Programs market premium jumps by 33% to $54bn since 2018: TMPAA
Direct written premiums by the programs market have spiked by 33% to $54bn since 2018, according to a study by the Target Markets Program Administrators Association (TMPAA) released this week.
According to the report, based on research compiled by analytics company Advisen, the growth rate of the program market in that span outpaced that of the commercial lines market, which grew by just over 9% in that same time period.
However, despite the overall growth of the programs market, helped by rate increases generated across most lines of business, the TMPAA Program Business Study 2021 report found that the percentage of administrators reporting premium increases actually declined.
After increasing from 76% in 2016 to 81% in 2018, the percentage of MGAs that reported increases in premiums administered in 2020 dropped to 72%, the report said.
The report was the first update the group had provided since the onset of the Covid-19 pandemic in early 2020.
It suggested that the programs market proved its resilience amid the challenging circumstances presented by the pandemic, a string of heavy natural catastrophes, and a firming rate environment.
Among the more noteworthy developments within the programs market in the past two years, about one-third of both carriers and administrators said client retention levels remained the same or improved during the pandemic, though about one-fifth said they lost customers as result of economic shutdowns.
“We remain bullish and optimistic on program business overall and are excited to get our production and revenue back on pre-2020 footing and growth moving forward,” is a comment echoed by many MGA and carrier respondents who participated in the survey.
Other highlights from the report include the finding that about one-third of respondents have opted to use fronting capacity occasionally or frequently, while another one-third said they use fronting capacity as needed. Similarly, one-third of respondents expressed a preference for traditional capacity.
There was also a split in the degree to which program administrators and carriers were impacted by natural catastrophes and civil unrest in the past year.
More than half of carriers participating in the TMPAA’s survey said their underwriting was moderately or significantly impacted by catastrophes, compared to only about 25% of program administrators.
About 30% of carriers said their underwriting results were meaningfully impacted by civil unrest, versus 15% of administrators.
Also, the percentage of administrators using Lloyd’s syndicate capacity declined to 45% from 58%.
Opportunities and threats
When looking at the state of the MGA market, both carriers and MGA respondents agreed that specialization and expertise within a certain niche remain one of the major strengths of the MGA space. Versatility and profitability also remained top of mind among the surveyed groups.
“Program administrators understand the risks of a specific industry and therefore provide superior products and service for their specific business,” said one administrator polled.
In terms of weaknesses, “fierce competition” was highlighted as a significant challenged faced by MGAs, the report said. Another weakness identified was the difficulty in keeping up with modern technology and the costs associated with it.
According to some participants, what exacerbates the problem is that many of the new entrants do not have a full understanding of program business, such as those that “worry about volume more than profitability, especially in longer tail lines,” one respondent said.
Commenting on the threats faced by MGA businesses, one administrator said that “risks from increased natural disasters are increasing losses and causing further market hardening.” Another respondent said the “hard market makes securing capacity a challenge.”