US cat-focused MGAs seek new capacity as carriers retrench

AmRisc and ICAT are among several of the larger cat-focused US property MGAs seeking new capacity for 2022 as a number of carriers including Scor, QBE and Hiscox retrench by either cutting back their participation or exiting programs, accelerating hard market conditions, The Insurer can reveal.

The repositioning of carriers in the E&S property market has been a dominant theme so far at the Wholesale & Specialty Insurance Association (WSIA)’s Annual Marketplace 2021 in San Diego this week, with anecdotal evidence that several large players are revisiting their portfolios.

Steps taken include selective retrenchment from some tier 1 and tier 2 zones, pushing up deductibles, and a determination to drive further meaningful rate increases after another year of heavy cat losses amid concerns over inflation and rising reinsurance costs against the backdrop of climate change.

Carriers and MGAs have also been addressing the issue of insurance to value that has been brought into sharp relief in the last couple of years and in many cases not adequately reflected in underwriting.

The broad expectation is that 2022 will see a big push from underwriters for meaningful double digit rate increases in property cat that could top the 20 percent level.

There is also now tangible evidence of some carriers pulling back capacity from MGAs writing coastal, cat-exposed property business, including in the commercial residential and real estate segments.

According to multiple sources at WSIA, Scor is exiting primary E&S property cat business written by MGAs in the US. Scor currently writes through its General Security Indemnity Company of Arizona subsidiary.

It is thought the move will impact three MGAs, the largest of which is Truist Insurance Holdings-owned AmRisc.

Meanwhile, QBE is understood to have communicated that it is pulling back meaningfully, impacting key MGA relationships including AmRisc, ICAT and Orchid Underwriters as it reacts to the challenging environment.

Other carriers including Hiscox are understood to be reassessing their participation on some MGAs with heavy exposure to US property cat.

A Hiscox spokesperson wouldn’t comment specifically on MGA support, but confirmed that the carrier has taken the “difficult decision” to stop writing US property business from Atlanta and is in the process of supporting brokers and customers through the transition.

“This decision impacts a small subset of our overall property portfolio. We remain committed to the E&S property market and see plenty of opportunities ahead,” they added.

A number of other insurers have more generally communicated that they are repositioning their portfolios to cut back cat exposure, including Everest, Axa XL and Nationwide.

The moves come after a poor run of results for US property cat over the last five years as a result of elevated frequency and severity of primary and secondary peril cat events, as well as the impact of loss creep, and social and economic inflation.

MGA sources said that despite the challenges of carrier retrenchment, there is optimism that the significant rate increases expected in 2022 mean that they will see top line growth even if their capacity is reduced.

The prospect of an acceleration of hard market conditions is being seen as an opportunity, with those that are facing the loss of some capacity from retrenching carriers known to be actively in the marketplace to secure more.

Rate, terms and new capacity

AmRisc is the giant of the cat-focused MGU space with premium volume expected to approach $2bn for 2021, around three quarters of which is written on an E&S basis.

Despite 2021 losses, sources said its combined ratio for the year on a gross basis is likely to come in within the 95-105 percent range, although the experience of carriers that support its programs will depend on their own reinsurance purchasing strategies and costs.

The Brian Reid-led MGA currently has capacity on a probable maximum loss (PML) basis of around $3.2bn at the 1 in 250 year return period on its E&S book, with additional capacity on its admitted offering and its quake facility.

Details of the participation of all of its capacity providers is not known, but Scor is thought to provide around 7 percent of its E&S capacity, while the reduction in QBE’s participation is likely to represent a lower percentage of the overall PML limit it can put out.

Other carriers across AmRisc’s overall carrier panel (admitted and non-admitted) include Zurich’s Steadfast subsidiary, HDI Global Specialty, Lexington, Nephila through State National, Axa XL via its Indian Harbor subsidiary, Old Republic, GeoVera, Transverse, American Coastal and Journey Insurance.

Sources said the MGA has been communicating to brokers that it will look to push through rate increases of between 15 and 30 percent on its E&S book in 2022.

A segment of accounts on its portfolio that are higher uses of PML will be expected to pay increases at the top end of that range. The move is expected to reshape the book, with a significant amount of business shed, but new business added to replace it.

AmRisc is among a number of MGAs and carriers also looking for a higher deductible. And it is also thought to be phasing out the so-called “year-upgrade” factor in its modeling and underwriting.

The MGA is currently believed to be looking to add capacity from existing carrier partners to replace a portion of that which will be lost, and is in talks with potential new capacity providers.

Meanwhile, ICAT – now part of Marsh McLennan’s Victor MGA platform – is also understood to be actively seeking new capacity providers.

ICAT has been taking steps to reshape its portfolio and has been cutting back limits and focusing on its core small commercial book as well as moving up deductibles.

Other MGAs have also been proactively taking steps to reshape their portfolios and address loss trends.

Orchid Underwriters, for example, slashed its TIV in Louisiana from September 2020 through September 2021, which is thought to have saved its carrier partners more than $60mn in Ida losses.

The TowerBrook-owned MGA is believed to have grown its overall premium volume by around 30 percent while decreasing PML by 21 percent as it has repositioned its portfolio over the last year.

AmRisc, ICAT and Scor declined to comment. QBE and Orchid could not be reached for comment.

The Insurer comment

Property cat has been the dominant theme at WSIA this year as brokers and MGAs grapple with a broad retrenchment and repositioning from carriers after five consecutive years of elevated loss activity that has badly hit results.

It is arguably no surprise to learn that a number of cat-focused MGAs are being directly impacted as carriers pull back participation.

In one sense, the moves appear counter-intuitive, with those carriers pulling capacity now set to see less of a benefit from the expected significant hardening of rates in 2022, although of course it takes capacity to exit to drive a hard market.

The great unknown at this stage is what impact the upcoming reinsurance renewal will have on the sector.

There is a broad expectation that reinsurance costs will go up in a meaningful way for carriers buying cat protection, and that will likely drive further repositioning of portfolios as they look to manage PMLs.

This is nothing new for MGAs, who had to deal with retrenchment from Lloyd’s and other capacity providers in recent years in response to losses.

Ultimately capacity is king, and MGAs that are able to keep capacity relatively stable will capitalize the most on the hardening to come.

But even those that go into 2022 with less capacity may still see top line growth as pricing surges.