PM panel: Sophisticated program sector undergoing “dynamic” structural change

Speakers on a panel at the Program Manager Conference 2022 highlighted the rapid changes the program sector is undergoing, with its sophisticated technology adoption, the rise of hybrid fronting companies, and a greater interest from traditional reinsurers all suggesting its growth will continue.

Speaking at the event in New York today in front of an audience of 300, Pat Rastiello, president and CEO of Accredited America, said the change is “dynamic” in the program sector. 

“The sophistication of the MGA system has just been exponential,” he said. “The adoption of technology in the MGA space is so much better than in the company space.”

Rastiello noted the insurtechs that have come into the sector have also helped boost the sophistication. He also highlighted that MGAs are responsible for a lot of the innovation in the insurance industry, such as in the cyber market.

“All this is driving the sea change that we’re all experiencing here,” he said. 

Rastiello highlighted the pricing sophistication in the program sector as well as the focused distribution and expert underwriting. The executive also noted the number of fronting companies has grown to over 20 in the past five years. 

“We’ve now got traditional reinsurance looking into the hybrid space,” Rastiello said. “Why is that? So many big insurance companies are taking large retentions and there’s less of that business for the reinsurers to look after. So they’re stepping into the MGA space, which was taboo about 10 years ago.

“We’re seeing the normalization of a traditional reinsurance panel, rather than just those 10 companies [previously]. It’s very reassuring to have the reinsurers because it helps us with the MGA expansion.”

Marc Piccione, partner at Acrisure Re, also stated the traditional reinsurance underwriters “are getting more and more involved in the MGA space”.

“Whether that’s in London, Bermuda, Europe or even domestically, there is just big growth with the reinsurers,” Piccione said. “You have reinsurers that have dedicated teams that focus on the MGA business. Some of those are even focusing on technology or insurtech embedded opportunities.”

The executive believes there is a lot of opportunity coming out of the non-insurance businesses working to embed insurance, which reinsurers are looking to leverage.

Piccione added: “The hybrid fronts have become a really good conduit to the reinsurance marketplace. With the hybrid fronts, you’re seeing good actuarial and underwriting support, taking strong talent from the insurance side to the program side with good expertise and they’re providing the necessary oversight to those programs, and reinsurers keep seeing that.”

Piccione also highlighted capacity is starting to come into the sector from ILS markets, both for property and casualty. 

The executive noted some estimates place the program sector as approaching $60bn. 

“I think that with the hybrid funds coming in over the last five to seven years, you can continue to see that grow more and more exponentially,” he said. 

A riskier place

Kevin Johnson, president of insurance programs at Munich Re Specialty Insurance, agreed there has definitely been a structural shift in the program sector, and believes this will continue.

“One reason is that the world is a riskier place, and as a result of that there’s a desire and a strive towards specialization, and working with specialists,” he said. “That creates a bit of a virtuous cycle here. 

“Many of the MGA specialists are in niches that 10 or 15 years ago you wouldn’t have thought would have existed in this space, whether it be complex and specialty lines or even more classic homogenous, multiline admitted programs. The underlying insureds are viewing this transaction as strategic and not a cost anymore.”

Johnson noted that there is a lot of talk about the impact of fronting carriers, and accessing that capacity. 

“If we’re going to get to the abundant capacity and capital that’s out there, we’re gonna have to leverage this market more and more over time,” he said. “So I think that snowball effect takes place. 

“Maybe at some point there’s a moderating of the growth that’s happening in the sector, but I think we have quite some runway ahead of us.”

Miles Wuller, president and CEO of Ryan Specialty Underwriting Managers, suggested the program sector has changed from a decade ago, when carriers viewed programs and MGUs as more of a niche focused distribution for specific problems.

“That’s evolved pretty dramatically over the last 10 years,” he said. 

A sector attracting talent

Wuller also noted that the presidents and CEOs of Ryan Specialty’s MGUs have mostly come from a career on the carrier side, showing the talent that has been attracted to the sector.  

He noted that “the economic aspect comes up a lot” in discussions around talent.

“One thing I hear often when we’re talking to people is they often don’t have the years that they were looking for [in terms of compensation] because a different profit centre had a problem or a different division had a problem,” Wuller said. “Probably half of the folks that reach out to us the conversation starts there. So alignment to the individual is a huge factor.”

Tracey Sharis, director of programs at Liberty Mutual’s North America Specialty Group, warned that entrepreneurialism is often misunderstood. 

“I want to challenge how to use the word entrepreneur,” she said. “Being entrepreneurial and hard working are absolutely not the same thing. It’s a really dangerous mix up to get yourself into. 

“For example, we need our thought leaders to be entrepreneurs. But I also need the engine room folks who not only want to build the MGA, but fix it and maintain it every single day, and are willing to roll their sleeves up.”