Accredited to build out E&S book with ‘focused distribution and expert underwriting’
The new A- AM Best rated E&S platform launched by R&Q’s program management business Accredited has already been shown a pipeline of business in excess of $1bn, according to the unit’s CEO Patrick Rastiello.
The program and MGA sector veteran was signed up to lead Accredited Specialty Insurance Company (ASIC) as R&Q moved to add a meaningful surplus lines capability to its established admitted platform in the US and its European operation.
And in an interview with The Insurer’s Program Manager publication, the former Aon executive said: “We are excited about the extraordinary support from our producing brokers and historic MGA relationships.
“With such a strong pipeline of opportunities we expect to construct a well-rounded book of E&S programs.”
Rastiello added, however, that only a select group of “best-in-class” MGAs will end up on ASIC’s books as onboarded premium, as he revealed that the carrier has six programs in its sights for the first quarter of 2021.
The executive spent 23 years as a broker with Aon, and in the last decade focused on the MGA space, advising clients and creating industry engagement including through the launch of the Ignition Forum. Before that he spent 14 years as a reinsurance underwriter.
“It’s perfect timing for the launch of an E&S vehicle. As the market gets harder still, a lot of the admitted players will need E&S capacity because some of the admitted business will fall into E&S. So we want to be sure that we support our customers on both sides of the house”
ASIC CEO Pat Rastiello on the E&S opportunity in the US program sector
Rastiello told Program Manager that the E&S market is as strong as he has seen in his career.
“So it’s perfect timing for the launch of an E&S vehicle. As the market gets harder still, a lot of the admitted players will need E&S capacity because some of the admitted business will fall into E&S. So we want to be sure that we support our customers on both sides of the house,” he said.
ASIC has already received its domiciliary license in Arizona and is in the process of securing approval to write on a surplus lines basis in all 50 states.
“To date we are licensed in 27 states including the District of Columbia and expect 11 more by 31 December. The remaining 11 states should be active very early in 2021,” said Rastiello.
ASIC will look to build out a “well-rounded” E&S book of business and will consider most lines with the exception of medical malpractice and products liability.
Lines it will target include general liability, construction, trucking – including cross-border trucking – inland marine, cyber, other liability including D&O and E&O, real estate professional liability, cargo and cannabis.
Accredited has been a very conservative property underwriter but will be upping its position in that segment of the market. Its focus will be on regional and “cat-lite” exposures in homeowners and commercial lines, including areas like flood and difference in conditions (DIC).
AM Best IX financial size
Combined with the Todd Campbell-led Accredited Surety and Casualty Company (ASCC) admitted carrier, R&Q’s program platform in the US now has an AM Best A- IX financial size, which would put it in a leading position among independent professional fronting companies.
Rastiello said the combined platform will offer a “holistic solution” to MGAs who need admitted and non-admitted paper in a growing segment of the market that is estimated to represent around $60bn of total premium volume in the US.
“We’re a US company with a strong panel of reinsurers, so we offer a lot in the marketplace as a solution for those that are having difficulties with Lloyd’s capacity”
Rastiello on the demand for capacity in the US program sector
“The due diligence process here is very tough, so only the best MGAs will make it through,” said the executive. “Most of what we’re seeing are not brand-new programs, but those that need new or extra capacity, often because of lost Lloyd’s capacity.”
He added: “They’re looking to us for a longer-term solution. We’re a US company with a strong panel of reinsurers, so we offer a lot in the marketplace as a solution for those that are having difficulties with Lloyd’s capacity.”
Retention levels and deal size
Rastiello revealed that ASIC will look to take light retentions as required by the economics of each transaction and reinsurers’ terms and conditions.
“We have seen some opportunities from well-established MGAs where reinsurers are willing to absorb 100 percent of the risk,” he added.
The executive explained that the carrier has access to strong outsourced data collection and analytics capabilities that will aid it in finding and mining pockets of profitability within lines of business as it selects programs to provide its paper to.
He also said the insurer is interacting with some of the largest MGAs in the sector, including DUAL, K2, Euclid, CRC and Orchid.
Accredited’s preference is to build broad relationships with larger MGA partners, and to manage its portfolio to avoid creating conflicting overlap and competition between MGA clients.
“We want to become a cornerstone of their capacity and grow with them, so they come to us first when they have a new program deal,” Rastiello explained.
ASIC will review programs with as little as $7mn in premium, if the program has potential to grow, to longstanding stable programs upwards of $100mn “as long as we can retain reinsurance relationships and the program remains profitable in our view”.
Focused distribution and expert underwriting
As a former reinsurance broker who has long been broking and structuring MGA and program deals, Rastiello continues to be an evangelist for the sector and why it represents the best conduit for reinsurers to access risk.
“The program fronting model is the most focused and transparent opportunity our reinsurance partners will underwrite. That’s our thought process behind this model, besides the fact that the capital-lite model is now very well accepted in the market,” he said.
“This approach is laser-focus usually on one line of business and one MGA and their producers. So you have the best view to the original underlying business in this model compared to an aggregated reinsurance of a large insurer where they’ve put everything in a pot and you’re trying to pick it apart,” the executive continued.
He said the model provides reinsurance partners access to “focused distribution and expert underwriting”.
Rastiello also countered the argument that the fronting model – which typically charges a fee of around 6 percent of premiums written – is expensive.
“On a traditional reinsurance offer you know your brokerage fee, TPA fee and original acquisition cost, but the fee for capital is hidden.
“If you’re reinsuring a large insurance company you know in the ceding commission a reinsurer is paying a capital charge, but you never know because it’s hidden,” he suggested.