Inorganic growth across the delegated authority and fronting segments once again took centerstage at the annual Target Markets Program Administrators Association (TMPAA) conference.
On the back of recent transactions such as KKR-backed ISC’s ~$2bn sale to Onex and other investors, or CVC’s acquisition of a majority stake in California's Bamboo, sources said the sector is seeing increased dealmaking.
This year, more bankers and capital providers attended the conference compared to prior years, a sign of rising M&A activity and expected consolidation in the segment.
There were some banking and private equity executives attending the event for the first time, but there were also new names emerging in the market. For instance, former MidCap Advisors managing director Shelby Cowley launched advisory firm Cowley Group just days ahead of the conference.
While last year most deals were driven by strategic buyers, this year PE players are making a comeback and being increasingly active, like in 2023, according to sources.
Yet, recent examples suggest that the delegated authority space will continue to see robust interest from both sides.
Earlier this week, Insurance Insider US revealed that the Texan underwriter Lumen Risk retained Piper Sandler to search for a PE backer. Meanwhile, Amwins and CRC are among the bidders in the sale process of R&W MGA Euclid Transactional, with interest also coming from sponsors.
These deals followed SiriusPoint’s recent sales of its stakes in MGAs Arcadian and Armada to Lee Equity and Ambac, respectively.
At the conference, sources said they expect to see more carrier-MGA divestitures, break-ups and other types of deals in the red-hot delegated authority market.
However, market participants highlighted that there is a notable mismatch as demand for quality assets significantly exceeds supply.
As such, multiples in the wholesale and program manager markets have remained elevated.
Some sources said specialty distribution assets are still commanding multiples in the mid-to-high teens, well above other segments in the insurance industry, including retail broking and claims services.
With no signs of this mismatch rebalancing anytime soon, valuations could hold steady in this segment. This comes also as the slowing of the specialty cycle puts a greater emphasis on franchise quality, as this publication has written.
Alternative capital
Besides M&A, alternative capital raising such as sidecar vehicles and other initiatives were other much-discussed topics.
Following the minting of Ryan Specialty’s sidecar with Flexpoint Ford and Sixth Street, sources said a number of other sidecar and whole account quota-share initiatives are underway in the MGA space.
This publication revealed last week that CRC Underwriting is seeking to line up a whole account quota-share of 20% of its MGA book with potential multi-year capacity.
MGAs are looking to open up new pools of capacity because it increases their business resilience. But these initiatives are also prompted by what this publication called the push for yield, where MGAs are looking to optimize portfolios to increase the ratio of Ebitda to premiums written.
MGAs are also looking towards IPOs as a way to bring in external investors and expand their access to capital, especially after Neptune Flood’s offering earlier this month, a listing trailed by this publication.
Lost religion
Underwriting capacity was another theme that got airtime this year. Paper providers showed that they have appetite to support certain risks, mostly short-tail or niche classes.
There has been a push to deploy property capacity, which is expected to continue in the near future as carriers seek to grow in this class.
In some cases, after certain limit compression in the property market, some are looking to “fill some holes” in this segment.
Unlike liability lines, terms and conditions are being loosened in shared and layered property to allow paper providers to expand their limits, “losing some of the religion” the space found post-Hurricane Ian, some sources said.
As MGAs undercut the market on rates and add in capacity in droves to take advantage of the relatively benign cat loss years, the grab for market share continues, as does the downward pressure on rates, which started around late 2024.
Chubb CEO Evan Greenberg told analysts on Wednesday that property pricing in large account E&S fell by a significant 13.5% in Q3, and industry barometers like CRC’s REDY index have all shown recent reductions.
When asked what it’ll take for the rate declines to abate or at least stabilize, sources concurred that the industry would need an external force like a catastrophe to re-gain some discipline, and not just any catastrophe, one that amounts to an industry loss of at least $75bn-$100bn.
Growth is going to be hard to come by in commercial lines property over the next year.
Other markets where (re)insurers are seeking to grow include cyber and certain professional lines.
‘Everything but wheels’
In contrast, excess liability, umbrella and commercial auto remained difficult classes as paper providers pull back.
Several program administrators said that when they asked paper providers what they were looking for, many replied, “everything but wheels”.
“Trucking is almost impossible,” one reinsurance broker said, noting that north of 80% of the capacity in this class is coming from collateralized reinsurance.
“You can have the telematics, the underwriting discipline, the analytics all you want, but severity is so extreme that it makes it really hard to find support,” he added.
Besides insurance-related issues in the trucking class, some hurdles within that industry, such as a shortage of drivers, are making it more difficult.
Multiple industry sources said that they are concerned that past rapid growth has stored up trouble for some MGA books, especially those overexposed in areas like commercial auto and casualty, over the next 12-36 months. (For background, see: It only takes one undisciplined actor to unravel the value chain)
‘You have to go to Staples’
On the talent front, demand in the MGA sector continues to rise as existing players seek to expand while new platforms enter the market.
Several advisors noted that 'de novo’ or ‘incubator’ were words used more often than in previous years.
That said, sources said that those underwriters leaving carriers to start their own enterprises need to realize that it’s not as easy as it may seem, given the saturation in the market.
“When you’re at a carrier, you know where the pens are. When you’re on your own, you have to go to Staples to get the pens,” one source said.
Sources added that bootstrapping an MGA is different than starting one at a reputable incubator or platform.
Yet, there seems to be no shortage of supply, as talent from traditional companies continue to move to the MGA segment, where they find a faster-moving environment and the opportunity for true wealth creation.
Some corners of the industry where companies are looking for talent include surety and sports & entertainment, as well as wholesale broking.
“Insurers and reinsurers typically want to see at least 10 years of direct production underwriting in a defined niche, coupled with meaningful program or insurer experience, credibility with distribution partners, and proven ability to manage significant premium,” recruitment and advisory firm Smith & Wilkinson wrote in a report.
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