Starting an insurance company was a significant challenge.  The catalyst was a trade association then known as HIMA (Healthcare Industry Manufacturers Association) and later repositioned as the Advanced Medical Technology Association or AdvaMed.  Trade groups are routinely petitioned by their members to advocate industry views before Congress, state legislatures and regulatory agencies. Somewhat unique was the HIMA initiative that responded to a business services dilemma - the excessive cost and limited availability of products liability insurance.  Throughout 1977 and 1978, HIMA held conferences, conducted business research and produced findings demonstrating the feasibility of forming an industry-controlled products liability insurer.  The exploratory process presented two clear signals about the shape of a solution.  Capital funding was essential on day one to address any unexpected loss in the early weeks and months after company formation.  Initial collected premiums from 31 founders would be overwhelmed by a big reported loss perhaps sinking the new insurer.  Further, the founders had to purchase state-approved insurance coverage according to differing laws and regulations in various states where the manufacturers were based.  It became obvious that formation of a new insurance company in the United States was impractical.  Each state demanded an exhausting and sometimes multi-year process to license a new insurance company, condemning the future policyholders to uncertainty about when or where they could purchase products liability coverage.

The choice of where to start the new insurer was answered in 1978 from Bermuda, an independent colony of the United Kingdom.  The pathway to Bermuda was new information to HIMA members, but reasonably well known by risk managers in large corporations and their insurance brokers.  Insurer formations in Bermuda were chartered as offshore "captives" to assume property and casualty risks from their parent companies in the U.S. and other developed countries.  While the Bermuda licensing process was comprehensive, it took months rather than the years the state approval process would take in the U.S. The new company was ultimately licensed under the name of Medical Device Mutual Assurance & Reinsurance Company.

Members understood that the newly Bermuda-licensed insurer was not allowed to sell an actual insurance policy in any state.  To surmount this obstacle, the founders started a contractual relationship with a major U.S.-based insurance company licensed in all states.  The U.S. insurer agreed to sell a "fronting" insurance policy to Medmarc's founding members.  Under the fronting arrangement, an insurer transfers some or all of the risk of loss in a policy to a reinsurer - in this case to Medmarc in Bermuda.  The insurer gets a fronting fee from the reinsurer to compensate for issuing the policy and assuming the direct insurance risk if the reinsurer cannot meet its contractual obligation to pay the loss.  The reinsurer receives the bulk of the policy premium transferred from the fronting insurer, since it has the ultimate obligation to pay for future products liability losses.  Of particular appeal to Medmarc's founding members, was the strong financial rating of the large U.S. insurance company coupled with the power to influence their insurance policy pricing through the reinsurance terms.  Essentially, the founders of Medmarc created the optimal insurance solution - the purchase of a well-regarded products liability policy that was priced by an equitable rating process within tiers of product risk classes and realistic rates.

Capital formation was the final hurdle after the choice of a domicile, reasonable expectation of getting a license as an insurer and the design of the fronting arrangement.  Bringing capital to the party involved a two-step process.  The new Bermuda company needed about $1.0 million in contributed capital in order to satisfy the authorities for evidence of immediate financial solvency and the capacity to pay reinsurance claims.  Each prospective member was assessed a $30,000 capital contribution.  To moderate cash drain pressure, members were encouraged to pay $7,500 in cash and acquire an irrevocable, evergreen letter of credit ("LOC") for $22,500 in favor of Medmarc.  The novelty of this capital raise was its reliance on a credit instrument for more than two-thirds of the investment.  Although elegant in concept, the sourcing of letters of credit by unfamiliar manufacturers from inexperienced bankers from region to region became a tedious process.  The assembly of LOC's and cash deposits went down to the wire in December 1978 with a looming deadline of January 1, 1979 for insurance coverage.  Throughout the Medmarc business design phase, HIMA provided interim staffing.  Subsequently, the Company purchased an array of services in the U.S. and Bermuda and supplemented them with some administrative assistance from the trade association.  The notion of a "virtual company" was unknown in the early 1980's, but it worked while Medmarc was getting started.  Another development militated against hiring a professional staff.  The irrational "hard" insurance market that spawned the Company's formation reversed course by 1980 and commercial products liability insurance became available and inexpensive to purchase (at times below cost) in a "soft" market.  Demand for the new captive insurance company program was minimal between 1980 and late 1984.

A CEO leadership change at HIMA in mid-1984 led its Board of Directors to conclude that Medmarc should chart an independent course.  The trade group remained steadfast in its support of the Company during and after formation, even though HIMA never had any financial or governance stake.  I was offered the opportunity to become the first employee of Medmarc in the summer of 1984 moving out of my role as a senior vice president of the Association.  The business entrepreneurial challenge was very appealing - especially since I was closely involved with the Medmarc formation, while also tending to a technical agenda with HIMA.  The Medmarc Board of Directors also faced a reckoning.  The overhead cost burden of a virtual insurance company was becoming prohibitive, because of negligible growth in policyholders during four years since the Bermuda inception.  Something needed to be done.

My selection as President coincided with a sea change to a hard insurance market beginning in 1984's fourth quarter.  For the next three plus years, Medmarc became highly attractive as dozens of commercial insurers abandoned products liability coverage for healthcare technology manufacturers.  The greatest boost came from commercial insurance brokers frustrated by the mindless rejection of their medical technology clients in the broader insurance market.  According to custom and practice, brokers work diligently for their clients seeking price and coverage terms from selected insurers.  In this instance, there was almost no insurance available to healthcare product manufacturers other than the Medmarc program.  Even more compelling at the time, was the attraction of a captive insurance company arrangement.  Brokers made a judgment call that an industry-controlled insurance company would appeal to medical technology clients and remain in the market for the long term, while other insurers usually lost interest.

Publicity about, and the magnetism of, Medmarc as a compelling insurance program in the 1980's would not have stood the test of time for 30 years without more.  The greater source of insurance broker and customer loyalty was, and is, the multidimensional access to expertise within the Company and responsive policyholder services.  Medmarc hired top talent for underwriting, claims management and loss prevention.  Further, in the 1990's Medmarc formed a strategic alliance with The Hartford, a Fortune 100 company, to offer a dedicated channel for directors and officers liability, property, automobile, workers compensation and general liability insurance protection.  Next, sensing the move to conducting human testing outside the United States the Company established a correspondent relationship with BioMedic Insure, a France-based broker specializing in placing clinical trials insurance in countries that mandate such coverage be purchased through an in-country insurer.  By creating an integrated underwriting and risk management team structure, forming unique business relationships with quality partners and staying abreast of the needs of the healthcare technology industry, Medmarc became the go to insurer.

Over 30 years Medmarc has achieved high level financial ratings based on a conservative approach to business.  Foremost among the financial achievements is the accumulation of financial surplus.  The Company's original capital of $1.0 million has been built to more than $100 million surplus today.  This amount of surplus affirms to any observer or customer that Medmarc will stand behind its insurance commitments.

The personal touch, in my mind, is the highest level of customer connection.  Our success story is rooted in the Company's Board of Directors, drawn mostly from our policyholders.  They have guided our executives, managers and staff to understand medical technology benefits and risks.  Even more so, the Board has set a high standard for a deep and lasting customer connection.  Medmarc is a true success story.  Looking forward, the Company remains committed to providing insurance protection for companies who develop, test and market healthcare technologies which will impact the quality of life for future generations.  I have been privileged to serve as a leader - for a long period as CEO and now as non-executive chairman.  No career could have been more rewarding or fulfilling.