“In the past year we have seen insurer exits from the market and reduced risk appetites primarily due to the poor performance in certain lines, led by commercial auto,” said Steve Webersen, Head of Insurance Research at Conning. “However, we have also seen the emergence of significant new insurer-MGA partnerships, new programs, and continued strong MGA mergers and acquisitions activity. Looking forward, there is no easing to either the soft pricing market or overcapacity, so seasoned MGA’s and program market insurers that have managed through cycles in the past will be best positioned for success.”

Diverse market mix

The MGA market is a diverse mix across the property-casualty insurance business, typically writing risks that are a little tougher than what the standard market prefers to underwrite, including both commercial and high-hazard personal lines business. MGAs and program administrators provide insurers easy entry into these specialty markets without having to develop their own underwriting expertise within a niche sector.

Companies ranging from the largest insurers to fronting companies to smaller specialty insurers use the MGA distribution channel, including the Bermuda and London markets. The total number of MGAs is estimated at more than 1,000 and range in size from large national organizations to small, single-state operations.

Ownership of MGAs includes independently owned firms, those that are affiliated with large brokers, and those that are owned by re/insurers.

Premiums of $42.4 billion in 2016

Conning's analysis estimates property-casualty MGA premiums of at least $42.4 billion written in 2016. However, the ongoing soft market, especially for commercial lines, has taken some of the wind out of the program market’s sails. The growth of 4.9% in 2016 is down from the 8.1% growth achieved in 2015, and there are emerging signals of trouble ahead.

Several insurers have exited certain program markets due to struggling lines, such as commercial auto, and many have decided to reduce writings in certain lines. These actions have spawned a new wave of program administrators and MGAs needing to seek replacement insurer partners.

On the positive side, pressures on insurers’ expenses and need for growth continue to drive demand for the MGA/program market. The MGA business model is still one of the most efficient ways for insurers to enter new markets and expand their reach, according to Conning.

Seasoned, experienced MGAs, especially those with profitable track records, are sought after and retained as partners. The program market still shines and presents one of a few dwindling areas for growth.

Challenging environment ahead

In Conning's discussions with MGA executives, the soft market and increasing competitiveness lead their concerns. They warn of too many insurer entrants into the program business that lack the underwriting or segment knowledge to write business responsibly. There is still overcapacity.

Another top concern of MGA executives is of insurers’ commitment to the market. Insurers have pulled out of lines, leaving MGAs scrambling to find new markets. However, this turmoil creates opportunity, and those with expertise, operational efficiencies through technology investment, and strong relationships can take advantage and prolong their golden age. Most MGAs Conning talked with were optimistic about the short-term and mid-term prospects for the sector.

Related: Ryan Direct Group to acquire MGA Midas Underwriting