March 5th, 2012

Guy Carpenter’s 7th Annual Specialty Insurance Program Issuing Carrier Survey, Part III, Program Appetite

Posted at 1:00 AM ET

Program appetite reflects flexibility. PAs/MGAs, like most U.S. businesses, are struggling with a stagnant economy. As a result, a number of the program opportunities are smaller in size today than they were when we first conducted our survey in 2005. Carriers have needed to become more flexible with their program minimum premium requirements, their willingness to consider startup programs, their willingness to front and the territorial scope with which they will write business.

Targeted Program Gross Written Premium (GWP) and Geographical Preference

In 2005, 50 percent of the survey respondents were targeting programs in the GWP USD10 million to USD15 million range. The remaining 50 percent were equally targeting programs greater than USD15 million (25 percent) and those under USD10 million (25 percent). In comparison, the majority of respondents this year (54 percent) are targeting programs with GWP of USD10 million or less, while 27 percent are targeting those between USD10 million and USD15 million.

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In 2005, 30 percent of program carriers responding to our survey wanted state specific programs, while only 30 percent would look at programs that were national in scope. This year’s results indicate that 55 percent of the respondents are looking for national programs, while only three percent are looking for state specific programs.

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Given program carriers’ historical minimum premium requirements, active pipelines and growing portfolios of programs, we had not queried carriers about their interest in start-up programs or fronting opportunities. We decided this would be a good year to see what, if any, interest there was in these two potential program revenue-generating areas. Surprisingly, a majority of the respondents (85 percent) would be willing to consider start-up programs, while 39 percent would consider fronting opportunities. Understanding that all start-ups can be different and not all fronting structures are the same, it was somewhat surprising to find this level of interest in these two program areas.

With the struggling economy and its depressed exposures, as account premiums and program sizes have shrunk, program carriers realize they need to be more flexible in their approach to generating program related revenues. This year’s survey indicates that they are now considering smaller programs, larger territorial scopes, start-up programs and fronting opportunities in order to grow, or to at least maintain, a reasonable market share.

Commercial Lines Appetite

This year’s respondents’ appetites for commercial lines business remain strong with 32 percent indicating they are writing commercial program business and that it is a preferred market segment that they would like to grow. Within the “general” commercial lines segment there was not as much of an appetite for growth in professional lines (20 percent) as there was for the “all other” commercial lines (43 percent) area. A line by line comparison of respondents’ appetites last year with those of this year reveal a general level of consistency. It appears that current economic conditions and elevating loss ratios are keeping carriers’ growth expectations in commercial lines business relatively flat.

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Personal Lines Appetite

On the personal lines appetite side, very little change in appetite from last year was evident. Even though the interest in homeowners programs doubled from last year’s level of 2.6 percent, this year’s 5 percent reflects little interest from the program issuing carriers to grow this line of business. Considering the severity of the 2011 floods, ice storms, fires, hail storms and tornados, it is not surprising that program writers are hesitant to grow their homeowners exposures.

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