Guy Carpenter Fifth Annual Specialty Insurance Program Issuing Carrier Survey, Part I: A Steady Marketplace
The Program Administrators and Managing General Agents (PA/MGA) market has remained remarkably consistent from 2008 to 2009, despite the outbreak of the worst financial crisis in more than 70 years. While the number of respondents perceiving market growth has declined since last year, the outlook remains quite upbeat, especially given the year’s tumultuous market conditions.
While Guy Carpenter & Company, LLC (”Guy Carpenter”) attempts to maintain survey consistency from one year to the next, we have to balance this goal against the emerging needs of the PA/MGA marketplace. Further, respondents change each year. Thus, we provide this service as a benchmark for key industry issues rather than as an effort to capture granular detail. Our goal is to shed light on the direction of the PA/MGA market and stimulate appetites for program business. We thank all who replied for investing time in this effort.
Market Size and Dynamics
Almost uniformly, respondents perceive the PA/MGA market to be large. Seventy-six percent estimate the total PA/MGA market to be at least USD20 billion in GWP, which is down from 92 percent last year, likely because the financial crisis has shaped perceptions across the industry. Twenty-seven percent specified a range of USD20 billion to USD30 billion, with 29 percent putting the market at USD30 billion to USD40 billion. Twenty-one percent believe that the PA/MGA market generates GWP in excess of USD40 billion. Respondents believing that the PA/MGA market generates less than USD20 billion in GWP increased from 8 percent in 2008 to 24 percent this year.
Last year, 56 percent of respondents indicated that the PA/MGA market was growing, with 32 percent believing it is flat and 12 percent thinking the market would shrink. This year, nearly half (46 percent) responded that the PA/MGA market would remain flat, with 37 percent forecasting growth and 17 percent anticipating that it will shrink.
Profitability perceptions, on the other hand, remain unchanged, with 92 percent of respondents estimating a combined ratio for the market of 90 percent to 100 percent, though only 49 percent put the market at 90 percent to 95 percent, down from 68 percent last year. So, while the industry is expected to remain profitable, the extent has changed.
The changes in financial conditions and expectations for the market have reshaped the challenges that MGAs are facing. Only 67 percent see new business production as a challenge, down from 77 percent last year. Premium growth has fallen as a concern, slipping from 66 percent last year to 58 percent this year. Maintaining current rate levels is perceived as being more challenging, with 61 percent of respondents citing it this year, compared to 58 percent last year.
Because of the dynamics of the insurance industry as a whole and the program market segment in particular, the challenges viewed as most important should be considered collectively rather than individually. A company’s rate filings are going to affect the rate level it is able to charge. This, in turn, will determine how competitive its product is in comparison to new competitors and ultimately if it will be able to maintain or increase current premium levels. This year’s respondents are obviously working through this set of interrelated challenges.
Program appetite suggests growth potential. Most PAs/MGAs want to know the program sizes in which carriers are interested relative to annual minimum GWP thresholds. Survey results indicate that there is interest in programs of almost all sizes. Eight percent of the respondents are targeting programs with GWP below USD5 million GWP, equivalent to last year, though only 6 percent are seeking programs greater than USD20 million in GWP (half the 2008 amount). The remaining 86 percent are looking for program sizes between the two extremes.
In regards to commercial lines, 2009 did not differ substantially from 2008. PAs/MGAs generally are focused on growing the same lines of business, particularly inland marine, property and auto liability, though professional liability interest did climb, equaling auto liability, and general liability surged. Umbrella liability, which grew from 26 percent in 2007 to 62 percent last year, remained relatively stable at 61 percent in 2009.
Personal lines interest changed again this year. Only 21 percent of respondents expressed an interest in growing business in the homeowners segment, returning to its 2007 level after jumping to 31 percent last year. Auto remains at 16 percent, virtually unchanged from last year, and personal umbrella fell by half to 8 percent.