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New managing general agents and underwriters have entered the excess and surplus lines insurance market in increasing numbers over the past two years, but some foresee a slowdown in coming months.
“If you look at the last 18 to 24 months, I would say we have seen close to two dozen new entrants on the casualty side, with many on the MGA side, with various papers behind them,” said Bryan Sanders, president of U.S. insurance for Richmond, Virginia-based Markel Corp.
Generally, the new entrants have not sought to slash rates, he said.
Some of the new entrants have put an emphasis on technology.
In January, for instance, Chicago-based Agman, an investment company, introduced Aurenity, a tech-enabled managing general agent targeting casualty and professional liability lines in the E&S market, with $10 million in seed money.
Observers say the MGAs and MGUs have attracted talented and experienced personnel who can narrowly focus on particular lines.
“Because it’s a hard market, you can enter and price profitably from the get-go,” said Alex Bargmann, CEO and co-founder of San Francisco-based Pathpoint Inc.
Mr. Bargmann said there has been a proliferation of underwriting expertise in the sector, “and now sophisticated capital is pouring in,” which creates great opportunities for someone wanting to start an MGA or MGU.
These entities “have a variable expense model that the capital providers are attracted to,” said Timothy W. Turner, president of Ryan Specialty Group Holdings Inc.
Expenses, underwriting, distribution and services are all outsourced, so the insurer is just providing the risk capital, “which is attractive to many risk-bearing entities,” he said.
“There will always be new entrants into the marketplace, especially in this pricing environment,” said James Drinkwater, Charlotte, North Carolina-based president of Amwins Group and executive chair of Amwins Global Risks.
Some observers say, though, that economic factors may slow the entry of new MGAs and MGUs, and there will be failures among entrants.
Higher interest rates and capital costs, and “perhaps a growing acknowledgement that some of the social inflation trends are hitting the loss side of the ledger,” will discourage potential new entrants, said David Bresnahan, Boston-based chief operating officer of Berkshire Hathaway Specialty Insurance Co.
“There’s a cap on the number of markets necessary to meet the market’s needs,” said Erich Bublitz, Kansas City, Kansas-based head of excess and surplus for AmTrust Financial Services.
Some experts struck a cautionary note. “What keeps us up at night is whether the current discipline will remain,” although “so far it has,” said Gary Resman, Atlanta-based vice president, U.S. casualty, for Aspen Insurance Holdings Ltd., referring to E&S primary casualty.
Excess and surplus lines insurance buyers, who have paid significantly more for their coverage over the past five years, still face higher rates, but competition is increasing and there has been some moderation in price hikes.