presented at the: north american binding authorities conference september 25, 2014 by: bernd g....
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PRESENTED AT THE:
NORTH AMERICAN BINDING AUTHORITIES CONFERENCE
SEPTEMBER 25 , 2014BY:
BERND G. HEINZE, ESQ.AAMGA EXECUTIVE DIRECTOR
Status & Future of Binding Authorities in the US
Agenda
State of the Surplus Lines MarketEvents Impacting Wholesale Insurance
ProfessionalsFederal & State regulatory developmentsOverview of US excess and surplus lines
market Issues and Opportunities Open discussion
Current Market Conditions
E&S Market Outperformed P&C Market in 2013 92.4% combined vs. 95.8% Doubled net income over 2012
19 of top 25 markets grew by more than 10% Top 25 produce 75% DWP
Lloyd’s & AIG = 30% Berkshire Hathaway = 39% growth Berkley moves from 5th to 4th ahead of Zurich
Premium increased => sustainable (?) Return to underwriting profitability Low interest rates
Current Market Conditions
E&S Market Outperformed P&C Market in 2013 Adequate pricing and underwriting integrity Growth in unique and creative product lines Stable for now…but caution on diminishing average
rate increases A/Y reserve development more favorable than P&C
market Gap shrinking:
excess capacity low interest rates and capital outlays to enhance operational efficiencies
Transformative phase of consolidation and specialization
Largest E&S Premiums by State (Top 5)
State 2013 (US$) 2012 (US$) 2011 (US$) % from 2012
California $5,305,996,906
$5,057,111,503
$4,998,686,446
4.9%
Texas $4,883,847,632
$4,339,279,902
$4,220,187,772
12.5%
Florida $4,592,462,577
$4,204,711,182
$3,730,727,071
9.2%
New York $2,911,263,983
$2,625,552,790
$2,883,087,795
10.9%
New Jersey
$1,458,333,300
$1,250,000,000
$1,096,107,216
16.7%Largest growth State (2013): North Carolina $822.3 million – increase of 42.8%
2013 S/L Stamping Office Premium
State 2013 Prem ($M)
2012 Prem (M)
% Chg
AZ $406.8 $339.8 19.7%
CA $5,187.8 $4,851.9 6.9%
FL $4,592.5 $4,116.9 11.6%
ID $76.9 $60.2 27.2%
IL $1,160.1 $1,075.4 7.9%
MN $418.8 $356.8 17.4%
MS $345.3 $307.1 12.4%
Total* $22,467 $19,449.3 15.5%
* Total of all 14 State Stamping and Surplus Lines Offices
2013 S/L Stamping Office Premium
State 2013 Prem ($M)
2012 Prem (M)
% Chg
NV $249.2 $232.1 7.4%
NY $2,944.2 $2,047.6 43.8%
OR $253.8 $227.1 11.8%
PA $1,267.4 $981.7 30.0%
TX $4,706.3 $4,015.9 17.2%
UT $179.6 $170.3 5.5%
WA $669.3 $666.5 0.4%
Total* $22.467 $19.449.3 15.5%
US S/L $37.72 $34,808 8.4%* Total of all 14 State Stamping and Surplus Lines Offices
2013 S/L Stamping Office Premium
State 2013 Prem ($M)
2012 Prem (M)
% Chg
Total* $22,467 $19,449.3 15.5%
US S/L $37.72 $34.81 8.4%
* Total of all 14 State Stamping and Surplus Lines Offices
51.7% of all US S/L Premium written in 14 states with stamping offices
Largest US MGA’s/Wholesale Broker/Lloyd’s Coverholders
Company 2013 Prem (US$)
Variance %
2013 Gross Rev (US$)
Variance %
E&S %
Risk Placement Services
$2.34 billion
14.1% $201 million
12.9% 60%
Burns & Wilcox $1.1 billion 29.4% $265 million
20.5% 70%
AmRisc, L.P. $850 million
14.1% $106 million
2.7% 65%
The Shinnerer Group
$685 million
0.1% $85.1 million
(1.3)% 5.0%
Appalachian Underwriters
$410 million
2.0% $39.2 million
0% 15%
Gresham & Associates
$399 million
15.8% $40 million 12.7% 50%
Program Brokerage $340 million
22.1% $32.6 million
20.7% 21.4%
Markel Midwest $336 million
17.7% $59.2 million
121.3% 82%
K&K Insurance Group
$282 million
17.3% $58.2 million
15.9% 5.0%
The Sullivan Group $189 million
4.6% $20.7 million
3.2% 32%
Premium Volume of 10 Largest US MGA’s
Year Premium (US$)
2004 $4.66 billion
2005 $4.16 billion
2006 $3.24 billion
2007 $5.25 billion
2008 $4.50 billion
2009 $4.35 billion
2010 $5.16 billion
2011 $5.45 billion
2012 $6.14 billion
2013 $7.02 billion
US MGA’s Most Common Classes of Business
General Liability: 92%Commercial Property: 92%Professional Liability: 86%Commercial Auto: 86%Employment Practices: 83%Directors & Officers: 83%
Largest US Property & Casualty Wholesalers
Company 2013 Prem (US$)
Variance %
2013 Gross Rev (US$)
Variance %
E&S %
AmWINS Group $8.1 billion 21.6% $668 million
14.9% 66%
CRC/Crump $4.99 billion
10.2% 658 million 7.6% 30%
Cooper Gay Swett & Crawford
$4.8 billion 11.6% $380 million
9.5% 55%
Ryan Specialty Group
$3.7 billion 55.7% $304 million
44.4% 83%
All Risks, Ltd. $1.1 billion 27.8% $96 million 23.9% 67%
US Risk Insurance $575 million
43.8% $55 million 11.7% 90%
ARC Excess & Surplus
$575 million
4.5% $53 million 17.8% 25%
Brown & Riding $481 million
61.9% $40 million 52.6% 68%
Worldwide Facilities $481 million
16.2% $41 million 13.6% --%
Partners Specialty $434 million
8.6% $32.8 million
8.2% 70%
Premium Volume of 10 Largest P&C Wholesalers
Year Premium (US$)
2005 $12.87 billion
2006 $17.32 billion
2007 $12.79 billion
2008 $12.39 billion
2009 $12.73 billion
2010 $12.05 billion
2011 $17.12 billion
2012 $20.82 billion
2013 $25.20 billion
US P&C Wholesalers Most Common Classes of Business
General Liability: 90%Inland Marine: 86%Umbrella/Excess: 86%Commercial Auto: 86%Commercial Liability: 83%Employment Practices: 80%Directors & Officers: 80%Product Liability: 80%
AAMGA Membership Composition - 2014
258 Wholesale Insurance members132 US and international risk bearing (80%)
and non-risk bearing (20%) Associate members
59 Business service members14 US State Stamping & Surplus Lines
Offices463 Total Corporate Members38,511 employees407 Under Forty Organisation Members
The Present
258 Wholesale Insurance/Coverholder members 78% transact business as wholesale MGA/MGU with
binding authority 29% transact business as Program
Administrators/Managers with binding authority 22.5% transact business as Aggregators with binding
authority 20% transact business as Broker Producers without
binding authority
The Present
258 Wholesale Insurance/Coverholder members 70 members each with 20 or less employees 81 members each with between 21 and 50 employees 35 members each with between 51 and 125 employees 72 members each with > 126 employees
21,877 employees227 branch offices
AAMGA Membership Composition
258 Wholesale Insurance member demographics 31.2% are 20 – 30 years old 26.7% are 31 – 40 years old 28.4% are 41 – 50 years old 13.7% are over 50 years old
57.9% are under the age of 40 years old
The Present
258 Wholesale Insurance members Underwriting facilities with delegated binding
authority Total AWP:
2013: US$22.4 billion 2012: US$20.6 billion 2011: US$19.2 billion 2010: US$16.4 billion
AWP Broked into Lloyd’s: 2013: US$3.26 billion 2012: US$2.73 billion
AAMGA Member AWP Broked Into Lloyd’s
Risks placed through Lloyd’s Brokers 2013: US$3.26 billion 2012: US$2.73 billion
2010 2011 2012 2013 -
500,000,000.00
1,000,000,000.00
1,500,000,000.00
2,000,000,000.00
2,500,000,000.00
3,000,000,000.00
3,500,000,000.00
Weighted Average
AAMGA Coverholders AWP vs. Total Lloyd's US AWP
2010 2011 2012 2013 -
1,000,000,000.00
2,000,000,000.00
3,000,000,000.00
4,000,000,000.00
5,000,000,000.00
6,000,000,000.00
7,000,000,000.00
8,000,000,000.00
TotalAAMGA
E&S Market Rates and Movements
Data – Data – Data Those who are not up-to-date with automation will have
increasing difficultiesHarmonization of:
Predictive analytics and risk models, and underwriting discipline
Coverholder AuditsRegulatory compliance and guidanceBig data and large scale aggregation of
informationDisintermediation
E&S Market Rates and Movements
Standard markets will back out of accounts that are hard to price and service
Succession & Disaster PlansBusiness Plans by line of businessContinuing Education and professional
developmentIncreasing need for new talent, enhanced training
and retaining existing professionals AAMGA’s 2015 Gamma Iota Sigma Presentation:
“Welcome to the New E&S”Differentiation & Remaining RelevantM & A
Current Forces Impacting S/L Insurance
Continued mergers and acquisitions / consolidation M&A deals of P&C entities
2014: 141 YTD 2013: 62
Aggregate deal value: $6.4 billion Small to Medium-sized deals
2012: 73 Aggregate deal value: $7.4 billion Various-sized deals
Influx of non-traditional sources of capital increases competition and adds pressure on rates
Current Forces Impacting S/L Insurance
Continued mergers and acquisitions / consolidation Appetite is still strong More players in the M&A space, especially for
MGA and Program operations Still lots of potential candidates
Aging owners Many do not have good succession plans Size matters more than ever to markets.
Current Forces Impacting S/L Insurance
Continued mergers and acquisitions / consolidation Technology and data are expensive and critical Many of the smaller firms cannot afford to keep up Value is driven by:
Specialization Profit margin Market and territorial access Talent within the operation
Industries Poised for Growth Next 10 Years
Health CareHealth SciencesEnergy (Traditional)Alternative EnergyPetrochemicalAgricultureConstruction
Natural ResourcesTech & Bio TechLight ManufacturingInsourced
manufacturingExport-Oriented
IndustriesShipping (Rail,
Marine, Trucking & Pipeline)
Insurers’ ability to capitalize on these industries varies widely
Current Forces Impacting S/L Insurance
Increasing volatility in US investment market, political atmosphere of dissention and stagnation
Increasing regulatory environment Federal State International
Increasing proliferation of regulatory activities across borders Risk-based capital standards Cooperation & Competition among regulators
Global capital standards Implementation of enforcement standards
FIO Report 24 September 2014
“…the insurance industry showed increasing resilience through 2013, with strong financial performance and expanded overall growth. While the insurance market is becoming ever-more global, the U.S. domestic market remains highly competitive and an important cornerstone of the national economy.”
Michael McRaith, FIO Director
Regulatory Developments
Reauthorization of TRIA/NARAB IILegislation to allow E&S market to write
private flood coverNAIC uniform eligibility standards for surplus
line carriersNRRA implementation
US Legislative & Regulatory Activity
Post Dodd-Frank Era of Insurer RegulationNon-Admitted & Reinsurance Reform Act (NRRA)
Home State Retention of 100% of Surplus Lines Premium Increased accuracy of premium and tax revenue Non-Admitted Insurance Multistate Act (NIMA)
Five States Participating: Florida, Louisiana, Utah, South Dakota and Wyoming + Puerto
Rico Florida Clearinghouse
Surplus Lines Insurance Multistate Compact (SLIMPACT) “Uniform” Eligibility Standards & Market Security
Joint Industry Letters NAIC International Insurers Department (IID) List State White Lists
S/L Premium Tax Pre - NRRA
Policyholder
Broker
Surplus Lines Premium tax allocated by
state by share of risk
proportionately calculated to reside in each
state
A: 1.7%
B: 13.5%
C: 2.87%
D: 6.4%
E: 0.46%
F: 5.37%G: 3.9%H: 1.6%
I: 7.1
J: 6.9%
K: 11.9%
L: 15.47%
Home State: 22.8%
S/L Premium Tax Post - NRRA
Policyholder
Broker/MGA
Surplus Lines
Premium tax calculated at and paid to
Home State’s based on tax
rate and rules
Home State: 100%
Legislative & Regulatory Activity
OFAC, FATCA, COI & AML Regulations Impact on domestic vs. Lloyd’s market placements
Forced Place InsuranceNational Association of Insurance Commissioners
Transparency & Regulatory Issues Surplus Lines Task Force
NCOIL International Regulatory Task ForceRegular liaising with US House & Senate, and all
governmental agencies
US Litigation, Regulatory & Amicus Curiae Activity
Hull & Company v. Superior Court of CAGold & Silver v. Lexington Insurance
Company Essex Insurance Company v. ZotaWA Department of Transportation v. James
River Insurance CompanyWI, CO, NJ, NY, MA, FL, OK, CA challenges
to freedom of rate and form
US Litigation, Regulatory & Amicus Curiae Activity
“Faulty workmanship” constituting a covered “occurrence” under CGL policies - cases and regulations in CO, GA, SC & HI
Delaware retroactive increase to surplus lines tax
Utah premium audit lawIllinois increase in surplus lines tax
Legislation & Regulatory Affairs
International: Lloyd’s Audit Scope Central Services Refresh Tribunalization process of new coverholders Coverholder guidance TCF Standards & Policyholder Complaint
Procedures AML/Conflict of Interest Guidance Lloyd’s Meet the Market: Boston, Chicago,
Toronto Canadian MGA’s
Collaborative Efforts with Lloyd’s
Regular communications / joint presentations with Lloyd’s and Lloyd’s US on matters impacting Coverholders and domestic wholesale market
LMA, LiiBA, MGAA reciprocal membership in AAMGA
Automation & Technology
Increasing investment in automation Agency management systems to drive efficiencies
Excess & Surplus Lines Working Group Vision for straight through processing Web service ACORD XML – Property & G/L
ER3001 Reporting standard for XML with some modifications
Validation at time of processing
Automation & Technology
Benefits: Validation completed at time transaction is processed Time saved preparing month-end bordereaux Access to data is in real-time Themes:
Faster: Real time XML exposure reporting
Smarter: Built-in rules and validation
Together: Keeping respective interests harmonized and
synchronized
Automation & Technology
AAMGA Automation Conference 21-23 March 2015 – Seattle, WA
AAMGA Automation Committee Monthly conference calls Working group Liaising with other industry automation entities
IIABA Agent’s Council on Technology E&S Joint Working Group Lloyd’s Automation Conference
Emerging Risks, Issues & Trends
Foresight and knowledge sharing are essential to navigate a future in which
change is the only constant
AAMGA Initiatives
Outreach to entire wholesale market and related affinity groups Latin American Association of Insurance Agents Chinese American Insurance Agents Association National African American Insurance Agents Lloyd’s Market Association Managing General Agents Association (UK) London & International Insurance Brokers Association
Bringing wholesale insurance network under common umbrella
Issues & Opportunities
Balancing: Lloyd's objectives in establishing model Wordings that will
protect the franchise and ensure uniform interpretation and application of compliance standards, with
Coverholders in the United States being afforded the opportunity to access the Lloyd's trading platform without burdensome/non-essential regulations that do not add to the operational transfer of risk or the quality of underwriting
Issues & Opportunities
The consistency of inconsistencies: Varying Interpretation(s) of Lloyd’s Guidance Hurricane Sandy coverage declination letters and
claim practices Time and process required to renew and approve new
Coverholder Contracts Prospect for expedited procedures or a form of
Continuous Contracts
The Way Forward
Standardized audit scope and the performance of auditors
Mutually beneficial solutions to enhance affordability, efficiencies and expediency of placing business into Lloyd’s
Continued expediting of tribunalization of new Coverholders
Partnering on provision of technology solutions to afford greater access and efficiencies
Issues & Opportunities
Temper proportionate and consistent application of balanced regulatory and claims requirements
Prospect of regulatory compliance and enforcement of sanctions impeding creative solutions to specialized risks and the freedom of rate and form
The Way Forward
Coverholders remain committed to the Lloyd’s trading platform and franchise Improve market modernisation, access, intelligence and
support
Fostering of relationship and efforts with London Brokers and Lloyd’s
Embracing the principles articulated in Vision 2025Enhancing diversity and inclusion initiatives to
better represent the entire wholesale underwriting community
Thank You
Bernd G. Heinze, Esq.610 Freedom Business Center
Suite 110King of Prussia, PA 19406
610.992.0022 (o)610.992.0021 (fax)bernie@aamga.org
www.aamga.org
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