Higher retentions, reinsurance capacity sourcing and a focus on expanded, long-term partnerships make for a model that entices reinsurers and MGAs alike.
With reinsurers exercising greater restraint around the business they will accept and which managing general agents (MGAs) they will work with, a hybrid fronting model that has more skin in the game than most, in the form of higher retentions, has significant appeal.
That is the view of Dominick Tassone, chief underwriting officer, AM Specialty Insurance Company, speaking ahead of a special Intelligent Insurer webinar on April 5, titled “How hybrid fronting solutions can help MGAs navigate a challenging landscape”. It brings together a panel of experts to debate how MGAs can stand out from the crowd with a hybrid model as more fronting companies have entered the insurance space over the past three years.
In addition to Tassone, the session will feature Shevawn Barder, chief executive officer of AM Specialty Insurance Company; Matt Petka, managing director, Guy Carpenter; and Jeremy Deitch, general counsel and head of compliance, Boost Insurance.
“AM Specialty Insurance Company has been very clear that our level of risk retention, overall, will be much higher on average than that of most fronting carriers,” Tassone said.
He added: “When you’re looking at 10 to 25 percent of risk retention on an individual programme, that’s significant.”
This is a more traditional approach to the business than that of a typical fronting carrier, he explained, saying that some won’t take any risk at all.
“But when you’ve got skin in the game, and we have many partners with their own captives that will take skin in the game, we like that. Everybody’s taking risk.”
Higher retention levels are not the only attraction of a hybrid fronting model. Tassone said that the model used by AM Specialty Insurance will source reinsurance capacity and will build long-term relationships with its partners.
“Our position is that we’re looking to be a long-term partner, and for ways to expand relationships. We’re going to be very different from a Trisura, a State National, or a Transverse fronting company because we’re taking a very frontline underwriting approach to the business,” Tassone said.
“We’re going to be very flexible, meaning we’re not going to do things that don’t make underwriting sense and don’t make profit for the company, but we will listen to our partners.”
Vive la difference
As a primary underwriter for the past 45 years, Tassone’s approach to the fronting model is to take the primary underwriting position and engage with MGAs. This requires more and greater quality communication, which can take the form of monthly touchpoints to talk about reserving, pricing, or premium numbers.
“We talk about whether your premium is to plan, and if it’s falling short, what is the plan to improve that? We look at forecasts—not only for the year, but maybe years two and three.
“We work with partners to say: ‘Do you have expansion on the horizon—product or geographic expansion?’” he explained.
He advocates stewardship meetings with partners, every six months for example, to look at the figures and discuss how to move forward from there.
“It’s about having a long-term view and looking to grow relationships. You’re going to have certain programmes that are $10 million in US premium, and as long as they’re maintaining a profit, that’s fine. But if there’s an opportunity to expand in segments and classes of business and grow portfolios to $25, $50 or $100 million, we’d have the ability to do that.”
Tassone reiterated that AM Specialty Insurance Company is an underwriting company. “That is clearly different from other fronting carriers—it’s important and reinsurers and reinsurance brokers need to hear that.”
He said that the reinsurers he’d worked with had embraced the sharing of information such as audits and reviews. “They want to hear that because they’re not seeing it from other fronting models that I’m aware of.
“We’ll have a very specific niche and focus, we’re going to be underwriting-driven. There is a fee portion of this relationship, but it’s broadening the relationship and looking at long-term relationships, not short-term plays,” he concluded.
Amid extended hard market conditions, MGAs must up their own game and create a proposition that sets them apart in a competitive landscape, according to Shevawn Barder, CEO of AM Specialty Insurance Company. Read the companion article: Why hybrid fronting can help MGAs thrive
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