Understanding the US programme market
Updated: Sep 30
On day one of the 14th India Virtual Rendezvous 2021, AM RE Syndicate CEO Shevawn Barder was on hand to provide an overview of the US market, particularly the programme market.
Dallas, Texas-headquartered American Reinsurance Syndicate is a boutique specialty reinsurance entity with a focus on the programme space - underwriting commercial motor, general liability, marine, inland marine and cyber.
The business of writing specialty quota share (QS) reinsurance that matches US cedants with Asian securities is a niche that has been playing out well for AM RE Syndicate.
The size of the US economy and the insurance industry that supports it cannot be understated. In 2019, the country’s GDP stood at $21.4tn, with the insurance industry accounting for 2.9% ($629.7bn) of that figure.
What is the programme market?
Within the industry, the programme market comprises managing general agents (MGAs), fronting carriers and the supporting capacity that absorbs the risk.
“It's a highly efficient way to access distribution of specialty primary business in the US market. MGAs and the excess and surplus (E&S) market represent approximately $125bn in premium income in the US primary market,” she said.
The market covers several individual lines including transportation, cyber, flood, liability and habitational property.
All programme business is also written on a quota share model. “This means all participants interests are aligned for a profitable outcome,” she said.
“It's a very efficient structure – premiums are collected by the MGA, claims are handled as an offset, and reporting structures are tight and can be kept to a 30 to 45 day timeline so results are reported in real time and can be tracked to monitor performance if anything deviates from expectations.”
AM RE Syndicate is an MGA based in Dallas that underwrites primary programme business.
MGAs were established to represent insurance companies as a distribution mechanism with a less expensive infrastructure than establishing a branch office and over the years, have evolved out of the concept of a cost effective way to sell insurance in the primary market.
Increasingly, MGAs have refined their structures with the addition of sophisticated software and the use of technology. They are specialist underwriters that understand distinct business segments in the industry.
“A best-in-class MGA really functions like a mini insurance company in that they can write business, settle claims, account for premiums and issue documentation,” said Ms Barder.
“And the value of an MGA is its localised expertise, vested interest in performance, high renewal retention rate, customised product offerings and the ability to adapt quickly to changing markets. This is due to the fact that this business is written in the wholesale or E&S lines market.”
Ms Barder noted that MGAs that participate in E&S lines have experienced less disruption during the pandemic. She attributed this primarily to the fact that they operate in a less regulated market.
“During COVID they have been able to react to conditions within the market and change their terms and conditions and go back to supply the product that is required. And they don't have to go back to a regulator to file their rates, terms and conditions. They can react quickly and nimbly to market conditions and meet the requirements of their customers,” she said.
Fronting carriers and reinsurers
Fronting carriers are the companies that provide the paper for MGAs to write their business on – they comply with all the regulatory and filing functions that are necessary for the MGA to write the business.
According to Ms Barder, this ensures that MGAs are not distracted by that burden and can get on with and focus on the business that they need to.
The programme also represents a positive relationship for reinsurance capacity because reinsurers can access the best rates as they participate from ground up due to the quota share model that this business is written on, said Ms Barder.
“In this current market, they can influence guidelines, pricing and claims management,” she said. “And through this process, reinsurers, particularly international reinsurers, can access diverse classes of primary business within the US market.”