SCOTTSDALE, ARIZ.–A survey by a major reinsurance broker shows that managing general agents feel that program business from insurance customer groups is moving in a positive direction despite declining rates.

The survey results, titled “New Opportunity and Old Challenges Converge,” were released here yesterday at the 82nd annual meeting of the American Association of Managing General Agents by the reinsurance broker Guy Carpenter, a unit of New York-based Marsh & McLennan Companies.

Carl A. Bach, Guy Carpenter managing director and practice leader, said this is the fourth year of the survey. His firm helps managing general agents and carriers find each other, charging a success fee for the placement, Mr. Bach explained.

He said the one finding that stands out from the survey is that the program business continues to have good results with combined ratios of 95. The biggest challenge facing program business, he said, is finding new streams for growth without sacrificing underwriting.

Insurers, he said, are more open to looking at any size program business, primarily seeking niche areas.

“There is more flexibility in their platforms, but they are not giving up on rate,” said Mr. Bach.

Among some of the survey results, 56 percent of respondents said they expect the market to grow this year, while 32 percent expect it to remain flat. Only 12 percent believe there will be a contraction.

Ninety-two percent estimate the total program managing general agency market at least at $20 billion in gross written premium (GWP), while 33 percent put the figure in the range of $20-to-$30 billion. Thirty-eight percent estimated between $30- and $40 billion, and 20 percent said it is in excess of $40 billion.

Primary challenges identified by respondents included: new business production, 77 percent; premium growth, 66 percent; and maintaining rate levels, 58 percent.

Among the survey's other findings:

o Program Size: Survey results indicate interest in programs of almost all sizes. Eight percent of the respondents are targeting programs with GWP below $5 million. Twelve percent are seeking programs of greater than $20 million in GWP. The remaining 80 percent seek program sizes between the two extremes.

o Across commercial lines, 2008 was largely consistent with 2007. Program administrator MGAs remain focused on growing the same lines of business, particularly inland marine, property and auto liability.

o The survey indicates a growing interest in the homeowners segment (up to 31 percent from 21 percent in 2007), while interest in auto dropped from 30 percent in 2007 to 15 percent. Personal umbrella is another growing area.

o Operating Platforms: Carriers continue to be flexible with regard to system use and claim handling. Over 80 percent of respondents expect the program administrator MGA to underwrite, rate, quote and bind the business, as well as issue and service policies. Other services, such as loss control and premium audit services, remain important to some carriers. Respondents continue to have robust procedures in place to monitor results and control the processes involved in working with program administrators and MGAs.

o Seventy-two percent of respondents indicate an interest in mergers and acquisitions, with 54 percent focusing on acquiring other program administrator MGAs and 39 percent interested in carriers. Twenty-three percent would like to acquire wholesalers.

Mr. Bach noted that one interesting aspect of the survey is the heightened interest by private equity groups in program business. The groups, which have become educated in the market, are looking to invest in either acquisitions or insurance company start-ups.

He said one surprising survey result is that many insurers are concerned about the quality of information they are getting on their forms, something he said that in past soft markets was less of a concern.

“[Insurers] want to grow, but they want to make intelligent decisions and want to get as good a quality of information as they can,” said Mr. Bach.

The full results of the survey briefing are available at www.guycarp.com.

Special Reports /

MGAs Optimistic About Program Business Future

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