The Insurer TV: $60bn US program sector will continue to outpace growth in broader market
Growth in the estimated $60bn premium US program sector is expected to continue outpacing that of the wider commercial insurance market as underwriting capital is drawn to the increasingly sophisticated MGA, MGU and program administrator (PA) model as a way to efficiently access insurance risk.
Participants in the latest instalment of The Insurer TV’s monthly Prospective series painted a picture of a buoyant segment where investor interest has never been higher amid strong growth in existing programs and a full pipeline of new programs entering the scene.
The drivers include a surging E&S market, significant demand for solutions to address emerging risks such as cyber and the continued wave of insurtechs that view the sector as a preferred venue to provide speed to market for their innovation and access to capacity.
The dynamics have also fuelled a surge of new entrants in the hybrid fronting carrier space to provide a conduit between reinsurance capital and MGAs.
A $60bn market
After a decade of maturity in the US program sector there remains some debate over its size, with estimates ranging from $45bn to $60bn of overall premium volume including MGAs affiliated to carriers.
Accredited Specialty Insurance Company president and CEO Pat Rastiello said that the program manager and fronting carrier believes the true number is at the top end of that range, with a significant proportion of programs not broken out in carrier annual statements because they are below the reporting threshold in size.
Meanwhile, Michael Jameson, president of Guy Carpenter’s recently launched MGA-focused GC Access unit, said his firm estimates there are currently around 1,000 active MGAs in the US, representing between $50bn and $60bn of premium in the insurance market.
The majority of that total comes from MGAs that are affiliated with carriers, with $15bn to $20bn written by unaffiliated MGAs. He estimated that just over 60 percent of carriers in the US are in some way affiliated with an MGA.
If there is some debate about the size of the market, there is no question of its recent track record on growth, and its prospects for continued expansion, however.
“We’ve seen significant growth in the MGA space over the last few years. Back in 2012 we estimated that market at around $25bn so it’s more than doubled in size in the last nine years,” said Jameson.
And Bob Petrilli, president of the underwriting division at Amwins, said: “The growth in this market outpaces the growth of the commercial insurance market generally. We expect that to continue as long as PAs can provide the results they’ve been providing.”
For Michael Beasley, president and CEO of Trisura Specialty Insurance Company and Trisura Insurance Company, the growth record of the last decade has created its own momentum.
“In the last 10 years the program space has been the fastest growing area in the P&C industry altogether – that has attracted a lot of attention and with that you get a lot of professional capital that’s made it into this space,” he commented.
Capital has been drawn in by the multiples of Ebitda MGAs are valued at, helping fuel further expansion.
MGAs have also been able to “pick off a lot of low-lying fruit” in areas like package policies with premiums below $25,000, where they are able to leverage new technology and do the business more efficiently than large carriers that are less focused on the program space.
Permanent shift
Although there was an acknowledgment from participants that the broader hard market for US commercial insurance had been a meaningful growth engine for the program sector, none were of the view that its trajectory is only cyclical.
“The fact that this part of the market has really delivered superior results in an efficient and nimble way – that continues to drive carriers and capital markets to say this is a very efficient way to deploy our capital into the insurance space,” said Petrilli.
Phil Edmundson, CEO of insurtech MGU Corvus Insurance, agreed that there has been a permanent shift that has driven the expansion in the program sector, which he put down to the view that it offers a more efficient use of capital but also a way of segmenting strengths within the industry and getting innovation to market more quickly.
Jameson also highlighted the increasing sophistication of MGAs in their underwriting, technology, the distribution they own and access to capital.
“MGAs have become essentially insurance carriers without balance sheets so we’d expect that sophistication to continue and to develop with technology. We’re very bullish in terms of the space and it continuing to grow,” said the GC Access executive.
E&S and emerging risks
Several participants highlighted the surging E&S market as a driver of future growth for MGAs in the program space as they looked at deal pipelines.
“Do I think it will get bigger? Absolutely,” said Accredited’s Rastiello.
“The E&S space is exploding right now and the MGAs really live in the E&S space, so I think you’ll see our pipeline and others’ continue to grow.”
Petrilli said that Amwins has seen a huge uptick in the E&S space on its underwriting platform as more traditional capacity has retracted and the surplus lines market filled the space.
He also pointed to areas like cyber and cannabis as big drivers of growth.
Corvus Insurance’s Edmundson said that his firm – which has a strong focus on cyber – has seen significant growth as demand has increased because of the visibility and severity of recent hacking incidents.
“Over the course of a long career I’ve seen insurance buyers respond to increasing prices in markets where demand is growing not in the way conventional consumers would, which is to say ‘oh my the price is going up I can’t afford it’.
“Instead the attention of management of organisations is brought to these issues by the increasing price and frequently the response from organisations is to greatly increase the limits of insurance and through that drives further growth to the marketplace,” he observed.
His colleague, CUO Mike Karbassi, said that underwriters in the program space that can best harness the “plethora of data” available, aggregate it and synthesise it, are able to be the most precise underwriters and eliminate some of the subjective factor in the underwriting process to rely more on objective analysis.
Click below to watch the latest episode of Prospective, which this month focuses on the US program insurance sector – a subsegment of the US property casualty insurance market that has undergone a transformation over the last decade.