Program Business Stable But Less Profitable: Guy Carpenter Survey

November 12, 2010

The current insurance program market is mature and stable, with business estimated at $20 billion, but profitability may be declining, according to a new survey of program administrators and managing general agents.

Program experts say their biggest challenge is developing new business, although that is less of a challenge now than it was in 2008 and 2009.

Guy Carpenter & Co., the global risk and reinsurance specialist that is part of the Marsh & McLennan Companies, published its sixth annual survey on the market. It provides insights from traditional multi-line insurance carriers, specialty carriers and PAs/MGAs.

About half (51 percent) of the respondents report that new business production is a challenge, compared to 67 percent in 2009 and 77 percent in 2008.

Profitability is also a challenge. Nearly one-third (30 percent) estimate a market-wide combined ratio of over 100 percent – a change from 8 percent in 2009. The majority (71 percent) estimate a program market combined ratio of 90 percent to 100 percent, compared to 92 percent last year. These findings reflect the continuation of last year’s trend of declining profitability, as perceived by the survey respondents, according to Kimmel.

“The Program Administrators and Managing General Agents market continues to demonstrate resilience, consistency and strength as it progressively shows signs of recovery and stabilization,” said Bob Kimmel, head of North American Programs for Guy Carpenter.

Kimmel said that over the past five years, the program market has matured “from the growth in the number of carriers entering the space and number of MGAs shifting to writing specialty-driven lines from more commodity-driven lines, to the increased sophistication of MGAs as they focus on more complex commercial risks using cutting-edge analytical and underwriting tools.”

Among the survey’s other highlights:

MARKET SIZE AND STABILITY

  • Ninety percent of the survey participants estimate the total PA/MGA market to be at least $20 billion in gross written premium (GWP), approaching the 2008 peak of 92 percent. Approximately one-third believe the market to be greater than $40 billion in GWP, the highest level in the six years that Guy Carpenter has conducted this survey.
  • Market stability is the prevailing observation among those surveyed, with 59 percent seeing virtually no change in PA/MGA market size, 23 percent forecasting growth and 18 percent expecting it to shrink.

KEY CHALLENGES

  • Only 42 percent see premium growth as a challenge, falling from 58 percent last year and 66 percent in 2008.
  • Rate levels continue to be of concern for the PA/MGA market, climbing to 71 percent this year, up from 61 percent in 2009 and 58 percent in 2008.
  • There is interest in programs of almost all sizes, with 20 percent of the respondents targeting programs with GWP above $15 million, 32 percent targeting programs with $10-15 million in GWP, and the remaining 48 percent seeking programs with GWP of under $10 million.
  • Reinsurance continues to play an important role for program issuing carriers. Only 5 percent report that they work exclusively with direct reinsurers, with 35 percent working with reinsurance intermediaries and 60 percent using a combination of intermediaries and direct reinsurers.

The survey results are available at www.gccapitalideas.com.

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