Soft Market Strategies Revealed

o Buy other MGAs–32 percent

o Buy books of business–38 percent

o Hire a team with different underwriting expertise–27 percent

o Sell to another MGA–3 percent

Have you developed walk-away pricing strategies with your carrier partners?

o Yes–53 percent

o No–47 percent

If so, how are you planning to make up the lost revenues?

o New lines of business–56 percent

o Higher commissions from carriers–6 percent

o Reduce expenses/ staff–25 percent

o Wholesale business to other carriers– 13 percent

Does carrier profit-sharing or sliding-scale commission drive your underwriting decisions in a soft market?

o Yes–49 percent

o No–51 percent

I have financial capital to reduce revenue if my carrier demands that I maintain a flat effective rate change

o True–67 percent

o False–33 percent

I am optimistic that my business can survive the soft market for seven-to-10 years in duration and still thrive

o True–100 percent

o False–0 percent

What changes do you expect for your marketing budget for 2008?

o Down–17 percent

o Up–54 percent

o Flat–29 percent

The survey also revealed that most of the respondents write more than four programs (42 percent), which are mainly national programs (74 percent). Ninety-five percent write their largest program on an admitted basis.

Lines of business were fairly evenly represented, with respondents listing the predominant risk exposure on their largest program as follows:

o 20 percent–Auto

o 20 percent–General Liability

o 17 percent–Professional Liability

o 12 percent–Workers' Comp

o 12 percent–Package

o 10 percent–Property

o 10 percent–Other

Survey responses were gathered on-site by Benfield, a London-based reinsurance intermediary and a strategic partner of the association.

Separately, at the 82nd annual meeting of the American Association of Managing General Agents in May, reinsurance broker Guy Carpenter, released a report indicating that program business continues to have good results with combined ratios of 95.

That's the finding that stands out, said Carl A. Bach, Guy Carpenter managing director and practice leader, discussing results of his firm's survey of program business carriers titled, "New Opportunity and Old Challenges Converge."

The biggest challenge facing program business writers is finding new streams for growth without sacrificing underwriting, said Mr. Bach, whose firm helps MGAs agents and carriers find each other, charging a success fee for the placement.

Commenting on other findings in the fourth annual survey, he said that insurers 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," he said.

Sizing up the market generally, 56 percent of issuing carriers responding to the Guy Carpenter survey 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, 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.

Some survey findings in other areas were as follows:

o Program Size.

Survey results indicate interest in programs of almost all sizes.

Eight percent of the respondents are targeting programs with gross written premiums below $5 million. Twelve percent are seeking programs of greater than $20 million. The remaining 80 percent seek program sizes between the two extremes.

o Lines Of Business.

Across commercial lines, 2008 was largely consistent with 2007 in terms of line of business focus, with targeted areas including inland marine, property and auto liability.

The survey indicates a growing interest in the homeowners segment–up to 31 percent from 21 percent in 2007, while interest in personal 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, 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 Merger Opportunities.

Seventy-two percent of respondents indicate an interest in mergers and acquisitions, with 54 percent focusing on acquiring 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 MGAs 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.

"They [MGAs] 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.

(Mark Ruquet reported on the Guy Carpenter survey from Scottsdale, Ariz.)