330 Madison Avenue
NYMAGIC believes it can successfully compete against other companies in the insurance market due to its philosophy of underwriting quality insurance, its reputation as a conservative well-capitalized insurer, and its willingness to forgo unprofitable business. NYMAGIC is a true underwriting company. Our underwriters aren't wed to underwriting manuals, pricing guidelines, and forms. Instead, they have a deep understanding of the nature of risk and are practiced in the art of underwriting. This translates to a level of expertise, insight and creativity you will be hard-pressed to find elsewhere.
With headquarters in New York City, NYMAGIC, Inc. is a holding company for two insurance subsidiaries, New York Marine & General Insurance Company and Gotham Insurance Company, which are primarily engaged in the underwriting of ocean marine, commercial aviation, and cargo insurance. The companies also handle so-called "surplus lines" of insurance, which are the type of one-of-a-kind, unregulated, high-risk, high-rate policies underwritten by Lloyds of London. NYMAGIC also owns several insurance pools that underwrite the policies of New York Marine and Gotham Insurance, the oldest of which is Mutual Marine Office (MMO) established by NYMAGIC's founder, John N. Blackman, Sr. More than 60 percent of NYMAGIC is still owned by Blackman's two sons and their mother.
1960s Origins
After being employed in the marine insurance industry for more than a decade, Blackman decided to go it alone, starting MMO in 1964 to act as an agent for a pool of marine insurance companies. Although it was less regulated than other forms of insurance and held great potential for profits, marine insurance was also extremely risky. Blackman had both the necessary experience and willingness to take risks to write coverage for marine cargo traversing through war zones such as the Persian Gulf and for oil-drilling rigs and other types of excess-liability businesses. Blackman was also cautious, looking to spread the risk among multiple insurers. He established relationships with several partners who would remain in his pool for 30 years, mostly because Blackman made them money from the start. For managing the pool, MMO received a fee based on premium payments and profits, while members of the pool shared profits based upon their participation. Blackman and his staff of underwriters, however, were more than insurance pool managers. They developed sources to gather intelligence and screen gossip to determine what policies to gamble on. They were also smart about making policies extremely specific, carving out the kind of exceptions that can only result from a thorough understanding of the risks involved.
MMO was so profitable that in 1972, to avoid paying a stiff tax on dividends, Blackman decided to start his own insurance company, New York Marine & General Insurance. Essentially, it was a new company in the paperwork only, because it used both MMO's staff and offices. Funded with only $500,000, New York Marine at first engaged in reinsurance, another way for direct insurers to spread their risk. After building up reserves, in 1979 New York Marine was able to become directly involved in the MMO pool. In this way, Blackman, through MMO and New York Marine, would be able to derive a management fee from the pool as well as share in pool profits. Between 1979 and 1983, revenues for New York Marine doubled, reaching $9.15 million, while net income grew at an even greater pace to $1.8 million.
In 1983 Blackman began to provide coverage for the aviation industry, which had been hit hard by a number of worldwide accidents and hundreds of fatalities. Insurers paid out $350 million in damages in 1982, although premiums totaled only $280 million. Damages in 1983 would rise to $450 million, prompting a number of reinsurers to leave the business and inevitably resulted in much higher premiums, which were what attracted Blackman to the segment. MMO was willing to assume as much 3.5 percent of some airline insurance contracts.
New York Marine Goes Public in 1984
New York Marine was doing so well by then that Blackman decided to make it a "real company" by taking it public in 1984. It made a further offer of stock in 1985. Flush with new capital, the company was then able to increase its share in the MMO pool from 15 percent to 50 percent, a situation made palatable to pool members by the doubling of gross premiums between 1984 and 1986. Although the other pool members did not see their income drop off, New York Marine, with its increased share, watched its revenues soar, reaching $24 million in 1984 and $47.9 million in 1985. The next year, without increasing its participation in the pool, New York Marine increased revenues another 32 percent to $63.1 million. Profits also jumped 74 percent to $11.4 million. One spot of trouble came in 1985 when Mutual Fire, Marine & Inland Insurance Company was dropped from MMO. A year later, the company went bankrupt, leaving the other pool members to honor its obligations. New York Marine wrote off $569,000 after taxes, but the loss had little impact on the company's bottom line. Nevertheless, the situation caused Blackman to maintain a closer watch on MMO's four other outside pool members.
Blackman was able to achieve such impressive growth by remaining flexible. After moving into aviation coverage in 1983, for instance, MMO increased its participation in that segment to 16 percent of total premiums in 1985 and 29 percent in 1986. When rates came down, Blackman pulled back and once again adjusted his mix of business. In October 1986 he formed a subsidiary to New York Marine called Gotham Insurance Company to engage in the surplus line marketplace, providing esoteric casualty insurance for what Blackman called, "weird risks." For example, Gotham Insurance wrote coverage for a Korean condom manufacturer and for a blood bank. Because of the high risk involved, Gotham Insurance could charge a high premium, but as always it was also careful to write in a number of exclusions. In the case of the blood bank, that meant precluding claims related to the AIDS virus, HIV. The company also reinsured its risk, making sure its liability never exceeded $1 million. As with New York Marine, Gotham Insurance was run by the MMO staff in the same Manhattan offices.
New York Marine had accumulated enough of a surplus to assume a larger stake in the MMO pool without having to resort to raising new capital. Like other insurers that started out as pool managers, such as industry giants Chubb Corp. and AIG (American International Group), New York Marine was in a position to take over the entire pool. Aside from stretching the company's finances, Blackman expressed reluctance to assume complete control because of loyalty to the people who had helped him launch MMO some 20 years earlier. It was a decision he never made, however, because in September 1988 Blackman died at the age of 64. He left the company in the hands of his two sons, who for some years had served as executive vice-presidents for New York Marine. Each controlled 21.3 percent of New York Marine's stock, while Blackman's ex-wife, Louise B. Tollefson, controlled 20 percent, either directly or through trusts. John N. Blackman, Jr., first went to work for his father in 1973, followed by brother Mark in 1977. John, at 41 years old, was now elected chairman of the board of New York Marine, and Mark, age 37, was named president. In October 1988, NYMAGIC was formed to serve as a holding company for New York Marine and Gotham Insurance to provide greater flexibility in the financial market.
Under the leadership of a second generation of the Blackman family, NYMAGIC officially acquired MMO in January 1991, issuing 5.8 million shares of common stock for all of the outstanding common stock of MMO. Later in 1991, NYMAGIC added new insurance pools. The company acquired a pool originally founded in 1978 to underwrite business in the Midwest, folding it into a subsidiary it named Mutual Marine Office of the Midwest, Inc. NYMAGIC also acquired a West Coast pool, which became Pacific Mutual Marine Office, Inc. Further changes occurred in MMO. Long-time pool member Utica Mutual Insurance Company dropped out of MMO in 1994, followed by Arkwright Mutual Insurance Company in 1996. By 1997 NYMAGIC controlled 100 percent of MMO.
Although taking over MMO appeared to be the route to a dramatic increase in revenues and profits, the actual results for NYMAGIC in the 1990s was less than spectacular. Revenues neared $110 million in 1992 with profits of $15.2 million, but fell off in 1993 to $92.2 million and profits of $14.6 million. In 1994 revenues rebounded somewhat, totaling more than $103 million, but the company also suffered the heaviest payout in its history with the Northridge earthquake, which cost it $5.8 million. Furthermore, NYMAGIC suffered severe losses in the aviation segment. The result to the bottom line was a fall in net profits to $9.6 million. Despite the losses caused by Hurricane Luis in 1995, NYMAGIC posted record revenues, exceeding $133 million, and profits of $20 million. In 1996, revenues dipped to $125.6 million, but MYMAGIC increased its profits to $22.6 million. In 1997, revenues again fell, to just over $121 million, yet once again the company generated record net profits of $26.4 million.
NYMAGIC Turns to London in 1997
In 1997 NYMAGIC, already with offices in New York, San Francisco, and Chicago, looked to penetrate the London marine market, whose brokers placed close to one third of the world's commercial marine business. A number of Lloyd's "names" had suffered major losses in the early 1990s, resulting in a many bankruptcies. Because of uncertainty in London, many customers turned to the U.S. marine markets, but as Lloyds rebounded, its agencies began to recapture lost business. NYMAGIC was eager to follow the business and participate in the London market. It formed a subsidiary called MMO UK, Ltd. to engage in underwriting with Lloyd's through an entity called Syndicate 1265, for which it provided all the capital. The history of Syndicate 1265 dates back to the Chester syndicate of the 1800s, a world-famous marine hull underwriter and pioneer in drilling rig underwriting. In December 1997, NYMAGIC also acquired a Lloyd's affiliated company, Highgate Managing Agencies, Ltd., then changed its name to MMO Underwriting Agency Ltd. MMO Underwriting was subsequently granted permission in February 1998 to commence underwriting in conjunction with Syndicate 1265.
The two Blackman brothers disagreed over the direction that MYMAGIC was taking, and their differences became so irreconcilable that in September 1998 the company's board of directors voted to dismiss John Blackman as chairman. Mark Blackman also resigned as president and chief executive officer. Although acknowledging that the move was highly unusual, especially since the Blackman family held a controlling interest in NYMAGIC, the board maintained that it acted thus to preserve the integrity of the company for all of its shareholders and that the disagreements between the brothers prevented NYMAGIC from operating effectively. Two board members were selected to fill in on an interim basis: Sergio Tobia as chairman and Jean H. Goulding as president.
After searching several months for a new chief executive officer, NYMAGIC settled on Vincent T. Papa in March 1999. He had almost 20 years of experience with Orion Capital Corporation, and since 1995 had served as CEO of Orion's marine and property insurance subsidiary, Wm. H. McGee Company. Although Papa appeared to be the perfect fit for MYMAGIC, he lasted only four months. Because he disagreed with the board about the direction to take the company, he exercised an option to leave. When NYMAGIC refused to pay a severance package contained in Papa's employment contract, Papa filed suit. The matter was eventually resolved out of court in the fourth quarter of fiscal 2000.
With unstable management, NYMAGIC saw its revenues drop from $106.4 million in 1998 to $89.5 million in 1999 and profits shrink from $18.5 million to $16.4 million. Papa was officially replaced by Robert W. Bailey in January 2000. Bailey had joined the NYMAGIC board in June 1999 and was then appointed chairman in July. When Papa decided to leave the company, Bailey had stepped in as acting chief executive. He boasted more than 40 years of experience in marine and aviation insurance, coming to NYMAGIC from Aon Group, where he served as a senior vice-president of subsidiary Aon Insurance Inc. Both marine and aviation segments had experienced depressed rates in recent years, but Bailey expressed a belief that the situation had bottomed out, and NYMAGIC would be able to take advantage of a market that had fewer players. He did not, however, see an immediate improvement.
In 2000 NYMAGIC generated $100.7 million in revenues but posted an unprecedented loss in net profits, totaling more than $5.5 million. The loss was essentially caused by MMO UK, due in large part to the runoff of Syndicate 1265, which ceased underwriting in the third quarter of the year. As a consequence, NYMAGIC elected to sell Syndicate 1265. It also sold MMO Underwriting Agency in exchange for a minority interest in Cathedral Capital plc, involved in the U.K. insurance market. Early results in 2001 were also disappointing, showing few areas of strength. More than a dozen years since the death of its founder, NYMAGIC was clearly in need of the kind of vision and leadership that John N. Blackman, Sr., provided. Whether Bailey would display that and be able to revitalize the firm could only be answered with time.
Principal Subsidiaries: New York Marine & General Insurance Company; Gotham Insurance Company; Mutual Marine Office, Inc.; Pacific Mutual Marine Office, Inc.; Mutual Marine Office of the Midwest, Inc.
Principal Competitors: Allianz Insurance; HCC Insurance; Navigators.
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