New age of opportunities
No segment in the primary space has more clearly demonstrated the necessary acumen and adaptability to position themselves to capitalize on recent developments than the MGA space, says Transverse’s Ethan Allen and Robert Maloney.
Like many other business segments, the insurance industry is beginning what may be a sustained period of rapid development and advancement.
The basic premise of insurance—protection from financial loss by pooling the funds of many to cover the costs of some—remains largely the same and has for the last 200+ years, from the early days in Edward Lloyd’s Coffee House and the establishment of the Philadelphia Contributionship in the 18th century to the present setting.
What has evolved is what insurance covers: what is insured, the basis for triggering coverage, the types of entities and structures that underwrite and/or provide insurance-like coverage, and the myriad of regulations surrounding each of these.
Recently, advances in technology have become a catalyst and accelerated this evolution, resulting in further changes and diversification of providers and provider platforms, as well as simpler access to data for options on price and coverage comparison for insureds.
With this increase in demand and further opportunity, we’re also seeing an increase in response from a unique sector of the insurance industry: the land of managing general agents (MGAs). No segment in the primary space has more clearly demonstrated the necessary acumen and adaptability to position themselves to capitalize on these recent developments. Evidence of their increased role can be seen in their continued growth and meaningful outpacing of the overall industry as shown in the graph.
And while these advances have driven a shift in the mechanism by which insurance is provided to insureds, so too have there been developments in the secondary markets.
Reinsurance developments
The traditional reinsurance market continues to respond to the increasing demand, with net written premiums more than doubling from $29.1bn in 2013 to $63.2bn in 2018(1).
Meanwhile, alternative markets have continued to grow, accounting for approximately 16% of global reinsurance capital as of 1Q2018(2).
We now have an inflection point, a perfect storm of sorts: heightened writings from an increasing number of MGAs looking for capital to support their new, innovative, and often technologically enhanced business models, coupled with an increasing volume of capacity and diversity of secondary markets seeking sources of appropriate risk adjusted returns.
These MGAs bring a niche specialization and seek true partners with clear understandings of and appreciation for the delegated underwriting authority model. Partners who value long-term relationships and take requisite steps necessary to keep them healthy, acting as thought partners and not opportunistic and/or thoughtless underwriting overlords.
Meanwhile, reinsurers and alternative capital markets have a unique opportunity to tap into and profitably compete for this business by finding carriers and MGAs who truly understand the “what matters”—something that goes beyond a monthly bordereaux and an annual audit and extends into the successful sourcing, evaluation, implementation, and monitoring of the MGA and the insurance program(s) they provide for and support. Hence, we are seeing the demand for a new breed of carrier that specializes in building bridges amongst all sides; a carrier that can evaluate the acumen of an MGA and help them clearly articulate their value to secondary markets; and work seamlessly with the reinsurance community.
A carrier that leverages the strengths of all parties by serving as a conduit in the actualization of the alignment of interests. Welcome to the “new” age of opportunities ushered in by innovative fronting insurers!
(1) Reinsurance Association of America 2018 Reinsurance Underwriting Review
(2) Global Reinsurance Highlights citation – Aon Benfield Analytics and Aon Securities Inc.