have gotten back to the basics of our original business plan, which is to provide specialty risk management products and services to commercial accounts across fifty states through our eighteen branch offices. We have eliminated business that was a deviation from our original model and refocused our attention on the business that historically proved to be profitable for us. In addition to the restructuring of the business, we also hired new people in some very key areas; we hired a new chief claims officer, a new head of corporate underwriting and we have brought in some branch management executives. We hired a chief information officer to bring our technology up to state-of-the-art. We have revamped the entire management team and brought the company’s business model back to its original structure.” CEOCFOinterviews: Is the restructuring finished? Mr. Cubbin: “We finished our restructuring in June of 2002, when we were able to raise about 60 million dollars of new capital – new equity that we used to pay down bank debt and to increase the surplus of our insurance company operations. This allowed us to grow the business from about a 180 million in premiums, up to approximately 250 million in premium. In 2004, we anticipate writing 300 million in premium.” CEOCFOinterviews: Please tell us about the different aspects of your business. Mr. Cubbin: “We are
a specialty insurance operation that has three different aspects to the business; we own
and manage Michigan’s largest business insurance agency and we generate about 15
million dollars a year in that area. With the agency operation, we place insurance for a
variety of businesses, offering whatever kind of insurance they need: from health
benefits, to property and casualty, worker’s compensation, E&O and D&O. Our
retail agency operations account for about seven percent of our revenues. CEOCFOinterviews: What are the unique problems in dealing with these kinds of organizations and how does this work to Meadowbrook’s advantage? Mr. Cubbin: “When you are dealing with small to medium-sized programs, which is what we specialize in, and small insureds within those programs, you have to create an efficient operating system. Most companies shy away from the small/medium sized business because they can’t efficiently handle the back office. With our technology and our processing advantage, we are able to do that. I think that is one of the major challenges that we have been able to overcome, and it is a barrier to entry for a lot of companies trying to compete with us.” CEOCFOinterviews: Is there much competition now, and are many people trying to get into that area? Mr. Cubbin: “We are presently in what most people consider the hard market, meaning that prices have accelerated over the last few years and it is more difficult to buy affordable insurance from the perspective of the business owner. When that part of the cycle occurs, many people look to an alternative to simply buying a traditional insurance product, and since we are in the alternative risk business, we are seeing a great influx of new business opportunities that are coming to us. The growth opportunities are significant, and our real challenge at this point is to look at the opportunities being presented, and to be as selective as we can be, and only write the very best available business. This is very exciting time to be in the alternative risk business. It is very busy but with that activity, comes the opportunity to select some new and positive, as well as historically profitable business.” CEOCFOinterviews: How do you reach your potential customers? Mr. Cubbin: “We really look at our clients in two different ways; first of all, we have the end-user, the policyholder who makes the individual decision to buy a policy from one of our programs. In that situation, we reach our customer in a few different ways; sometimes we have a direct relationship with an association and its members and therefore we are on a direct basis soliciting their members. A larger portion of our business comes through the independent agency system. We appoint a small group of agents within a given state who have the quasi-exclusive opportunity to go out and solicit members of the groups that we are targeting. That is how we reach the end-user. Much of our business comes from an agent or a group of agents who already control the business. We are working with agents across the country who already write some of the business that we want, so we go to trade associations and we directly solicit from those agents, blocks of business that they may already control. We are looking at two different marketing plans, one to get to the end-user and one to get to the agents that control those blocks of business.” CEOCFOinterviews: Do most people care who is in insuring them, as long as they get what they need? Is there the name recognition value? Mr. Cubbin: “I think in certain purchases, which are more prevalent than in others. If you are buying a life insurance product or an annuity, I think these very large global national names mean something to an end-user or a policy purchaser, whereas if they are buying worker’s compensation or general liability for their businesses, I think they rely more on their independent agent to help them select the kind of company that will best suit their needs. With the smaller business owner, they tend not to be as price-sensitive and they tend not to shop their policy every year. I think they tend to rely on their agent to help them find a long-term partner to help them with their needs. They are seeking an affordable and somewhat less volatile pricing strategy than some of the national carriers might have.” CEOCFOinterviews: Are there areas of the country where you would like to have more of a presence? Mr. Cubbin: “That is always an interesting topic because the geography of our business. While we do like some business in each state, we do tend to write more of our business around our regional offices. We have eighteen offices that we produce and manage the business through. There is a higher concentration of our premium volume in the states where we have offices and we prefer to do it that way. We offer the full fifty-state license availability because sometimes you will have a business owner for example, who is headquartered in one state, but they will also have small operations in other states, and you have to be able to offer them all of their coverage under one policy.” CEOCFOinterviews: How have you had to adapt your policies to incorporate unforeseen circumstances, such as the events of 9/11? Mr. Cubbin: “The business of insurance and the transfer of risk, does change over time and there are things we are grappling with today that no one ever dreamed of twenty or thirty years ago. Many of the insurance companies that were writing business in the fifties and sixties, are still dealing with an asbestos exposure that they never dreamed was part of their policy. In the last twenty years, the insurance business has evolved into trying to be more specific in terms of what insurers are covering. As opposed to offering a blanket, we will cover everything unless it is excluded. There has been a tendency over the last 20 years, to tailor the insurance to meet the risk being assumed, as opposed to taking all risks and then excluding those which you really don’t want to cover. I think that the mold situation in personal lines is another example where personal lines carriers never priced their product to cover the exposure to mold. It is a risky business and you have to use your best efforts to identify those risks that are insurable, the risks you can charge a premium for and those that you can’t. Another example that everybody is dealing with today is terrorism; the federal government passed some legislation that on an interim basis has helped the insurance industry sleep at night because if there was another catastrophic event along the lines of 9/11, it would be very difficult for the insurance industry by itself, to absorb the magnitude of that loss. That is another example how risks change over time. Our industry and our country have to evolve more toward 21st century risks.” CEOCFOinterviews: What are you plans going forward? Mr. Cubbin: “The main thing that Meadowbrook is concentrating on now as an organization is to level our fixed cost because we did downsize our business quite a bit in prior years and have now been ramping back up. We need to hold the line on expenses as we grow our revenues. We are going to see continued growth both on the top line and the bottom line of our organization; we want to maintain the margins on our business as we do that. We are shooting for a target that we have achieved in the past, which is to get back to a 10% return on equity at the end of 2004. We are sticking to the basics and we don’t’ want to deviate from our business model, and we want to grow our top line and bottom line. I think we can do that without having to take an undue amount of risk.” CEOCFOinterviews: Are acquisitions a part of your strategy at all? Mr. Cubbin: “We have historically made acquisitions and have done well at it. We haven’t made any lately. We have been involved in a few renewal rights agreements, where we acquire books of business without acquiring any of the liability of the prior company, and that has been a popular mode for insurance companies to grow over the last few years. Where we have been most successful in making acquisitions has been with our fee-for-service, risk management business. We are looking at enhancing our fee-based revenues through strategic acquisitions.” CEOCFOinterviews: Why should potential investors be interested and what should they know that they may not realize when they look at the company? Mr. Cubbin: “What an investor can look for in terms of why they would want to buy Meadowbrook stock is that presently, we believe we are undervalued. We are presently trading at 80% book value. Our peer group is in the 1.25-1.5 x book value range. I don’t think the market has yet realized the full value of Meadowbrook, and therefore there is a tremendous opportunity on the upside to see some stock appreciation. We are unique in the insurance business because not only are we in the risk taking business on the underwriting side; we also have over sixty-five million in fee-based revenues that generate non risk-taking profits for our company. That is a good balance to have, both the underwriting and the fee-for-service side of the business, which sort of balance and support the other. From that standpoint, we feel that at the end of the day, our market valuation will go up as we get more in-line with our peer group.” CEOCFOinterviews: What is your focus as CEO of the company? Mr. Cubbin: “I divide my time in a number of different ways. First and foremost, my job is to execute the strategy of the company to enhance shareholder value. In order to do that, I am working on a day-to-day basis with the managers of our various departments to make sure that the specific game plan that we put together, is being met. I also spend a great deal of time working with people in the industry to see what trends are emerging. I work on a daily basis with our actuarial and our pricing team so that I can get a feel for where the pricing in our industry is going so that we are able to react to it. I spend a great deal of time talking to our clients to make sure they are happy and that we are delivering the kind of service, products and prices that are appropriate for the risk and the relationships that we have established. I spend time talking to our board of directors and making sure our company is prepared in every way possible to meet the challenges of the new FCC guidelines. The 404 certification is a major issue for al public companies at the end of 2004. It is my job to make sure that all the moving parts in the company are functioning and moving in the direction that the board has established over all.” CEOCFOinterviews: In closing, what is the main thing that you would like people to remember about Meadowbrook Insurance Group? Mr. Cubbin: “I think the main thing that I like people to know is that our business is about the people who work for us and the partnerships that we have established. We have a strong management team and I rely heavily on their expertise; you can’t manage a business in fifty states without having a solid group of executives and managers who are supporting the business plan. Another thing is the retention of our business and keeping our clients; that is a very important part of our culture and I am pleased to say that we have achieved unprecedented levels of retention of business because we have done the right things for our partners and they have been very loyal through thick and thin. I always like to make sure that I acknowledge and thank people internally and externally who make this all possible.” disclaimers |
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