A reinsurance intermediary looks at the soft market
Benfield Group executive says MGAs seek program growth and diversification
By Phil Zinkewicz
Ten years may seem like a long time to some people, depending on how the joys and jollities of any particular decade stack up against the trials and tribulations. But in the insurance industry, any 10-year period can usually be counted on the fingers of one hand in terms of market cycles.
In 1998, we were coming to the beginning of the end of a prolonged soft market. Entering the new millennium, as the market began to harden slowly, insurers felt the wrath of September 11, solidifying if not intensifying those market conditions. Then, in 2005, Hurricane Katrina and her sinister siblings took their toll and insurers began to relish the long-awaited return to sellers’-market pricing. The years 2005 through 2007 saw significant profits for the property and casualty insurance industry.
Today, however, in the first quarter of 2008, the industry was back to a soft market again. During the past 10 years, we have seen a number of changes in the program administra-tion arena. Back in 1998, most insurers were not enthralled with writing program business. With the new soft market of today, however, insurers are eager to get into the program market. Ten years ago, the program administration market was reinsurance driven. Not so today. A decade ago, managing general agents in the program market tended to focus on a particular industry or industry segment. Today, MGAs are looking for new program opportunities.
“For MGAs today in the new soft market, the key marketing strategy is diversification,” says Doug Bennett, senior vice president of Benfield, Inc.’s, MGA specialty practice team. “Insurers want to diversify into different programs because organic growth in their regular markets during a soft cycle in terms of higher premiums is difficult to impossible.
“MGAs have come to recognize that the more programs they write, the less exposed they are to one business sector failing,” Bennett continues. “So insurers and MGAs are in agreement that program growth is the name of the game. Some of them—insurers and MGAs—are diversifying by class of business. Some are diversifying by line of business, adding workers compensation to a property and liability program, for example. Our involvement in programs is extensive. We wrote 20 new programs in 2007, and we have in excess of 100 programs that we manage in the United States and London.”
Benfield Group, Benfield, Inc.’s, parent, describes itself as the “world’s leading independent reinsurance and risk intermediary, offering a range of services which assist customers in the structuring and execution of insurance, reinsurance and other forms of risk transfer.” Through its subsidiary, Benfield Corporate Risk, the company also caters to the risk management and transfer risk needs of corporate entities and global corporations. More than 90% of the firm’s revenues are from reinsurance broking.
“We have three full-time people in our program area based in Southport, Connecticut,” says Bennett. “We identify good-quality MGAs writing program business and provide markets and analytical services to make what they do even better. We also identify program opportunities for the London market, where we are major players and where a great many MGAs want to place their highly specialized program business.”
His company, Bennett emphasizes, is highly selective in choosing MGAs. “In choosing an MGA, our approach is about nurturing quality rather quantity,” he explains. “We arrange binding authorities and programs for those with proven expertise in their respective areas of business. Our focus is as much about assisting existing customers to build their businesses as it is about adding new customers to our portfolio.
“Given our approach, we expect to work in close partnership with our customers, gaining a thorough knowledge of their businesses, specialist expertise, and past and current track records,” Bennett continues. “This enables us to structure individually tailored binding authorities, using long-term, stable markets, which support customers in developing their operations by underwriting and binding business on behalf of insurers within certain agreed parameters. Our customer base spans a wide range of specialist commercial and personal lines classes in the property and casualty arenas, ranging from catastrophe and natural peril coverages on manufactured homes to fine art and mortgage protection insurance for financial institutions.”
Bennett says one major change that has taken place in the program arena over the past decade is that reinsurance is playing less of a role. “In the past, when we took a program to a carrier, the carrier might insist on program-specific reinsurance as part of the deal. That is less common today. Most programs consist of small to middle market insureds, so carriers are content to retain the exposures, especially in today’s soft market where insurers want to hold on to premiums,” he says.
Bennett says that MGAs today are in an ideal position and should capitalize on their strengths. “Because this is a soft market, there will be new players coming into the program business,” he says.
“It is essential that program administrators choose their primary markets carefully, with an eye towards making sure they are financially stable and that they offer flexible policy forms and endorsements,” Bennett says. “MGAs should adopt strategies that protect their underwriting profitability, while retaining the high standards they currently enjoy. There is a good deal of interest on the part of private investment firms in the program arena. Many of these investment firms are ready to buy, and at high prices.” *