Program Model No Longer Reinsurance Driven

In addition, with program business policies generally written for small to medium-sized insureds with limits requirements less than $2 million, "most companies can absorb that capacity net," he said.

Also, primary insurers that had bought program-specific reinsurance in years past found it difficult to manage dozens of reinsurance contracts, he said, noting that some now opt to put this business into treaties.

Mr. Bennett said that Benfield Program Solutions is now typically providing services to, and is now compensated directly by program managers. The market would be "much more limited if we were only relying on carriers that bought program-specific reinsurance to provide a revenue stream. We would not be representing the program managers to as wide a marketplace as we'd like," he said.

Engagement contracts outline compensation and services and identify the carriers to which Benfield will take the business, he said. Once program managers with attractive books of business are identified, Benfield conducts its own due diligence process to make sure the program managers are partners Benfield would like to represent.

With resources devoted exclusively to the program marketplace, the firm can match carrier appetites with programs without "a lot of wheel-spinning," he added, noting that the firm's participation dates back to predecessor E.W. Blanch.

Since 2002, Benfield has also been associated with Target Markets, an association of program market participants including roughly 25 carriers writing $2 billion in program business, he said, serving as the exclusive reinsurance intermediary for the Wilmington, Del.-based organization.

Reinsurance intermediary Guy Carpenter also has a specialty practice devoted to the program business segment, said Carl Bach, who heads the Program Manager Solutions Specialty practice. "We are in the business of being reinsurance intermediaries," he said, adding that the specialty practice "allows us to get to another level of client"–the program administrators–and to capitalize on treaty relationships with insurers, bringing the new opportunities."

While the main goal is to derive compensation from reinsurance placements, like Benfield, the reinsurance intermediary also engages MGA clients directly. In the event Guy Carpenter finds a market that "does not buy reinsurance, or does not buy reinsurance through Guy Carpenter, then they agree to pay us a success fee."

"It's fully disclosed to all parties upfront," he said, noting if an issuing carrier has a level of interest in the program, when program expenses are being discussed (retail commissions and fronting fees, for example), "we make sure that we put on the table that we agreed to a fee base–and that fee would be offset by any reinsurance brokerage [fee] we earn if the [insurer] decides to buy reinsurance."

Overall, Guy Carpenter's specialty practice strives to make it "easier and more efficient for all that operate in this arena to get business done," he said, explaining that was the impetus for a recent survey of issuing carriers. "Most of the questions we get regarding the marketplace [center on] which carriers are doing what, and what they're requiring of their program administrators," he said, adding that surveys of other market participants are on the horizon.

In Manchester, N.H., Syndicated Services Company is carving out its own niche with 38 professionals devoted to program services. Although Syndicated Services is also affiliated with a reinsurance intermediary, "we describe ourselves as an administrative and management company, providing outsourced services," said CEO Georges Lagos.

The company, formed in 1991, along with U.S.-based reinsurance intermediary Carvill America and London-based broker R.K. Carvill & Company are members of the Carvill Group of Companies and subsidiaries of R.K. Carvill (International Holdings), Ltd. in Bermuda.

Operating separately, Mr. Lagos said of Syndicated Services: "We're not an agent. We don't…pass on [risk] for a commission, and we're not an insurance company, because we don't have capital and do not take risk." Typical clients are primary companies or reinsurers, but services are provided to program managers also.

Focusing on the carrier services, he said that about a decade ago, it became clear that many carriers were involved in the program arena but didn't treat business with the type of attention or resource levels that it really required. "That meant some found themselves in positions where they had books of business they really didn't understand and ended up suffering adverse results, and [some] program managers were underserved by carrier partners" in terms of service and support levels.

While program managers are typically responsible for rating, quoting and policy issuance, administrative functions–such as statistical and financial reporting, putting together rate and product filings, as well as regulatory and compliance functions–fall to the carrier.

"We find ourselves in the chain, liaising with the program administrator, basically standing in the shoes of the company administratively," according to Mr. Lagos. He said services could include anything from an initial program review and product development, all the way forward to the filings process.

Most carriers are not buying program-specific reinsurance anymore, with the largest program insurers having "very healthy net retention appetites."