Opportunities to access specialty insurance business and potential fee income continue to attract the attention of capacity providers to the US program sector.

Program Manager

In the first Program Manager of 2021, we report that rebooted insurer Core Specialty sees the fronting space as fertile ground for growth and strong returns.

The interest includes traditional and insurtech program and ILS relationships in the property space, as well as opportunities to partner with workers’ compensation MGAs.

The former StarStone US operation – now led by Jeff Consolino and Ed Noonan with new private equity backing after a $900mn recapitalisation – has brought in talent with a track record to spearhead the push.

Spinnaker co-founders Laurence Bunin and Adam Tyburski were part of a leadership team at the hybrid program fronting carrier that grew its top line to more than $200mn and generated a 13 percent return on equity after tax in the year before the vehicle was snapped up by Hippo last summer.

Core Specialty is expected to be active in the market as a participatory front on programs using its admitted and non-admitted paper.

The entry suggests that the carrier and its backers see continued opportunity to generate returns in the burgeoning program sector, connecting MGAs with reinsurers while eating some of its own cooking in addition to benefiting from fronting fees.

That is despite the surge of new entrants into the program fronting space in recent years, attracted by the success of State National and the high valuation it achieved for its backers when it sold to Markel for $919mn in 2017.

Access to business

But it is not just the fee-generating fronting model that is attracting interest from specialty insurers to grow in the programs space.

Berkshire Hathaway Specialty Insurance (BHSI) is looking to grow its middle market and SME book and sees partnerships with program administrators and MGAs as a key part of the strategy.

In an exclusive interview with our newly launched platform The Insurer TV, BHSI president and CEO Peter Eastwood said that since its launch in 2013 the insurer’s book had been “disproportionately” built around the large account and upper middle market sectors.

Now the carrier is looking to broaden and balance the portfolio by adding middle market and SME business, and is seeing plenty of opportunity from the program and MGA space due to dislocation.

“We see meaningful growth opportunities… Using MGAs is a very efficient way for us to get into that SME marketplace,” Eastwood added.

Unlike the hybrid entrants – and Core Specialty’s strategy in the program space – BHSI is likely to be a net writer of business, with the Berkshire Hathaway subsidiary typically not a significant buyer of reinsurance.

That in itself appears to speak to the attractiveness of program business in a hardening market environment.

M&A surge continues

Also in the January issue of Program Manager, we report on a continued surge in M&A activity as consolidators ranging from publicly traded giants to recent private equity-backed start-ups target MGUs/MGAs and program administrators.

We report on Arthur J Gallagher’s deal for Atlas General, as well as acquisitions from Two Sigma-backed ISC, Risk Strategies’ One80, JenCap’s NIF Group, BP Marsh-backed XPT and RedBird-funded Constellation in recent weeks.

There is also a continuation of the trend seen last year for transactions between carriers and MGA platforms.

Insurance group Ambac continued its repositioning towards the specialty program market with its first MGA acquisition, and Tokio Marine’s Philadelphia Insurance Companies bought staffing business World Wide Specialty Programs.

Our discussions in the market suggest that there is no sign of momentum letting up in the M&A market in the near future, with acquirers highlighting strong pipelines through 2021.

Selected MGA transactions in recent surge

Program Manager virtual panel debate

And we also bring you coverage of the European issue of the Program Manager virtual panel debate series, which we put together with our sponsor, Accredited Europe.

We assembled a panel of top executives in the European MGA and program management sector to discuss the opportunities and challenges in a fast-changing marketplace.

For part one of our coverage, and to watch the debate in full, click here. You can also view the discussion in bite-sized chunks here.