Managing general agents feel program business will continue to move in a positive direction, with growth likely despite declining rates in the overall softening property-casualty market, a survey by a major reinsurance brokerage found.
The survey report–"New Opportunity and Old Challenges Converge"–was released last week by reinsurance broker Guy Carpenter, a unit of New York-based Marsh & McLennan Companies, here at the American Association of Managing General Agents annual meeting.
Program business continues to have good results, with combined ratios of 95, noted Carl A. Bach, Guy Carpenter managing director and practice leader.
However, he said the biggest challenge facing program business is finding new streams for premium growth without sacrificing underwriting discipline–and, thus, profitability.
Insurers, he said, are more open to looking at any size program business, primarily seeking new 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 market for MGAs is at least $20 billion in gross written premium, while 33 percent put the figure in the range of $20-to-$30 billion. Thirty-eight percent estimated between $30- and $40 billion, while 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 Eight percent of respondents target programs with gross written premiums below $5 million. Twelve percent seek programs greater than $20 million, while the remaining 80 percent are in between.
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 (to 31 percent, up from 21 percent in 2007), while interest in auto dropped from 30 percent in 2007 to 15 percent now. Personal umbrella is another growing area.
o Carriers continue to be flexible with regard to operating 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 PE groups–which have become educated in the market, according to Guy Carpenter–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 was less of a concern in past soft markets.
"[Insurers] want to grow, but they want to make intelligent decisions and want to get as good quality of information as they can," said Mr. Bach.
The full results of the survey briefing are available at www.guycarp.com.
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