Sustained momentum for MGAs in today's marketplace—AAMGA's initiatives support wholesale and E&S market, with an eye toward the future 05/08

Sustained momentum for MGAs in today's marketplace

AAMGA's initiatives support wholesale and E&S market, with an eye toward the future

By Bernd G. Heinze, Esq.

The current state of managing general agents (MGAs) in the wholesale and excess and surplus lines insurance markets is healthy and thriving—notwithstanding the challenges of the softening market. The ability of MGAs with trusted contractual and binding authorities to adapt to changing market cycles, while maintaining a relentless execution of strict underwriting disciplines, is sustaining—unabatedly—the legacy of the wholesaler’s objectivity and profitability and those of its customers as well.

According to the recent A.M. Best Special Report on the Excess and Surplus Lines Market, the rating agency found that the industry has grown by 173% in the last five years, despite market softening. This, as the report also found, far outpaces the U.S. property and casualty market results. Adequate rates, disciplined underwriting and favorable prior-year loss-reserve development have and will continue to produce positive underwriting returns. As reported, the combined ratio for U.S. domestic E&S professional writers in 2006 was 79.6%.

As the chart below depicts, the growth in the MGA/binding authority market has grown holistically as well as opportunistically to a point at which E&S amounted to 14.37% of the premiums written in 2006.

While growth in performance, premium and market share are variable, MGAs and their employees continually look for new products and services that can be offered to their producers and to policyholders. The intellectual capital base existent within this unique industry continues to expand, thereby making available innovative opportunities for secure risk covers and efficient distribution beyond what one would have thought a traditional wholesale MGA placement would have been even three years ago. We expect that to continue more so in the future as market conditions dictate an almost Darwinian model of business—that survival will belong to the strongest.

Employee recruitment and retention are primary issues among today’s insurance institutions, and MGAs are no exception. However, a renewed focus on training, education and professional development, complemented by the advances of automated efficiencies, will allow those in this industry to maximize their full potential and help the industry retain quality individuals.

Looking to the future

We must also continue to educate those in universities and high schools on the benefits of insurance and the risk management profession. Only in this manner can we assure the sustainability of the market and the specialized offerings of managing general agents in the future.

In 2007, the American Association of Managing General Agents (AAMGA) University Foundation endowed the AAMGA Chair of Excess and Surplus Lines Insurance in Georgia State University’s J. Mack Robinson College of Business, Department of Risk Management and Insurance.

This partnership with a leader in insurance and risk management education will dedicate scholarly research and education to those in this unique market segment. Being prepared for the future begins with providing knowledge transfer and networking opportunities today to those who will be entrusted with tomorrow’s challenges.

And speaking of the future, AAMGA’s initiatives over the past 12 months have truly embraced the necessity of looking forward as a core value. The association’s Under Forty Organization (UFO) has grown exponentially. Comprised exclusively of member employees under the age of 40, the organization conducts education, leadership and professional development training, holds annual meetings and networks throughout the year. AAMGA’s committee structure complements the UFO as an incubator of future leaders not just to the association, but in the industry as well.

The AAMGA also embarked on a unique program titled “Vision 2017.” A specially formed group of wholesale market thought leaders was convened to examine what the market may look like in the next decade. The group meets regularly to collaborate on thoughts and ideas—from consumer buying preferences of insurance to the distribution of products and services, risk management and related issues.

From this, the AAMGA University is developing new training initiatives to ensure that members are better prepared to maximize their potential—and those of their customers—as new programs and opportunities develop. It will also enable the AAMGA to continue its work with other respected trade associations in guiding the market toward initiatives that will provide the greatest returns on investment and equity.

Finally, since the 2005 hurricanes and the most recent year of profits (2007), the U.S. federal and state regulatory and legislative officials are targeting the insurance industry and are examining whether reforms are required. Certainly, efficiencies that can be gained to enhance speed to market, the uniform collection and payment of premium taxes, and providing additional incentives for innovative management of risk in a regulatory system supervised by 50 individual state departments of insurance will continue to provide insurance consumers and their business partners with the best framework to secure exposures. The current state of the industry allows us the opportunity to educate and provide appointed and elected officials with reliable data that prove the essential importance and viability of the wholesale and MGA market.

As one of the last bastions of free market competition and entrepre-neurship, managing general agents have the ability to foster the concepts of freedom of rate and form on excess and surplus line placements, and on the overall market generally. These concepts have single-handedly proven the value proposition of the MGA while, at the same time, given confidence to the market as to the dependability and profitability of the MGA throughout the various insurance cycles. *

The author
Bernd G. Heinze, Esq., is executive director of the American Association of Managing General Agents, an international trade association of 500-plus premier agencies, insurance companies, brokers and others in the wholesale marketplace. In 2006, the 287 MGA members wrote a combined (U.S.) $26.4 billion in direct written premium. The 82-year old organization undertakes numerous important initiatives throughout the year, as noted on its Web site: www.aamga.org.