Bullish outlook despite casualty concerns and Vesttoo fallout
A record attendance of more than 1,500 at this year’s Target Markets Annual Summit, as well as the reaccelerating 2022 growth reported in the association’s latest study, tells the story of a US programs sector in rude health.
And rightly so. The consensus view – that the resurgence of the programs space in the last decade is a permanent, sustainable shift – is one that we at Program Manager subscribe to.
After all, MGAs and other delegated authority entities have risen to prominence because of the demand for their ability to deliver specialty solutions, as well as the draw for specialty underwriters to find entrepreneurial opportunities away from traditional carriers – not to mention the turbo-charging impact of a surging E&S market.
In a world that is patently becoming riskier and more complex, the tailwinds behind the rise of the sector seem unlikely to abate for the time being.
But away from that bullish overall outlook, early conversations this publication has had with delegates in Scottsdale have highlighted some of the areas of concern in 2023 that could impact market dynamics next year.
One is the ongoing fallout from the Vesttoo scandal and what that means for the future of the fronting sector and its use of collateralized reinsurance.
There are situations awaiting near-term and likely longer-term resolution. In the near term, we still await further updates on the success of efforts taken by Clear Blue (and others) to address the crisis and resolve rating agency issues.
The longer-term legal fallout is likely to take time to conclude, with parties including Aon’s White Rock involved, as any companies that have faced financial loss look for recovery.
Our view is that the Vesttoo test won’t spell the end to the hybrid fronting model as we know it, but there will certainly be evolution – both operationally and in the overall construct of the segment, with a rationalization of the number of players a near certainty.
Arguably the conditions that allowed Vesttoo to happen were created by capacity constraints in certain areas of the programs business – and that need for capacity has not eased.
This takes us to another key topic of discussion. After the capacity challenges in property cat, will availability and cost of casualty capacity become an issue for MGAs?
The signaling from other industry events this fall has strongly pointed to moves by reinsurers and insurers to push for improved pricing and terms in an attempt to counter escalating loss costs, social inflation and other factors squeezing margins – especially in areas like excess umbrella.
The profile of programs business is arguably different, and sources in the MGA space have said they have continued to get strong rate increases even as momentum has waned elsewhere. But the sector will surely not be immune to a push by reinsurers and insurers for more significant change. We will watch this area of potential development closely…