Performance assessments: catalyst for further change?
There are less than two weeks before the 3 May deadline for feedback on the methodology that will drive Best’s Performance Assessment for MGAs, MGUs, program administrators and other delegated underwriting authority enterprises (DUAEs).
As the market continues to digest the move there has been a sense from some sources – at least privately – that the introduction of what is effectively a ratings framework is an unnecessary burden for the sector.
It will assess areas including underwriting capabilities, governance, internal controls and financial condition and also look at organizational talent and DUAE relationships, combining qualitative and quantitative factors.
Some are of the view that the sector is self-regulating, because if MGAs, MGUs and PAs don’t deliver growth and profitability to their capacity providers then carriers and reinsurers will not support them.
But others believe it is a sign of the evolution of the program space and will further professionalize a sector that has done a lot over the last decade to both modernize and improve its standing.
What is clear is that the Best’s Performance Assessment – if widely adopted as intended – will provide a benchmark for counterparties of DUAEs to differentiate between them.
That could have repercussions in the sector as MGAs and other DUAEs take steps to ensure they match the standards set to achieve the best scores from AM Best.
It may come at a cost that for some smaller, less sophisticated players is overbearing.
Others, of course, see the framework as an opportunity to have an independent source verify what they would see as their main selling points when pitching to counterparties.
And in an interview featured in this month’s issue of Program Manager, Ascot Group president Jonathan Zaffino said the move by AM Best validates the strategy deployed as the company has built its own MGU platform, Ethos Specialty.
“The AM Best proposal has in effect raised the bar and is a validation of our previously held view that a modern era MGU platform has to be every bit as sophisticated as a traditional carrier. Essentially it’s a virtual insurance company,” said the executive.
He believes the criteria being set by the ratings agency will inevitably lead to differentiation in the market.
Those that do not have the capabilities to evolve their model into something closer to a virtual insurance company – through underwriting, data and analytics, distribution strategies and infrastructure – may find themselves vulnerable.
And as we also report in this issue, that could lead to smaller players looking to become part of larger, more sophisticated MGA, MGU or PA platforms, acting as a catalyst to accelerate the pace of M&A in the sector.
We have included a survey today to get some of our own feedback from readers about rating MGAs more generally, and whether there is an appetite for AM Best or indeed other ratings agencies to come into the space.
In the meantime, the program space continues to be a hotbed of activity, with a slew of new program partnerships, M&A and people moves as participants continue to position for growth opportunities. We hope you enjoy the read…