November 17th, 2010

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

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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Reinsurance Purchasing

Reinsurance continues to play an important role for program issuing carriers. Only 5 percent of respondents this year indicated that they work exclusively with direct reinsurers (up from none last year). Meanwhile, 35 percent work with reinsurance intermediaries, and 60 percent use a combination of intermediaries and direct reinsurers - virtually unchanged from last year. Yet, it’s still a vast departure from 2008, in which 83 percent used both intermediaries and direct reinsurers.

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About the Respondents

Structural preferences have changed, as well. Excess of loss continues to be most popular, though falling slightly. Last year, 67 percent of respondents indicated that they prefer excess of loss structures, falling to 59 percent this year. Interest in quota share grew to 41 percent. In 2008, interest in the two structures was split evenly, and in 2007, only 30 percent preferred quota share. Increases in program-specific reinsurance indicate that buyers are likely less comfortable with expected results and are willing to lean on first dollar protection for the first few years. We have seen this trend develop over the past five years. Respondents indicated that they will take advantage of the soft reinsurance market to help them grow top line.

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Last year, tighter financial conditions had a slight impact on MGAs‘ willingness to compensate reinsurance intermediaries when program-specific reinsurance was not purchased. Only 48 percent were willing to pay a finder’s fee (down from 69 percent in 2008), with 45 percent willing to increase the MGA commission so they can pay the intermediary (up from 31 percent in 2008). This year, the situation is slightly better for intermediaries: 59 percent are willing to pay a finder’s fee, 49 percent say they would increase the MGA commission and only 5 percent say they would do neither.

This year, the number of traditional multi-line insurance carriers stayed steady at 61 percent (compared to 62 percent last year), with specialty carriers climbing slightly to 39 percent. Nearly half of all respondents had GWP of under USD100 million - 44 percent compared to more than 50 percent last year. The number of mid-sized MGAs/PAs (GWP of USD101 million to USD500 million) grew significantly, from 24 percent in 2009 to 38 percent this year. Eight percent had GWP of USD501 million to USD1 billion, and 5 percent exceeded the USD1 billion threshold - which none did last year.

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Sixty-seven percent of respondents are only planning to write between one and five programs this year, with 27 percent planning on six to 10 and 3 percent planning on more than 10 programs.

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Eighty-eight percent of respondents have access to admitted paper in 41 or more states, roughly the same as last year. Only 8 percent are admitted in 25 or fewer states, while 5 percent are admitted in 26 to 40 states. Eighty-one percent of respondents have access to non-admitted paper in 41 or more states, down slightly from last year’s 88 percent.

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Acquisitions

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