Reinsurance broker Howden Tiger, in collaboration with insurance research group Conning, has released a new report examining the growing importance and influence of asset-light structures to the re/insurance industry during times of heightened underwriting and investment volatility.
The comprehensive report, Travelling Light, explores the rise and impact of asset-light insurance structures, such as managing general agents (MGAs), fronting companies, and reciprocal exchanges, highlighting their prominence in the U.S. and growing importance around the world.
Howden Tiger and Conning note the critical role these asset-light insurance structures play in ensuring the insurance market remains both relevant and responsive at a time of heightened underwriting and investment volatility.
“Asset-light entities are delivering for brokers and insureds, developing new products for some of the most challenging exposures in today’s market, including cyber risks and property perils impacted by climate change. At a time when data analytics are increasingly pivotal, these agile entities can often move faster than traditional carriers, identifying and developing attractive niche markets and offering speedier submission turnarounds,” said William Pitt, Director, Insurance Research, Conning.
The report discusses insurance market evolution over the past decade, including how talented underwriters have increasingly chosen to join, or establish, MGAs, owing to their entrepreneurial approach.
The MGA sector also attracts talent from outside of the insurance industry, notably in areas requiring new technologies and data science skills, says the report.
A key feature of asset-light structures, according to the report, is their ability to write business via mechanisms that provide greater capital flexibility and optionality.
“These structures have a growing role in insurance product development and distribution, acting in close partnership with more traditional balance-sheet insurers and reinsurers. This ‘asset-light’ approach fosters greater responsiveness to market fluctuations, bolstered by cutting-edge data analytics,” says the report.
Despite the greater role asset-light structures are playing in the industry, Howden Tiger and Conning note that traditional insurers will maintain their importance as the assumption of risk in areas such as the catastrophe space needs a strong balance sheet.
“The numbers are revealing; premiums underwritten by non-affiliated US MGAs have more than doubled since 2018, rising to $33 billion in 2022. It is evident that asset-light structures are forging a new frontier, creating new approaches for the industry,” said David Flandro, Head of Industry Analysis and Strategic Advisory, Howden Tiger.
Elliot Richardson, Vice Chairman, Howden Tiger, commented: “In order to remain relevant, the industry must find better ways of deploying capital in reinsurance and much innovation can happen in the MGA space, with dedicated investment, and advanced strategic and analytical solutions. As the only full-stack reinsurance broker, Howden Tiger is at the forefront of the asset-light evolution, placing a combined $7.5 billion of gross written premium on behalf of clients in 2023 and helping them adapt to these new structures.”
