“I think it pretty much follows the market cycle,” Mr. Reynolds said.

With the commercial sector emerging from a fairly hard market with leveling rates, he and others believe program business writers now have the opportunity to strut their stuff as this is the time when there is greater acceptance of them.

“When we get back to a hard market and rates are on the rise, I expect there will be a restriction of capacity,” he said.

But the more specialization your program has, the more immunity it gains to the market cycles, he said. “Niche programs tailored to specific classes of business…are generally not going to be subject to market fluctuations,” he added.

Gulf Coast catastrophe risk presents a great opportunity for those programs writers “who have a solution to provide,” Mr. Reynolds said.

But just what kind of solution could they provide?

“A program that is well managed and has in-house resources such as catastrophe modeling and extensive underwriting background will have some success at being able to gain the attention of those few carriers that are able to still provide capacity,” Mr. Reynolds said.

Carriers that have yet to incur serious catastrophe losses because they have in general avoided the risk would be prime targets for a new program, he added.

“They can reap the benefits of the high rates and they are not subject to the capital restrictions,” he said.

Mobile home parks remains one class that is in great need of coverage, but would be hampered by regulatory control over pricing, which would not extend to the excess and surplus lines market.

Jeff Neilson, president of programbusiness.com, only has to look at his phone log to see where the opportunities are.

“We are constantly getting calls from agencies in Florida seeking wind coverage for property and pest control business,” he said. “The same is true of agencies in New Orleans for property and wind coverage. We are even getting calls from agencies in Illinois having difficulty getting parasailing businesses insured.”

Programbusiness.com provides an online exchange and listing of program business opportunities and needs that must be filled. The trading floor provides a forum for new and renewal business policies that must be placed.

Bill Berkley, chairman of Greenwich, Conn.-based W.R. Berkley, also sees a great future for program business, particularly in the area of property-catastrophe risk.

“If you can get a program together that has a great engineering component with the ability to ferret out those homes that are well constructed enough to be good risks, then such a program can fill an important need,” he said.

Companies such as American Wholesaler can grow their program business organically–with the creation of new programs–or through acquisition.

“You can buy a program that needs fixing, or one that doesn't need fixing,” Mr. Reynolds said. “We choose to buy those that don't need fixing.”

Creating a program based on market demand does create a solution for insureds–but you also need insurers.

“It is more complicated to bring the carrier to the table, because you have to present a good case,” he said. In other words, the program manager has to “approach the marketplace with a rock solid business plan.” he said.

Carriers will not take a program seriously until there is the promise of at least $5 million in premium, Mr. Reynolds asserted.

“We have put programs together without loss history, but that is very tough and requires a leap of faith among many,” he said. “Getting one history from one client is easy to do, but getting 500 histories from 500 clients and aggregating [them] is more challenging.”

Those program administrators willing to invest in technology could find that paying off in spades, Mr. Neilson said.

“A good example would be a program administrator who either bought an off-the shelf accounting system or developed their own and hired a network specialist to program and integrate rating for their specialty programs and ISO-based programs,” Mr. Neilson said. “There still is a large need out there for a comparative-based commercial lines rating product for ISO and the ability to customize any specialty-based programs as well.”

Mr. Neilson said that merger and acquisition maneuvers can play a role as the new program business scene unfurls.

“In many instances, you may have a wholesale organization being courted by their main carrier to buy out a smaller entity and merge the book into their existing book,” he said.

Sometimes the retirement of the principal of the smaller operation will spur this move. Or carriers looking for better underwriting capabilities under one roof–that of the acquiring entity–can be a factor, he said.

Producers, customer service representatives and managing general agents are aggressively using the Internet for servicing, marketing and research to push their businesses to the next level. In fact, programbusiness.com has seen a total of 7,365 submissions in the amount of over $505 million in premium volume flow through its trading floor over a three-year period.

“These submissions were not necessarily because the agent received declinations from a standard market, but could be from accounts that became orphaned when carriers pulled out of the state or went out of business,” Mr. Neilson said.

Many of the accounts contained business that fit well with a program administrator or MGAs' criteria that have access to the market and understand the underwriting cost factors.

George Daddario, Stamford, Conn.-based senior vice president of Towers Perrin, said the bad underwriting years of the 1990s, and then losses from Sept. 11, 2001, put financial pressure on a lot of players in the program market–particularly Legion, the Philadelphia-based carrier put into liquidation by the Pennsylvania Department of Insurance in July 2003.

“The wholesalers that had paper where there was really any underwriting function being handled by either the carrier or the supposed MGA found themselves in a purge after 2001 and put out of business,” he said.

Successful deals are more tightly controlled with a single line of business in a single state–with a “more homogeneous or rollover kind of book.”

“A carrier like Alea loses its rating so that business has got to go somewhere,” he said.

And once again, the record catastrophe losses of 2005 have impacted the program business segment in ways other than providing opportunities to snatch up cat risk from suddenly skittish carriers.

“Right now you need a billion dollars to get started as a reinsurer, and the rating agencies are allowing so much in catastrophe aggregates,” he said. “The buckets are filling up and you are only able to write so much in premium.”

Reinsurers must deploy this excess capital in the most advantageous way and programs present a smart opportunity.

Thus, the so-called hybrid primary-reinsurer is born with programs representing a smart option to deploy capital, since no reinsurer wants to compete with potential clients as primary insurers.

“This way the reinsurer can say it has a very tight box around” the risks it will take on in specific programs. So the reinsurer “won't conflict with, say, some regional mutual client” that it reinsures,” he said.

Endurance, Arch and Everest are some of the Bermuda players that have ventured into the program business field, he noted.

Greg Thompson, chairman of Atlanta-based Thomco, has been in the program business for more than 25 years and sees it as “fundamentally changing.”

“The carriers are doing a lot more due diligence before they give the pen to a program administrator, and so those program administrators who have carriers backing them tend to be pretty sound,” he said.

This past hard market has produced a class of program administrators with enough wisdom gained not to lose it all once the soft market arrives, as it has in some casualty lines. “I don't think you will see us as a group being as aggressive as we were in the last market,” he said.

And insurance companies have gotten a lot smarter about how they deal with program administrators. “They have a lot more control, more audits. So the chances of the program administrator going crazy are less likely and that has changed the business,” Mr. Thompson said.

Program business caters primarily to what could be termed “distressed” risks for whatever reason. While some classes might keep the distinction permanently, others can see it come depending on events.

For example, in the late 1980s, incidents of alleged widespread child abuse at one Southern California day-care center suddenly gave carriers concern about that class.

“Time has proven that [the case known as] the McMartin case, and others like it, proved to be aberrations and we haven't seen that kind of activity to any degree,” he said.

And so the Thomco day-care program is suddenly competing in a newly commoditized sector and facing more price competition.

But while Thomco may have lost some risks in search of lower premium, most have stayed.

In 2000, Glenn Clark, president of Wilmington, Del.-based Rockwood Programs, founded the Target Markets Program Administrators Association to meet the special needs of program administrators that the larger MGA and surplus lines groups failed to do.

While program administrators are MGAs, for the most part, they perform a unique role, noted Mr. Thompson, explaining the need for a separate association. “We have seminars on issues specific to program administrators and also do a lot of networking with insurance companies that have programs,” said Mr. Thompson, who takes over the TMPPA presidency next year.

In addition, the one major acquisition Mr. Thompson transacted originated at a Targets Market meeting.

Executive Director Ray Scotto has been working on a survey to get a grasp of the market size but has found it to be a challenging task.

“We believe the average size of the program operations in our association is just under $30 million, while about $2.5 billion in program business premium is written each year,” he said.