The leader of W.R. Berkley Corp. has seen it before—some version of the MGA movie in which delegated underwriting authority is given to market participants whose ambitions aren’t always aligned with capacity providers.
President and Chief Executives Officer W. Robert Berkley, Jr. called out the potential market impacts of managing general agents several times during a second-quarter earnings conference call this week, while he and other executives also reported the specialty insurer’s jumps in income and premiums each over 7% and a combined ratio of 91.6.
In spite of what he characterized as stable and solid results, and his forecast of high-teen to low-20s returns for the foreseeable future, Berkley has his eye on the cast of characters in this year’s remake of MGAs Come Into the Property/Casualty Insurance Market—particularly new entrants, reinsurers and private equity investors.
“There is no doubt that inherently, in many of the delegated authority models, there is a mismatch or a lack of alignment of interest between those with the pen and those with the capital,” he said. “It is not that all of these relationships are bad. Some of them are quite good. One just needs to have their eyes wide open and understand that it is not a perfect alignment of interest and make sure that it is controlled appropriately,” he said, commenting on the general landscape.
Still, he said, “there has been extraordinary growth in the MGA space. A lot of it has been generated by new entrants that lack expertise.”
“A lot of it has been supported by reinsurance capacity that seems to have an unquenchable thirst for growth without necessarily their finger fully on the pulse,” Berkley continued. “We’ll have to see how this plays out. Those that have been around for a long while have seen some version of this movie.”
Adding investment bankers to this year’s cast of characters, Berkley said that within the last 60 to 90 days, Berkley executives received “a startling number of inbound calls” from the bankers, gauging their interest in buying MGAs. “And typically, they are capitalized or owned by private equity,” he said.
The frequency of calls, he suggested, are “perhaps a leading indicator that the music is slowing.”
“We’ll see who has a seat at the end, though oftentimes, that does take some time,” Berkley said.
Asked about W.R. Berkley’s response to these phone calls, the CEO said that while always being open to conversations, “it’s a pretty high hurdle to truly get us to want to engage.”
Commercial Auto: A Bursting Hose
Berkley gave his line-by-line take on market dynamics, starting with the increasingly competitive property market. The drivers, he said, are a reinsurance marketplace that is “willing to provide capacity at a lower rate” and “some of the MGA market, which is becoming clearly more active.”
He noted a bifurcation in the property market, however. The most competition exists for larger accounts, “particularly shared and layered” business, he said. For smaller accounts, “It’s not that there isn’t competition, but it pales in comparison to the larger end of town.”
Turning to commercial transportation, Berkley again highlighted MGA activity in the marketplace. “We continue—and others—seem to be pushing for rate, but without a doubt, the MGA participants are creating at least a short-term headwind for that market truly going hard.
“My expectation is that that’s a bit of a kink in the hose…Consequently, it is going to build up pressure and ultimately, will inure to the benefit of responsible long-term participants when that snaps and the market shifts.”
As for professional liability, Berkley reported that the public D&O market “is beginning to find some sense of bottom,” while the private and non-for- profit D&O spaces remain particularly competitive. He again flagged the MGA component contributing to competition on miscellaneous professional liability classes.
This story is an excerpt of piece originally posted in Carrier Management, a sister publication of Insurance Journal.
Topics
Insurance Wholesale
Interested in Insurance Wholesale?
Get automatic alerts for this topic.
