Why hybrid fronting can help MGAs thrive
Updated: Mar 30
US MGAs are being pressured from all sides, but innovative hybrid fronting models can help ease pressures on underwriters and attract high quality reinsurance capacity at the same time, says Shevawn Barder, CEO of AM Specialty Insurance Company.
Amid extended hard market conditions, reinsurers are being more selective on which business they will accept—and which managing general agents (MGAs) they will partner with. This means that MGAs must up their own game and create a proposition that sets them apart in a competitive landscape.
That is the view of Shevawn Barder, chief executive officer of AM Specialty Insurance Company, speaking ahead of a special webinar which will, in part, cover this theme. The event, on April 5, called “How hybrid fronting solutions can help MGAs navigate a challenging landscape”, will bring together a panel of experts to consider some of the ways MGAs can set themselves apart in an increasingly challenging environment.
In addition to Barder, the session will feature Dominick Tassone, chief underwriting officer, AM Specialty Insurance Company; Matt Petka, managing director, Guy Carpenter; and Jeremy Deitch, general counsel and head of compliance, Boost Insurance.
A greater use of technology and analytics can achieve this, Barder says. She recommends working with a partner such as AM Specialty Insurance that can help MGAs set themselves apart, while being willing to gain skin in the game. This so-called hybrid fronting model, whereby AM Specialty Insurance will source reinsurance capacity and partner on risks, is coming into its own in a hard market.
“There are a lot of carriers willing to front, but very few have the technical expertise to do it well. Our background and training in the Lloyd’s Market sets us apart in that sense, and that is why we are willing to retain risks on all the programmes we write,” Barder explains.
“We have the confidence to do that, and that means we can offer MGAs a true partnership, sharing risks on the underwriting but also finding the right reinsurance partners they need.”
She stresses that the reinsurance markets are very tight in many areas now. An extended hard market (rates globally were up 37 percent in the year-end renewal) means capacity is scarce for some lines of business and reinsurers can pick and choose the carriers they wish to work with. This is why MGAs need to set themselves apart—and prove to potential capacity providers they have the skills and expertise to deliver a profitable portfolio of business.
Partnerships and tech
In this sense, AM Specialty Insurance Company can act as a conduit in the process. By working closely with MGAs, it acts as quality control on the business being written, while also working as a match-maker with suitable reinsurers who are keen to work with US MGAs but concerned about ensuring they are taking on quality business.
“It is about building true partnerships with MGAs,” Barder says. “Generally, the E&S space is very hard at the moment—and we believe it will continue that way thanks to more recent economic shocks. There is a lot of pressure on the market but all MGAs want to access reinsurance capacity. Working with a fronting carrier that understands the reinsurance landscape and will partner with them can be invaluable.”
“Deploying $25 million in capacity was once the norm; now, a $5 million line is significant. But that means the guys that are very good will get better. Those that are not doing so well, will struggle.”
One of the key ways MGAs can set themselves apart—and make themselves more appealing to reinsurers—is to embrace technology: to use more analytics and data tools to make better underwriting decisions.
This too is something AM Specialty Insurance can help with. It has built its own proprietary database, which MGAs can license and benefit from, and can help them leverage third party tools. “Either way, the tech proposition is here to stay and MGAs need to lean into that or be left behind,” Barder says.
On the reinsurance side of the equation, AM Specialty Insurance is seeking new partners—and is particularly interested in working with players in the collateralised space. Barder says she sees collateralised players as often more sophisticated than traditional players and, when all parties understand the best way of using that form of capacity, it can be a good match with MGAs.
“We see ourselves as having an important role to play,” she says.
Barder stresses that, despite the challenges, it remains a very positive time for MGAs. AM Best has a positive outlook on the sector and, despite some bumps, the US economy remains strong. The key, however, is working with the right partners, in the right way.
“Reinsurers are now a lot more selective so it is important to be more flexible in constructing these programmes. Reinsurers want to align themselves with MGAs with strong analytics and technical underwriting expertise. In that sense, the risk-sharing options and long-term partnerships we offer can mean advantages for everyone involved,” she concludes.
Higher retention levels are not the only attraction of a hybrid fronting model. Dominick Tassone, chief underwriting officer, AM Specialty Insurance Company, believes the model can be used to source reinsurance capacity and help build long-term relationships with partners. Read our companion article – How hybrid fronting can offer MGAs a mark of distinction