The show will go on…

A look back at some of the headlines Program Manager has published in 2023 so far could make for ugly reading for participants in the MGA and fronting space especially.

Arguably the biggest story of the year has been the Vesttoo scandal, the repercussions of which could reach far and wide.

Indeed, as we report in our first Target Markets daily issue, analysts at Alirt Insurance Research have suggested that the fake letter of credit affair has “called into serious question” the enterprise risk management practices of the entire fronting ecosystem.

That means wholesale distributors, reinsurance intermediaries, offshore reinsurers/transformers and their collateralized reinsurance platform partners have all come under the spotlight after a “major black eye” for the sector.

As we have previously reported, the fronting model in particular has come under scrutiny – especially around governance controls and due diligence – at a time when a much harder reinsurance market has also created some challenges for the legion of recent entrants.

But Alirt concluded that while the criticism is warranted, the fronting model is here to stay and the experience of 2023 “should remain only a growing pain”.

We are inclined to agree. While there will almost certainly be some rationalization of the players over the coming years – especially if and when any investor concerns ease – the demand for fronting services and their role as a conduit for reinsurance and other forms of capacity to access specialty insurance risk will remain strong.

In recent years Target Markets has been proactive in its response to the influx of hybrid fronting carriers, making it easier for reinsurance intermediaries to attend and helping to facilitate a growing part of the market that its membership has looked to access for capacity.

This year’s Annual Summit has again attracted record numbers – with the official attendance of 1,500+ representing an uplift of 30 percent or more from 2022.

And as outgoing TMPAA president John Colis told this publication, that record attendance highlights the robust health and “incredible growth” of the delegated authority space.

While the record size of the program sector has undeniably benefited from the tailwinds of a hard market cycle – especially from the surge in the size of the E&S market – Colis, like many others, is certain that the expansion represents a permanent trend line.

Again, this publication agrees with this thesis. The drivers of growth include demand for the kind of specialty product that the program sector has been at the forefront of delivering. All the indications are that risk is growing and becoming more complex, fueling that demand for specialty programs.

The trajectory may flatten or steepen over time, but the long-term growth prospects remain strong…