The outlook is good for the specialty insurance program market, with carriers looking more favorably on smaller accounts, single state programs and startups, according to a new survey.
Carriers see the program administrator and managing general agency (PA/MGA) market continuing to grow and they are also very interested in acquiring PA/MGA operations, the survey found.
Global risk and reinsurance specialist Guy Carpenter & Co.’s latest Specialty Insurance Program Issuing Carrier Survey analyzes trends and benchmarks in the market.
“As account premiums and program sizes shrink, program carriers appreciate the need to be more flexible in their approach to generating revenue,” said Bill Harris, managing director of specialty programs at Guy Carpenter. “This year’s survey indicates that program carriers are now considering small programs, larger territorial scopes, startup programs and fronting opportunities in order to grow profitability.”
Survey respondents represented an even mix of traditional insurance companies that have specialty program operations as well as true specialty insurance carriers, according to Guy Carpenter.
Fifty percent of respondents said they are targeting programs with gross written premiums of $10-$15 million compared with 47 percent in 2012. The percent of respondents targeting programs larger than $15 million (25 percent) rose dramatically, up from 9 percent in the previous survey.
Twenty-five percent of program carriers surveyed want regional-specific programs, down from 41 percent in 2012. Those looking for state-specific programs increased notably to 25 percent from 3 percent over the prior three surveys. National programs have dominated territory preference since 2009, coming in at 50 percent in the current survey.
Sixty-nine percent of respondents have an interest in growing through acquisitions, up from 44 percent in 2012. The vast majority of respondents intend to use company funds or stock to make acquisitions (81 percent vs. 47 percent in 2012). Despite access to bank financing, private equity and venture capital options, respondents showed no interest in employing those financial vehicles.
Asked about the types of acquisitions they are seeking, most respondents appear interested in acquiring either PA/MGA firms (63 percent) or teams of people (32 percent). Interest in carriers buying other insurance carriers remained relatively unchanged at 19 percent.
Other key findings from this year’s survey include:
- Respondents believe the PA/MGA marketplace has shifted dramatically since 2012 and will continue to grow. Sixty-three percent of respondents believe this segment will grow, while none see it shrinking.
- 43 percent of those surveyed believe the PA/MGA market to be $30-$40 billion, while an equal portion believe the range to be $20-$30 billion.
- 73 percent of respondents believe the combined ratio for the PA/MGA market is greater than 95 percent, while 27 percent believe it is less than 95 percent. No respondents in the current survey believe the combined ratio is over 100 percent, compared to 15 percent in 2012.
- 81 percent of respondents said they would be willing to consider startup programs, while 25 percent would consider fronting opportunities.
- 69 percent of respondents 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.
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