Let’s talk about Lou.
When underwriting results are running hot, it can be tempting to turn to businesses that generate fee income. There is nothing wrong with that approach as long as you do it right. There are a lot of ways to do it wrong. C&F’s 1970 Annual Report includes the following innocuous statement: “Your Company took a major step in underwriting shortly before year end, when the firm of L.W. Biegler Inc. was established in Chicago to produce and write coverages which ordinarily are not absorbed by the regularly established market.” You could ask why these coverages are not ordinarily absorbed by the regularly established market. L.W. Biegler underwrote big limits on really hairy business — using untested policy forms — and then ceded almost all of it to reinsurers, while pocketing the commission income. This model is almost a throwback to the old days of C&F as an agency, with the idea that the company would make fee income regardless of how bad the underwriting results got. It was all about writing more business. If you were Bobby Russell, looking at your regular standard lines business going sideways, would you make the following comment (from the 1974 annual report) about the scarier business? “Results in E&S lines are traditionally volatile, but Biegler has been profitable since inception.” Probably not — unless you were running a tightly controlled operation. About that … Biegler is named a hall-of-famer in the book Claims Made and Reported , which is inexplicable given the book’s depiction of Lou and his operation. Lou and about 20 of his staff (“Biegler’s burglars” as they affectionately referred to themselves – Huh?) left broker George F. Brown to form managing general agent L.W. Biegler and International Surplus Lines Insurance Company — both subsidiaries of C&F. In the book, Biegler is described as “a colorful figure who oversaw every aspect of his business closely.” Said one former employee: “Lou was a tough guy to work for. He personally opened every piece of mail every day. You were reprimanded if you didn’t quote a full $25 million limit because he was getting a 37.5% cede from his reinsurers.”
Lou was known to be tight with a dollar — but still, he took high-rent space on the 100th floor of the Sears Tower when it opened in 1973. According to Claims Made and Reported , Lou won the right to lease the high-profile space as part of winning a game of gin rummy with Bobby Russell. “Gin rummy was also how we got into, out of — and back into — railroad liability and a whole host of other scary product lines,” recalled a Biegler employee of that era. Can you imagine Captain Whiley’s reaction to underwriting by way of gin rummy (or Lester Parsons’ for that matter)? Part of the hall-of-fame designation is that Lou was an early pioneer in US professional lines — one of the first to write Bankers’ Professional Liability, where he “evidenced a hearty appetite for risk (with reinsurers’ money).” All of this should have set off red flags and warning bells, but Bobby Russell — either because of Biegler’s big personality or because L.W. Biegler was “making money” — waved off a lot of the controls. If it’s too good to be true, you should probably at least audit it! In the 1980 annual report, Russell writes: “Since its formation ten years ago under chief executive Lou Biegler, this Profit Center has been the consistently outstanding contributor to corporate profitability.” Even in C&F’s 1981 annual report, Russell refers to L.W. Biegler’s “superior performance.” I’ll jump ahead just to finish this part of the story. It must have come as quite the surprise to Bobby Russell when L.W. Biegler earned a lot of ink in the 1985 annual report of Xerox, C&F’s new owner. Significant claims, combined with a rash of uncollectible reinsurance at L.W.Biegler, precipitated a substantial charge to C&F’s reserves and Xerox’s earnings, a $200 million capital infusion into C&F — and the 1985 “holiday massacre” at C&F and L.W. Biegler. Nearly 40 years after L.W. Biegler was put out of its misery, there are still open claims on Lou’s business. That qualifies you for some kind of hall of fame.
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