West Bend Mutual: In With the New, and Hang On to the Old

Thanks to a hard market, a light catastrophic claims load and consistent underwriting, a little mutual based out of West Bend, Wis., was able to surpass the $1 billion asset mark at the end of 2003 for the first time in its history. The nearly $570 million in net written premium, a 14 percent jump from 2002, was the most successful total in West Bend Mutual Insurance Co.’s history.

That’s saying something, considering that this past May the company celebrated its 110th anniversary with a day-long bash attended by Wisconsin Gov. Jim Doyle and Insurance Commissioner Jorge Gomez, among others. One hundred and 10 years is a long time. It’s so long ago that back then—1894—fans of the Chicago National League Ball Club (now known as the Cubs), complained bitterly that it had been six long years since their team was crowned world’s champion.

Like so many mutuals, West Bend adheres to a tried-and-true method of doing business in the five Midwestern states where 437 independent agencies market its products, but the carrier has also modestly branched out into the specialty lines market.

Perhaps it’s telling that the man who’s helped lead the company to this point is, atypically for West Bend, an outsider. President and CEO Anthony Warren came to West Bend almost five years ago after nearly four decades working for stock insurers, including 28 years at Continental Insurance in New York (later acquired by CNA) and a stint with AIG, where he said he started up the behemoth’s Illinois National Insurance Co. unit.

Warren estimated that West Bend will end up at about $630 million in premium volume by the end of this year, and said that 60 percent of that growth is organic with the rest being driven by higher rates. Clearly, no mutual will ever compete with AIG—even if a former AIG executive is in charge—when it comes to market share or net income.

“We’ve accomplished something we never thought we’d do,” Warren told IJ. “Our goal is not to be big or to focus on growth for growth’s sake…The minute you start to focus on a revenue or growth goal you start losing the integrity of what you’re trying to do.”

About three quarters of the company’s book is commercial lines, according to Warren, with workers’ compensation accounting for 35 percent of that figure and a little over 50 percent of the business written in Wisconsin. West Bend also operates in Illinois, Iowa, Indiana, Minnesota and as Michigan Insurance Co. in the Wolverine State. While the company’s literature touts its auto and homeowners package (called Home and Highway) and Target Market program, perhaps most interesting is West Bend’s specialty lines division.

National Specialty Insurance Co. (NSI) was formed in 1999, according to Rick Parks, West Bend commercial lines manager. The company’s products—11 programs for harder-to-place risks, ranging from day-care centers and alarm installers to detective agencies and nonprofit directors and officers insurance—are only available to agents already appointed with West Bend.

“It’s a nice opportunity for agents actually, because they don’t have to deal with going through an MGA,” Parks told IJ. He said it generated $55 million in premium volume in 2003, while Warren estimated NSI would tally $80 million this year.

“What [NSI] does for our agents,” Warren added, “is it gives them a broad array of additional tools to serve their clients. They can come to us and we pay them the full commission instead of splitting with an MGA or a wholesaler.”

While most would probably not associate mutual insurance with specialty lines—albeit modest specialties such as barbers and beauticians along with hunting clubs, among others—Warren said NSI’s distribution model was part of its larger commitment toward and attitude regarding its agency relationships.

“One of the things that makes us special is that we have very few agents,” he said. “We’ll make a few appointments this year but not many. We really don’t care that much about having more agents. We like to do more with the agents we have. There will always be mergers and acquisitions and deaths and so forth. In a given year, we’ll probably appoint 10 or 12 new agents.

“We’ll probably look forward to having less than 500,” Warren continued. “Many companies our size have 1,000 or 1,200 agents. We don’t think you can be meaningful to an agent with that number … It’s a rather old-fashioned way to do business, but it works for us.”

There are no plans “on the immediate horizon” to expand to other states, according to Parks, and Warren said there was plenty of room to grow in Southern Illinois and in Indiana south of Indianapolis.

“We look at our future and we don’t want to be a national company,” said Warren, who noted that demutualization is nowhere near the table. “We may in time add one or two states but we’d be very selective about that. There’s room in our five states to grow a heck of a lot more…We don’t want to be diverted to being in 25 states; it just doesn’t make sense for us. We could easily grow to $1 billion in premium volume just in the states we’re already in.”

West Bend says it’s trying to do it the “right” way, adhering to the underwriting and pricing discipline that earned it a 92 percent combined ratio last year in a commercial insurance market that’s started to turn again.

“The focus,” Warren said, “is to achieve profitable growth through operational excellence.” His voice filled with amazement as he turned to the softening market, which he argued was myopic in the extreme. “Last year the industry had its best year in a long time, and still didn’t make an underwriting profit. In 2004 the industry will probably make its first underwriting profit since 1978. That’s an astoundingly abysmal performance record for our industry, and already people are talking about market share.”

Yet West Bend—as small a player as it is—too will target certain accounts where it’s doing well and can afford to bend a little on price, according to Warren. Ultimately, he said, underwriters retain the authority to work with agents to adjust price relative to the agency’s overall book of business. And so it goes.

The little mutual that could finds itself in some rarefied company. According to Warren, there have only been four insurers to have an “A+” or better rating from A.M. Best for the last 30 years and more than $1 billion in assets: Travelers, Hartford, Chubb and West Bend. Which of these things is not like the other?

It will be the other three who make the big waves in the national marketplace, yet it is the West Bends of the world—and the Midwestern agents who rely on them—who could bear the brunt of a softening market.