November 15th, 2010

Change and Consistency; Guy Carpenter Specialty Insurance Program Issuing Carrier Survey, Part I: Market Size, Challenges

Posted at 1:00 AM ET

Robert J. Kimmel,  Program Specialty Practice Leader, Carl A. Bach, Program Specialty Practice and John H. Barrows, Program Specialty Practice

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Executive Summary

Little has changed at the core of the Program Administrators and Managing General Agents (MGA/PA) market from last year, though there has been activity in targeted areas. In general, the MGA/PA space has shown progress in recovering from the 2008 financial crisis and subsequent recession, indicating resilience, consistency and strength. Yet, over the past five years, since Guy Carpenter & Company, LLC (”Guy Carpenter”) began tracking the MGA/PA market, there have been some significant shifts, showing that the market has matured.

Among the notable trends that we have observed are a growth in the number of carriers entering the space and an increase in the number of MGAs shifting to writing specialty-driven lines from more commodity-driven lines. Also, MGAs have become more sophisticated as they focus on more complex commercial risks using cutting edge analytical and underwriting tools.

While 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 MGA/PA 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 MGA/PA market and stimulate appetites for program business. We thank all who replied for investing time in this effort.

Market Size and Dynamics

Consistent with the past five years, respondents perceive the MGA/PA market to be large. This year, 90 percent estimate the total MGA/PA market to be at least USD20 billion in gross written premiums (GWP), approaching the 2008 peak of 92 percent. Roughly a third of the participants in this survey estimate the market at greater than USD40 billion in GWP, the highest level in the five years Guy Carpenter has conducted this survey. Respondents believing that the MGA/PA market generates less than USD20 billion in GWP fell from 20 percent last year to 11 percent this year. Like the general increase in size perceived, this is likely the result of restored capital positions following the 2008 financial crisis.

Five years ago, only 5 percent of survey respondents believed that the MGA/PA market was greater than USD50 billion in size, with single-digit perspectives remaining the norm until this year. The number of participants in the USD25 billion-to-USD40 billion range has increased generally over the past half-decade, as well, indicating that perceived growth has become the norm for this market.

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MGA/PA Market Size

Last year, 31 percent of respondents indicated that the MGA/PA market was growing, with 50 percent believing it would be flat and 15 percent thinking the market would shrink. This year, stability seems to be the prevailing observation, with 59 percent of respondents seeing virtually no change. Only 23 percent are forecasting growth and 18 percent expecting it to shrink.

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Profitability perceptions have dropped, however. Thirty percent estimate a market-wide combined ratio of above 100 percent, a drastic change from 8 percent in 2009. Last year, 92 percent of respondents estimated a program market combined ratio of 90 percent to 100 percent. In 2010, it fell to 71 percent of respondents. This reflects a continuation of last year’s trend of declining profitability, as perceived by survey respondents.

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Greatest Market Challenges

However, business priorities appear to have changed. Only 51 percent indicated that new business production is a challenge, compared to 61 percent last year, which is down from 77 percent in 2008. Only 42 percent see premium growth as a challenge, falling from 54 percent last year and 65 percent the year before. Rate levels, on the other hand, continue to be of concern for the MGA/PA market: climbing to 71 percent this year from 64 percent in 2009 and 58 percent in 2008.

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.

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Click here to read Change and Consistency; Guy Carpenter Specialty Insurance Program Issuing Carrier Survey, Part II: Program Appetite and Size, Operating Platform 

Click here to read Change and Consistency; Guy Carpenter Specialty Insurance Program Issuing Carrier Survey, Part III: Reinsurance Purchase, Respondents, Acquisitions >>

Click here to read additional stories about MGAs >>

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