Continuing casualty concerns and the potential for a stabilization or even rehardening of the property market in the wake of Hurricanes Helene and Milton will be top of mind as attendees arrive in Scottsdale for the Target Markets Program Administrators Association’s Annual Summit.
Casualty loss cost trends in many lines of business show little sign of slowing, and carriers remain concerned about the resilience of their reserves against prior year development.
There has been concern among insurers over underwriting years 2014 to 2019 for some time. But carriers are now increasingly worried about more recent underwriting years, and in particular whether the rates they were booking at the time were sufficient to cover claims that are increasing both in volume and severity, in part fueled by social inflation.
Those casualty concerns will likely have several impacts. First, it will push pricing up, in part because insurers will be looking to cover their elevated costs, but also because reinsurers will demand it if they are to write quota shares supporting those primary carriers’ writings.
It will also likely have the impact of pushing yet more business into the E&S markets, where carriers are able to write coverage with freedom of rate and form.
Casualty worries
With the growth of the E&S market so closely aligned with the programs and MGA sectors, the continued flow of casualty business into the wholesale channel is likely to support the further expansion of the delegated underwriting authority segment.
Insureds looking to secure coverage in some of the more troubled lines of casualty and liability business – such as transportation, hospitality and entertainment (notably liquor liability), habitational and certain medical professional liability segments – are frequently having to turn to the surplus lines market, and in particular MGAs with the skill, expertise and capacity support to write it.
On the other side of the equation, however, MGAs have been entering the casualty space in significant numbers since the start of the hard market conditions in 2019 and 2020.
Although most have done so with a conservative approach and tight limit management at a time of significantly elevated pricing, concerns over those more recent years do coincide with their entry and growth.
That could cause some capacity providers and fronting carriers supporting MGAs to take a more cautious approach on some programs, while a tighter reinsurance market and pressure to lower ceding commissions can have the effect of squeezing the economics on deals.
Cats bite
Away from casualty, the property market is once again firmly in focus given recent loss activity.
After years of substantial rate rises, pricing began to moderate at the start of 2024, with those increases flattening out and some accounts renewing either flat or with small decreases. The expectation was that a relatively benign hurricane season would see the property market enter true softening territory in 2025.
Hurricane Helene’s landfall on Florida’s Big Bend region in September was initially viewed as an event that would largely be retained by insurers, and not of a magnitude to reverse the trajectory of the property market, even if it slowed it somewhat.
That conversation changed, however, after the Sunshine State’s west coast was hit hard by Hurricane Milton earlier this month.
While another near miss for Tampa means that losses from Milton will not be as severe as that worst-case scenario, the current consensus is of a private industry loss somewhere in the wide range of just over $20bn to $50bn.
Anywhere in that range is viewed as sufficient to stabilize the market for property reinsurance and commercial property insurance in the Southeast US at least.
Sources at property MGAs have already told this publication that reductions are for now off the table.
Away from the Southeast, contracting admitted market capacity for wildfire-exposed risks in the Western US – in particular California – and severe convective storm-threatened properties in the Midwest is also pushing business into the E&S channel, which should create more demand for MGAs.
This is not just the case for commercial property but also personal lines, especially high-net-worth business, which is now being viewed as an E&S risk, with a number of MGAs targeting the opportunity.
DPW rising
These casualty and property dynamics will likely only fuel further growth in the US MGA market, a segment that in 2023 broke the $100bn barrier for the first time.
According to figures from Conning, the US MGA sector delivered further “robust growth” in 2023 with direct premiums written in the segment growing 12 percent from the prior year to $102.1bn.
As Conning noted, that growth was driven by continued hard market conditions, along with the availability of fronting market capacity.
The availability of capacity – both from fronting and traditional carriers – supports an estimated 1,100 MGAs, MGUs and program administrators operating in the US.
Indeed, there are now more than 30 fronting carriers offering their capacity and support to the US MGA market, with the expected consolidation of those entities having failed to materialize.
Where there has been consolidation is within the MGA market itself, notably with larger consolidators boosting their operations by acquiring smaller operations. However, at the same time, the plethora of de novo MGAs entering the sector shows little sign of slowing.
Magnet for talent
That is in part because the MGA sector continues to be a magnet for talented and entrepreneurial individuals who want greater ownership over their careers.
Executives during recent industry gatherings such as the Rendez-Vous de Septembre in Monte Carlo, the WSIA Annual Marketplace in San Diego and the APCIA Annual Meeting in Chicago all noted that the movement of experienced executives from traditional insurers to set up delegated underwriting authority entities shows no sign of slowing, driving MGA formation and new programs at existing platforms.
At the same time, carriers are increasingly open to supporting delegated underwriting authority businesses with their capacity in the belief that respected, knowledgeable and experienced industry talent is now leading these entities.
As various market sources noted, there is currently no let-up in the number of individuals looking to secure capacity to support new MGA start-ups, and with carriers looking for opportunities to diversify their portfolios at a time when confidence in the delegated authority model remains strong, the sector is primed to maintain its current growth trajectory and further grow its direct premiums written.
This is also fueled by the segment’s track record for specialization and innovation, and increasingly the view that its ability to leverage technology more quickly than the carrier space is another attraction for business to flow in.