Matthew Day, Senior Vice President
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Lloyd’s approach to risk management is integral to assessing its capital needs and measuring the return on risk. Each managing agent at Lloyd’s is responsible for managing its own risks and those of the syndicates it oversees, while the corporation manages the risks facing the Market as a whole. Strong risk management disciplines are viewed as essential to enhancing business performance and safeguarding overall franchise value. To address the risks faced by individual businesses and the risks that each syndicate poses to the franchise, extensive reviews are undertaken upon registration along with ongoing performance management reviews.

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Reinsurance Purchasing

Reinsurance continues to play an important role for program issuing carriers. Sixty-six percent of respondents to the survey this year indicated the use of both direct reinsurers and intermediaries, while 32 percent indicated their use of intermediaries exclusively. This is pretty much consistent with the survey results of 2009 and 2010.

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Operating Platform

Carriers continue to maintain flexibility regarding their requirements for the services they expect their PA/MGA partners to perform and what they feel they need to control. Consistently, respondent carriers expect their PAs/MGAs to underwrite (93 percent), rate, quote, bind business (93 percent) and issue and service policies (86 percent). Most of the other services, even though not required or expected of PA/MGAs, are often performed by them, a third party, or in many cases, the carriers’ themselves.

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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.

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Market Size and Dynamics

Even though responses to the questions on the perceived size of the PA/MGA market continue to reflect it as large, the respondents this year see it as being smaller than in any time over the course of the last four years. Historically, the results of our survey reflected a majority opinion (37 percent to 40 percent) that this market segment was in the USD30 billion to USD40 billion range. This year, only 24 percent reflected historical results, while 37 percent (up from 21 percent a year ago) believe it to be USD20 billion to USD30 billion.

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The Program Administrator and Managing General Agent (PA/MGA) market continues to be an important part of the overall insurance marketplace. When Guy Carpenter and Company (Guy Carpenter) conducted its first survey in 2005, little had been published about this exciting segment. Agencies, underwriters, reinsurance intermediaries and third party service providers such as claim administration firms, all were asking the same questions:

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Specialty program insurance providers predict that the Program Administrators and Managing General Agents (PA/MGA) market will grow in 2012 as a result of changes taking place in program business, according to a survey conducted by Guy Carpenter. In its annual study of the PA/MGA marketplace, Guy Carpenter surveyed both traditional insurance companies with specialty program operations and specialty insurance carriers about their program business and the direction of the PA/MGA marketplace.

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Guy Carpenter’s survey of managing general agents and program administrators demonstrated that carriers are still flexible with regard to the services that MGAs/PAs provide, including system use and claim handling. Ninety-eight percent of respondents expect the MGA/PA to underwrite, rate, quote and bind the business, as well as issue and service policies, up slightly from 95 percent in 2009 and showing another year of growth relative to 2008’s 80 percent.

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Guy Carpenter’s survey of managing general agents and program administrators demonsrated that interest in growing personal lines was modest, with umbrella and auto lines garnering 7.7 percent of the attention of respondents each. There was no indicated interest in growing medical lines of business, and only 2.6 percent of survey participants expressed an appetite for more homeowners business.

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Guy Carpenter’s survey of managing general agents and program administrators demonsrated that interest in growing most commercial lines was low. General liability stood out, with 67.5 percent of respondents indicating an appetite for it. Property, inland marine and auto liability also resonated with many respondents - at 50 percent, 47.5 percent and 42.5 percent, respectively. For the remainder, less than a third of survey participants indicated an appetite for growth. Generally, we see MGAs becoming more sophisticated as they focus on more complex commercial risks using cutting edge analytical and underwriting tools.

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