TMPAA panel: Market boom means there is enough to feed wave of program carriers for now

Strong US program sector growth and the ongoing flow of underwriting teams from traditional carriers to MGAs means there is currently enough business to feed the wave of hybrid program fronting carriers that have entered the market in recent years, according to panellists at Target Markets last week.

As previously reported, there are now upwards of 20 hybrid program fronting carriers operating in the space, most with a participatory model that sees them retain a share of the risk.

The majority of those have emerged in the last couple of years in response to what they see as an opportunity to bring reinsurance capacity to access a fast-growing programs sector.

The panel at the Target Markets Program Administrators Association Summit in Scottsdale, Arizona characterised the group of companies as program carriers rather than fronts for the purposes of the discussion.

During the Summit it emerged that Concert Group Holdings had become the latest option after completing its planned $100mn capital raise and securing an AM Best A- rating for its admitted carrier subsidiary to target the US insurance fronting space.

Sources have said there are yet more proposed start-ups with an iteration of the hybrid fronting model in the pipeline that are seeking AM Best ratings.

And BMS Re executive vice president Desmond Bohan said: “Is there enough business to feed all these companies? Right now it seems like there is.”

He highlighted the trend for underwriting teams to leave carriers for the MGA world, and the proliferation of “very good” MGA platforms that can allow that team to plug in while they handle the operational and administrative side.

“There are a lot of programs coming out every day and the submission flow is astronomical, so right now it seems there probably are enough programs to feed all these companies,” said the executive.

Brian Cohen, the founding CEO of MGA Arden Insurance Services and an operating partner at private equity firm Altamont Capital, said that with the large number of options program carriers will have to demonstrate more value to differentiate themselves.

“It’s not just going to be letting you use their paper. [It’s about] what is the value-add they bring to you and the differentiation they can bring that can make the program perform better and make everybody more money,” he suggested.

Meanwhile, Swiss Re’s Lee Brenner, who oversees a $1.5bn premium portfolio at the reinsurer with a focus on the program sector, said he believed that if the increased level of competition became a factor in taking momentum out of primary rate increases in the space then that would indicate there were too many players.

Reinsurer relationships

Also speaking on the panel, Jerome Breslin, founding CEO of program carrier Clear Blue, highlighted what he said was a significant change in the industry brought about by the emergence of the new players that have entered the sector.

He said that a decade ago reinsurers were disadvantaged because a traditional program carrier would only cede business they did not want to keep on their own balance sheet.

Reinsurers had little or no interaction with the underwriter at the MGA that wrote the business and lacked any kind of control.

“We’ve completely collapsed the chain and now reinsurers have direct contact with MGAs and MGA underwriters. Reinsurance capacity was so far removed from the day-to-day understanding of the business they were on risk for that it led to a lot of unprofitability and uncomfortable conversations.

“The new way of being a program carrier and doing things is bringing everybody in a very transparent way so that they all understand what’s being done and it leads to much better outcomes,” he commented.

Cohen said MGAs also benefit from being able to develop relationships with reinsurers.

“I’m now having regular conversations with our reinsurance partners and developing relationships. Ultimately that will build confidence in the reinsurance community in what we’re doing and that we’re doing what we’re saying we’re doing which I think will only allow us to have more capacity to be able to put to work,” he explained.

Bohan said the significant amount of work that goes into building a program and developing reinsurance relationships up front can create opportunities to then grow the relationship by adding new programs or classes of business or extending underwriting guidelines.

“[That] is something that should be part of every program conversation, just because the reinsurers and carriers get a comfort level with an MGA and put in that diligence and are confident in the partnership.

“They’d much rather build off that than have to go through the whole thing again with somebody new,” said the BMS Re executive.

Swiss Re’s Brenner said that reinsurance brokers were adding a level of due diligence by putting in a significant amount of work to effectively pre-qualify programs for the reinsurance market.

“Their level of prequalification doesn’t always meet the reinsurer’s needs, but they’re vetting things before it even comes to the market which is a big change from the past,” he added.