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Insurer in Full: Sunny outlook despite gathering storm clouds

With mounting recessionary fears amid surging inflation and rising interest rates; geopolitical uncertainty from the Russia-Ukraine conflict and government instability elsewhere...

... and a growing frequency of extreme weather events, storm clouds are gathering over the global outlook.

And those topics will all feature heavily in P&C sector earnings calls over the next few weeks as carrier and broker management are probed over the resilience of their businesses to macro headwinds and the impact on top-line growth, pricing and loss costs.

But while concerns over the outlook for some areas of the insurance industry might be growing, one area where there remains a strongly bullish consensus is the E&S market.

The segment has been a growth leader in the hard market as admitted markets have retrenched and huge volumes of business have flowed through the wholesale channel to E&S carriers.

And rather than showing any signs of a slowdown, the data for the first half of 2022 points to an acceleration of that business volume.

Yesterday our sister publication The Insurer reported that surplus lines premium recorded by US stamping offices grew by a record 32.4 percent to $31.4bn in the six months to 30 June.

Premium in the first half grew at the fastest percentage rate since stamping offices began reporting collective data in 2009.

And despite some reports of a reduced volume of submissions coming into the E&S market, the evidence in the stamping office data was of an increased number of transactions, up 9.4 percent to almost 2.8 million in the period.

What does this data mean for the MGA and programs space in the US?

The E&S booster

Well, according to Conning’s recent report on the sector, the growth in the E&S market in recent years has been a strong driver in the expansion of direct premium written (DPW) by MGAs.

As we report in detail in this month’s issue, DPW by MGAs in US statutory filings grew 15.5 percent last year to $56bn, with the total size of the market estimated to be $70bn, including $7.1bn of premium sourced by US MGAs for Lloyd’s.

As this publication has noted before, some of the growth has coincided with structural change in the MGA sector.

This change includes a maturation and evolution of the delegated authority model, a flood of investor interest from private equity, the emergence of insurtechs and greater demand from reinsurers for program business facilitated by the wave of new fronting carriers sporting the hybrid model.

But undoubtedly another major driver has been the boom in the E&S market, where MGAs play a significant role, accounting for 38 percent of premiums in 2020.

There is a debate about how much of the E&S growth is cyclical as a result of business temporarily flowing from standard lines to surplus lines carriers versus a more permanent, or structural shift.

And in its report, Conning suggested that growth in MGA DPW will slow to the high single digits this year, in part because of a slowdown in the flow from the admitted to E&S markets as well as moderating P&C rate increases to offset MGA sector-specific growth drivers.

Conning’s excellent and extremely comprehensive ninth annual study of the US MGA sector (click here to find out more) was written before the latest data from the surplus lines stamping offices was compiled and released by the Wholesale & Specialty Insurance Association.

With the E&S market currently on course to accelerate rather than slow this year, the outlook for the MGA sector currently looks sunny indeed…

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