The vast majority of the respondents to Guy Carpenter’s survey of managing general agents intend to use company funds or company stock (if applicable) to make acquisitions (81 percent this year versus 47 percent in 2012). Despite access to bank financing, private equity and venture capital options, respondents showed no interest in employing those financial vehicles. It appears insurance companies continue to have ample capital and would use their own resources rather than go to outside sources.
Posts Tagged ‘programs’
The survey indicates a dramatic shift in the percent of program carriers interested in making acquisitions, following a couple of years of steady decline. This year, 69 percent of respondents indicated an interest in growing through acquisitions (up from 44 percent in 2012). When queried on the types of acquisitions they are seeking, most respondents’ interests appear to be acquiring either MGA/PA firms (63 percent) or teams of people (32 percent). This year none of the respondents was interested in acquiring third party administrators or wholesalers. Interest in carriers buying other insurance carriers remained relatively unchanged at 19 percent.
Reinsurance continues to play an important role for program issuing carriers. Sixty-nine percent of respondents to the survey this year indicated the use of both direct reinsurers and intermediaries, down slightly from 76 percent in 2012. Those managing their purchase through intermediaries exclusively increased to 25 percent of respondents from 18 percent in the prior year.
Program managers may also manage the performance of their programs through the pursuit of risk sharing on behalf of their PA/MGA partners. As we saw in past surveys, not all respondents require risk sharing. This year, a significant number of respondents said they utilize a sliding scale commission structure (92 percent versus 76 percent for the prior survey year). The percent of respondents utilizing some type of captive structure fell this year to 8 percent from 24 percent in the prior year. Alternately, 19 percent of the respondents will still pay flat commissions, a sizeable drop from 36 percent in 2012.
A carrier’s need for growth and profitability has to be closely monitored and controlled in the PA/MGA space. Every respondent in this year’s survey indicated that they had audit procedures in place to assure adherence to established risk selection and underwriting guidelines, financial billing, collection, remittance and banking guidelines, claim reporting, adjusting and settlement guidelines. Even though some changes have taken place in the number of audits conducted each year, including a notable increase in the percent of respondents doing four or more audits, rising to its highest level since 2008, this year’s results reflect the current and historical importance of the carriers’ PA/MGA management process.
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. As in the 2012 survey, respondent carriers expect their PAs/MGAs to underwrite (100 percent of respondents), rate, quote, bind business (100 percent) and issue and service policies (94 percent). The survey indicates carriers expect their PAs/MGAs to perform premium audits (56 percent) and loss control services (69 percent). Most of the other services, even though not required or expected of PAs/MGAs, are often performed by them, a third party, or in many cases, the carriers’ themselves.
A line by line comparison of respondents’ appetites in the prior year’s survey with those of this year reveals some changes in emphasis. Workers compensation and medical malpractice experienced large growth in percent of respondents who were currently writing, looking for new growth or aggressively seeking growth. The property line grew by 6 percentage points to become only the second line, outside of general liability, where the majority of respondents say they are pursuing business. Inland marine, accident & health and professional liability for insurance agents showed significant declines in business pursuit. Overall, many of the lines saw drops in appetite or remained unchanged. It appears that current economic conditions and elevating loss ratios are keeping carriers’ growth expectations in commercial lines business relatively flat.
The average size of programs targeted by carriers has changed to reflect economic, rate adequacy and expense factors. Carriers remain more flexible with their program minimum premium requirements, their willingness to consider startup programs, their willingness to front and the territorial scope in which they are willing to write business.
The challenge of balancing profitability with market share continues for carriers writing PA/MGA program business. This market dynamic was reflected in the level of responses for maintaining rate level (56 percent) and new business production (50 percent) as the largest challenges.