Hard market timing

The summer months have so far not proved to be a restive time for the specialty P&C (re)insurance market, with no shortage of activity as companies position themselves to take maximum advantage of what they see as a hard market opportunity.

And the program sector has been no exception.

In August’s issue of Program Manager we lead off a key hire for expansive US specialty insurer Palomar. It is bringing in Jason Sears from Rivington to drive a push into the programs space on its new E&S platform following a recent capital raise.

There are plenty of other examples in recent weeks of new and existing platforms taking steps to find the best access point to program business in a segment where sources have talked about a surge in activity.

That includes a significant churn from carriers as their appetite changes, and MGAs seeking new capacity, as well as a steady flow of new deals being launched as business continues to flow into the sector – especially on an E&S basis.

The activity is continuing to fuel new program carriers – both as “traditional” risk bearing entities and more hybrid fronting entities.

The Insurer last month revealed Ambac is making a move into the space with a new carrier, after bringing in Steve Dresner from Crum & Forster and former State National executive Wyatt Blackburn, while other start-ups – including Sutton National – are closing on launches.

Meanwhile, earlier this week US specialty insurer Fortegra said that it has secured a $200mn credit facility to help support its domestic and international buildout.

As previously revealed by this publication, that buildout includes a strong focus on program business, including in casualty.

At the same time, program administrators and MGAs have continued to be the objects of desire for platform consolidators and PE firms – even allowing for a drop-off of deal activity in the earlier phases of Covid-19 – as can clearly be seen by the headlines in this month’s Program Manager.

Window opening or shutting?

But for all the activity, just as there are some sceptics about the scale and duration of the opportunity in the broader P&C (re)insurance sector, there are those around the program business who also question how long the window will stay open.

As the parent of Arrowhead and sister companies under its programs umbrella, Brown & Brown is a significant player in the sector.

And on the Daytona Beach, Florida-based firm’s earnings in late July, CEO Powell Brown said that 15.5 percent organic growth in its national programs segment was driven strongly by the “unique dynamic” of rates going up at the same time as the economy going down.

He also highlighted the “important nuance” of additional capacity coming into the marketplace, including from start-ups.

“Is that a good thing or a bad thing for us? We believe it’s good because it gives us more capacity to serve our customer base,” he said.

He added that new capacity could also temper rate increases if it comes in and competes against incumbent carriers that are pushing hard for higher prices, however.

”For all those who talk of a once in a lifetime hard market opportunity in areas like E&S, there are others – including some investors – who believe that capital raised by incumbents as well as new start-ups will shorten and narrow the opportunity for all”

“That capacity could be plugged into our programs businesses in certain areas… and that may moderate the rate increases,” Brown suggested.

The impact is nuanced because, if that capacity doesn’t come in and tightening continues, it could lead to a situation where a program administrator or MGU could only continue to write its renewals.

In that case, premium volumes and related revenues would go up on rate alone, but there wouldn’t be additional capacity to write new business, which would impact organic growth.

This fine balance is indicative of what’s happening in the broader sector too. For all those who talk of a once in a lifetime hard market opportunity in areas like E&S, there are others – including some investors – who believe that capital raised by incumbents as well as new start-ups will shorten and narrow the opportunity for all.

That means identifying the right spot and moving fast is likely to prove the difference between the winners and losers in the months and years ahead.