MGA Relationships Still Attract Reinsurers

The lovefest between reinsurers and managing general agents, which has been referred to frequently on National Underwriters pages in recent years, seemed to be coming to an end early in 2001, when companies like Mutual Risk Management announced their fourth-quarter 2000 results.

Disputes with reinsurers over receivables on terminated business in its program business segment prompted a $46.1 million reserve for reinsurance receivables and a $5.6 million loss for 2000 for the Hamilton, Bermuda-based Mutual Risk Management, executives said, describing program business as business where the company acts as a conduit between specialty producers and reinsurers.

Generally, program business can involve any type of business managed by a specialty broker or MGA–including standard business, like workers compensation or more specialized lines, like directors and officers liability.

“Our program business segment grew rapidly over the last five years fueled by reinsurers desire to write more gross premium volume,” said Chairman and Chief Executive Officer Robert Mulderig during a February conference call.

Mr. Mulderigs observation was consistent with National Underwriter reports dating back to 1998, including one that quoted a reinsurance broker as saying, “Were program brokers first and reinsurance intermediaries second.” (See NU, May 18, 1998, page 12.)

With reinsurers appetite for such business now waning, Mutual Risk Management negotiated settlements with reinsurers over some disputed MGA programs in 2001 and has decided to retain more underwriting risk on programs it views as profitable–reducing its reliance on reinsurance.

But not every reinsurer is running away from MGA program business, in spite of growing losses theyve seen on some programs.

“We do not have a large book of MGA business, but we are looking to grow it. And because of the upheaval or churning in the marketplace, we think its a great opportunity for us at this time,” said Bonnie Boccitto, senior vice president in charge of the specialty lines department of American Reinsurance in Princeton, N.J., during a recent interview.

“Were seeing a decreased appetite on the part of reinsurers–and some decreased appetite on the part of the fronting carriers, the issuing carriers who put their paper out for MGAs,” she said. She also noted that within the last year, American Re has set up a unit that specializes in dealing with a select portfolio of MGAs.

As to the question of why there is churning in the marketplace, Ms. Boccitto said, “A number of reinsurers have had poor experiences with MGAs and American Re is not excluded from that group. Weve had some prior poor experience and actually had to discontinue a large number of MGA relationships.”

She said American Re then stepped back and analyzed what had gone wrong–from a contract point of view, as well as from a claims and underwriting standpoint. With a new set of best practices in place, “we feel very confident that we can write MGAs profitably and hence were looking to grow this book of business,” she said.

Summing up the intent of the best practices, she said, “we now feel and act as if we are almost like a primary company.”

“When youre writing treaty reinsurance, youre one step removed from things,” she said. “When were dealing with an MGA, we take that step right back down and really get into the nitty-gritty of being very hands-on with the MGAs business,” she continued. She noted that the hands-on approach might include looking at rate filings, helping MGAs make filings, helping them write underwriting guidelines, and “going out and visiting them very, very often.”

“We look for MGAs who are willing to let us do that. If they are not, then were not good partners for them,” she said.

Marcia Munn, executive vice president of CNA Re in Chicago, also feels that reinsurers generally have become concerned about MGA relationships.

“It is a class of business, overall, regardless of the underlying classes, that is looked at much more carefully,” she said, noting that CNA Re implemented MGA guidelines at the end of last year.

“You have to be very careful. Not that [MGAs] are bad people. Im not saying that at all.” Instead, she said, the main driver of whether an MGA program is successful is “who is the ceding company” thats involved.

“Is the ceding company simply a front that has no interest in managing the MGA? Or does the ceding company have an active interest, understand the business, and for some reason think that MGAs are a great distribution for us, for example?”

“Theres a big difference,” she said, noting that CNA Res preference is to provide reinsurance in situations where ceding companies are very involved with managing MGA programsin doing audits and in setting up guidelines.

“We are not set up to be program managers. We, of course, do our own due diligence from an underwriting, claims and transactional audit standpoint. But we cant be the day-to-day manager of the MGA. We need the ceding company to do that,” she said.

Sean Whelan, managing director of Guy Carpenter & Company in New York, discussed MGA programs involving D&O and other professional liability lines. “There had been a proliferation of D&O MGAs in recent years, but in the last 12 months, because of ratings issues or other complications, the number has been reduced,” he said.

“For reinsurers that provided them coverage, there is a great sense of relief,” he said, suggesting that a greater number of competitors to larger cedents had slowed the hardening of the D&O market.

“We dont see any new players coming in to replace them and we view that as a positive sign,” he said.

Affirming that there are several MGAs writing middle market and private D&O business that have been successful, he said generally that, “as long as they generate positive results, reinsurers continue to be supportive.”

For some very specialized segments of the D&O market, such as representations and warranties business, he said, reinsurers are very supportive of the MGA model because they view the expertise brought by the MGA to be critical to support the program.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 21, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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