Welcome to Committee Day 2009:
Working to Advance the Promise of
the Wholesale Insurance Industry
Membership Composition & Leverage




Active Members:
Associate Members:
Business Services Members:
Stamping & Surplus Lines Offices:
Total:
2
285
156
64
14
488
The AAMGA Value Proposition





Total MGA Members (2008):
Total Employees:
Number of Storefront Offices:
Direct Written Premium (2007):
Lloyd’s Market Premium (2007):
 AAMGA members account for 41.1%
3
285
9,347
312
$22,917,796,224
$ 2,931,141,184
The AAMGA

Total Direct Written Premium Written by MGA
member coverholders:








2007
2006
2005
2004
2003
2002
2001
$ 20.20 billion
$ 22.94 billion
$ 21.89 billion
$ 23.97 billion
$ 16.45 billion
$ 13.18 billion
$ 10.99 billion
109% increase in DWP between 2002 and 2006
4
AAMGA Committees: a collaboration
of strength & versatility



Insurance Automation &
Technology
Education
Marketing








Communications
Inter-Association Liaison
Code of Ethics
Membership/Member Benefits
HR Subcommittee
Governmental Affairs
Operations
Under Forty Organization
AAMGA Committee Day 2008:
Dallas, TX
Industry/AAMGA Opportunities
Maintaining the trust and producing the results to
continue as the market of choice.
6
Other Developments






The AAMGA Summer School and student exchange at
Cambridge University at Sydney Sussex College
The Lloyd’s Course and Test
Claims & Litigation Management School
On-line registration & confirmation
On-line tracking of classes and hours completed
Scheduled networking time at each University session
7
AAMGA UFO




Over 300 members
(domestic & international)
UFO Annual Meeting:
Leadership, perpetuation and
management training
sessions throughout the year
Increased networking and
facilitating relationships with
Lloyd’s & Bermuda “Under
35’s Group”
On-line chat room and
bulletin board on AAMGA
website
8
AAMGA Approach


Working with consumer protection groups
Working with Industry groups:











Big I
Council of Agents and Brokers
PCI
COFIR
ALEC
NAPLSO
NCOIL
State Stamping & Surplus Line Offices
Surplus Lines Law Group
White Papers and Presentations
Advocacy through education; not adversarially
9
Current Observations

Federal bailout has to date cost US taxpayers
$2 trillion
Putting it in Perspective

2 Trillion is equivalent to:
$2,000,000,000,000
 66,300 years measured in seconds
 80,321,285 revolutions around the Earth at the
Equator
 333 million federal regulators laid end to end
(assuming each is an average of 6 feet tall)
 403,825 round trips by car (in miles) between
New Orleans and Atlanta, GA

Current Observations


Failures and bailouts have placed ALL financial
and insurance services under a federal and
state regulatory microscope
There will be greater
federal “oversight” or
regulation of insurance
including E&S
Current Observations

At the moment…all “insurance” products and
services are being lumped and viewed
together
E&S
 P&C
 LA&H
 Banking

Today’s Surplus Lines Market
Issues and Opportunities
14
E&S vs. P&C
1987
Commercial
Lines
E&S
E&S as a % of
Commercial
Lines
1997
2007
$123,314,542,000 $146,668,576,000 $267,718,286,000
$6,566,000,000
$9,419,000,000
5.32%
6.42%
15
$37,336,288,000
13.95%
Gross Surplus Lines
Premiums Written
(E&S GPW)
The importance of
Surplus Lines is
demonstrated by
much faster growth
than for the overall
P/C insurance
industry
+$5.5B
+14.7 %
+$4.4B
+21.4%
16
Source: AM Best 2008 Special Report on E&S Lines
-$1.4B
-3.7%
Surplus Lines
Taxes Collected
Surplus Lines pay
more than $1.3B +
annually in
premium taxes
+$114.9M
+11.7%
+$132.7M
+ 11.5 %
+$50.5M
+4.6%
17
Source: Business Insurance, December 2007; Insurance Information Institute.
+$33.4M
+ 2.6 %
Surplus Lines Premium
& Taxes Collected
2005
2006
2007
Premium
$35,896,752,150
$37,786,954,168
$38,176,840,141
Taxes
$ 1,157,378,697
$ 1,281,847,169
$ 1,300,706,732
Percentage change in premium 2005 – 2007: 6.4%
Source: Business Insurance, September 8, 2008, page 28
18
Solvency Ratings: Surplus Lines vs.
P&C Market

Surplus Lines Carriers




32.5% rated A+ or better
66.3% rated A- or
better
None rated below B++
P&C Carriers



19
10.3% rated A+ or better
56.2% rated A- or better
24.6% rated B++ or
below
Most Common Classes of E&S
Business Written, 2008
Percentage of Most Common Types Offered
GL and Commercial
Property are the biggest
sellers
Source: Insurance Information Institute.
20
Market Trends

Key Points

Consolidations will play a key role in the
landscape of surplus lines groups and single
companies over the near term and going forward

Targets will be those who:



can attain geographic and product line diversification
Secure top line growth
Strong, well established distribution platforms,
well established market profiles and mature
books of business will carry the day
21
THE ECONOMIC STORM
What a Weakening Economy and
Financial Crisis Mean
for the Insurance Industry
Exposure & Claim
Cost Effects
Real GDP Growth*
Recession began in December 2007.
Economic toll of credit crunch, housing
slump, labor market contraction is growing
The Q4:2008 decline was
the steepest since the
Q1:1982 drop of 6.4%
*Yellow bars are Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 2/09; Insurance Information Institute.
Real GDP Growth vs. Real P/C Premium
Growth: Modest Association
18.6%
20.3%
25%
P/C insurance industry’s growth is
influenced modestly by growth in the
overall economy
0%
-5%
-10%
1.7%
1.2%
2%
Real NWP Growth
Real GDP
Real GDP Growth
7.7%
5.6%
1.6%
3.1%
1.1%
0.8%
0.4%
0.6%
0.3%
5.8%
5.2%
1.8%
4.3%
5%
4%
78
-0.9%
79
80-7.4%
81 -6.5%
-1.5%
82
83
84
85
86
87
88
-1.6%
89
-1.0%
90
-1.8%
91
-1.0%
92
93
94
95
96
97
-0.4%
98
-0.3%
99
00
01
02
03
04
-2.9%
05
-0.5%
06
-3.8%
07
-4.2%
08E
09F
Real NWP Growth
15%
10%
6%
13.7%
20%
8%
0%
-2%
-4%
Sources: A.M. Best, US Bureau of Economic Analysis, Blue Chip Economic Indicators, 2/09; Insurance Information Inst.
Length of US Recessions:
1929 - Present*
Months in Duration
50
45
43
40
“We will rebuild. We will
recover.”
Current recession began in Dec. 2007
and is already the longest since 1981.
If it extends beyond April, it will
become the longest recession since
the Great Depression.
President Barack Obama
addressing a joint session of
Congress
February 24, 2009
35
30
25
20
16
13
15
11
8
10
10
8
10
16
15
11
6
8
8
5
0
Aug.
1929
May
1937
Feb.
1945
Nov.
1948
July
1953
Aug.
1957
Apr.
1960
Dec.
1969
Nov.
1973
* As of March 2009
Sources: National Bureau of Economic Research; Insurance Information Institute.
Jan.
1980
Jul. 1981 Jul. 1990
Mar.
2001
Dec.
2007
THE $787 BILLION ECONOMIC
STIMULUS:
Impacts & Implications for
P/C Insurance
Emerging Blueprint for Financial Services
Regulatory Overhaul
Phase I: Systemic Risk Regulation/Regulator
•
Oversight Responsibility: Likely With Federal Reserve
 Fed would have capacity and power to assess risk across
financial markets regardless of corporate form and to
intervene when appropriate *
 Fed could oversee (according to House Financial
Services Committee Chairman Barney Frank):



Hedge funds (need to ensure “complete transparency”)
Credit ratings agencies
Executive compensation (to curb “perverse risk incentives”)
*http://financialservices.house.gov/press110/press0320082.shtml
28
Source: Wall Street Journal, “Frank Backs Regulator for Systemic Risk,”
2/4/09, p. C3; I.I.I. research.
Emerging Blueprint for Financial Services
Regulatory Overhaul
Phase I: Systemic Risk Regulation/Regulator: OTHER
•
•
•
•
Unification of federal bank regulatory agencies
Creation of a Financial Products Safety Commission to vet
products before sold to investors
Creation of federal insurance program for municipal bonds
paid via premiums
Support for status quo on mark-to-market
Phase II: Sectoral Reform/Overhaul
•
•
Each segment of the financial services industry will be
examined and subject to regulation specific to its function,
risks and other factors
TIMELINE: August 2009 or later
Source: Wall Street Journal, “Frank Backs Regulator for Systemic Risk,” 2/4/09, p. C3; I.I.I. research.
29
Possible Regulatory Scenarios for P/C
Insurers as of Year-End 2009
Status Quo:
•
P/C Insurers Remain Entirely Under Regulatory
Supervision of the States
 Unlikely, but some segments of the industry might
welcome this outcome above all others
33
Possible Regulatory Scenarios for P/C
Insurers as of Year-End 2009
Federal Regulation:
•
Everything is Regulated by Federal Government
 Unlikely that states will be left totally in the cold
34
Possible Regulatory Scenarios for P/C
Insurers as of Year-End 2009
Optional Federal Charter (OFC):
•
Insurers Could Choose Between Federal and State
Regulation
 Unlikely to be implemented as envisioned for past
several years by OFC supporters
35
Possible Regulatory Scenarios for P/C
Insurers as of Year-End 2009
Dual Regulation:
•
Federal Regulation Layer Above State
 Feds assume solvency regulation, states retain rate/form
regulation
Hybrid Regulation:
• Federal Government Assumes Regulation of Large
Insurers at the Holding Company Level
Systemic Risk Regulator:
• Feds Focus on Regulation of Systemic Risk Points in
Financial Services Sector
 P/C vs. Life?
36
Source: Insurance Information Inst.
Regulatory Oversight and Federal
Government Intervention
40
Legislative Developments

Non-Admitted & Reinsurance Reform Act of 2009




Optional Federal Charter


Only the insured’s Home State’s statutory and regulatory
requirements apply, including those with regard to producer
licensing.
All non home state, non-admitted insurance laws and regulations
are preempted.
Will be re-introduced in the US House and Senate soon
Establishes single federal regulator of insurance
Office of Insurance Information

Provides Congress information on insurance related regulation and
developments
41
Industry Opportunities






Disciplined capital management and deployment
Continued profitability in Soft Market?
Market Hardening in 3rd-4th Quarter 2009?
CAT Modeling (100 mile wide storm vs. 400 mile wide
Ike)
Shift from Hard Market Growth to Innovation in the
Soft Market
Embracement of technology
42
Industry Opportunities

New opportunities








Enterprise Risk Management
Wealth and Asset Management
Climatological Change
Aggregation of Exposures
Closer collaboration with local authorities on building and zoning
codes
Increasing data quality
 Insurance to value and coding accuracy
 Implementation of ACORD Standards
Ratemaking techniques
 Territorial analyses and allocation of reinsurance costs
CAT Model sophistication
43
Industry Opportunities







Use of advanced analytics by reinsurers at the transaction level
and capital allocation process
Convergence of risk management activities to better achieve
well-controlled and transparent management of risk and
capital on a cost effective basis
Creating better efficiencies and compliance with regulations
and insurance rules by eliminating siloed redundancies and
misalignments
Modernize processes
Refocus on customer demands
Increase turnaround time on contract documentation, policy
issuance and claim management
Enhance intellectual capital and professional development
44
Industry Opportunities
Maintaining the trust and producing the
results to continue as the market of choice.
45
“Crystal Balling” the Future

Price softening across all lines is waning, but should
continue to generate positive underwriting results
through




adequate rates
disciplined underwriting and
favorable prior-year loss-reserve development
Leading surplus lines companies have wellestablished relationships with wholesale MGA’s,
brokers, and agents


will allow them to defend their core books of business and
withstand the heightened competition from the standard
market.
Source: A. M. Best Special Report: “Excess & Surplus Lines Annual Report – 2007”
“Crystal Balling” the Future



Favorable prior-year reserve development reported
over the past two years indicates the return of
adequate reserves.
Accident year reserve development for professional
surplus lines companies has been more favorable
than that experienced by the overall industry.
Improved pricing and more accurate loss picks in
recent years, should cause reserve development to
not be a drain on the surplus lines market during the
near term.
Source: A. M. Best Special Report: “Excess & Surplus Lines Annual Report – 2007”
“Crystal Balling” the Future

Rates on smaller risks historically tend to mirror
loss costs, which at the beginning of 2007 still were
going up, although at a decelerating rate.

Surplus lines insurers still looking to grow their
portfolios, particularly start-up companies, will be
challenged to grow their books of small and middlemarket accounts while maintaining underwriting
profitability.
Source: A. M. Best Special Report: “Excess & Surplus Lines Annual Report – 2007”
Key Challenges for our Industry




The ability to effectively manage operations
through the soft market cycle
Impact of a potential “on-shore” catastrophe
Competitiveness from standard markets
The ability to effectively utilize emerging
technology to enhance productivity

Migrating underwriting, policy administration and
other systems on to a single platform
Source: A. M. Best Special Report: “Excess & Surplus Lines Annual Report – 2007”
Nonadmitted and Reinsurance Reform
Act of 2009 (“NRRA”)



Only the Home State of the insured may require a premium tax
payment. The states may enter into a compact or otherwise
establish procedures to allocate those premium taxes.
Only the insured’s Home State’s statutory and regulatory
requirements apply, including those with regard to producer
licensing. All non home state, non-admitted insurance laws and
regulations are preempted.
Insureds which meet a substantial definition of sophistication and
financial wherewithal can consent to coverage being acquired
from surplus lines insurers without the broker having to first
conduct a diligent search.
Nonadmitted and Reinsurance Reform
Act of 2009 (“NRRA”)





HR 5637 passed unanimously in the 109th Congress
in 2006
HR 1065 introduced in the 110th Congress in 2007
 Passed by a vote of 417-0 in June 2007.
S.929 introduced into the US Senate in March 2007
Committee hearings on S 929 were held – and then
recession hit
New Bills expected to be introduced soon
Optional Federal Charter



Authorizes the issuance of charters and licenses for the
sale, solicitation, negotiation, and underwriting of
insurance or any other insurance operations
Provides a comprehensive system for the regulation
and supervision of National Insurers and National
Agencies, as well as provides for policyholder
protections in the event of an insolvency or impairment
of a National Insurer
Creates a new insurance regulatory structure that
would allow companies that operate across state
borders the option to operate under one set of Federal
rules and regulations
Thank You!
American Association of Managing General Agents
150 South Warner Road
Suite 156
King of Prussia, PA 19406
610.225.1999 (o)
610.225.1996 (f)
bernie@aamga.org
The Benefits of Membership in
the American Association of
Managing General Agents
November 2007
The Top Six Reasons:
1.
2.
3.
4.
5.
6.
The AAMGA’s brand value in the wholesale
insurance marketplace, and its respect in the greater
insurance community
The Annual Meeting
Education & Professional Development
Leadership by Committees of Industry Peers
Networking, Networking, Networking
A Heritage of Integrity & Professionalism
Membership Composition & Leverage




Active Members:
Associate Members:
Business Services Members:
Stamping & Surplus Lines Offices:
Total:
256
145
60
14
475
The AAMGA Value Proposition





Total MGA Members (2006):
Total Employees:
Number of Storefront Offices:
Direct Written Premium (2005):
Lloyd’s Market Premium (2005):


256
9,347
312
$26,917,796,224 *
$ 2,155,798,989
Total Lloyd’s 2004 US DWP: $4.6 billion
AAMGA members account for 41.1%
_____________________________________________
*



Compares to Underwriting Year 2005 DWP of $21,883,941,760
Compares to Underwriting Year 2003 DWP of $16,433,886.633
Compares to Underwriting Year 2001 DWP of $10,993,827,620
Why do MGA’s want to be a Member?



Capitalizing on the AAMGA’s established industry
reputation as a world-class professional trade
association
Placing the AAMGA logo and brand value on the
business cards, letterhead and marketing materials
Access to industry thought leaders, educators and
peers to maximize their full potential
Why do MGAs want to be Members?
“Where else can my agency be represented on Capitol Hill, the
London Market and Lloyd’s, before the NAIC and other
regulatory agencies, and receive information, data and
solutions to implement in my office for $850 a year?”
Francis Johnson:
President, Johnson & Johnson Managers;
President, AAMGA 2005-2006
The Prospect for Sustained Growth
Today’s AAMGA members complement the equation by
undertaking a:







selective pursuit of business opportunities and customers;
execution on developed business plans and strategic initiatives for the
agency and the individual lines of business;
consistent application of disciplined underwriting;
continuing education to train, retain and expand staff competencies;
development of young professionals entering the market;
a relentless commitment to performance and service; and
a distinct focus on results achieved by managing general agents, in
partnership with those producers, underwriters and markets with whom
they have maintained a trusting relationship.
The Prospect for Sustained Growth
Through the efforts of the Association members are
collectively recognized and have earned the respect of:






US & UK markets
Reinsurers
State and Federal Regulatory Officials and Elected
Representatives
Industry Press
Producers
Investment Community & Rating Agencies
The Annual Meeting
“Where the Wholesale Insurance Community
All Comes Together”








Conduct business in a relaxed and professional venue
Agents & Brokers Lounge
Fostering relationships
Hear from world leaders and opinion makers
Educational Sessions
Networking
Recognitions
Vendor & Trade Show
The 2008 Annual Meeting


Theme: “Focused on the Future”
Opening Breakfast Speaker:

Chris Wallace: Fox News “The 2008
Presidential Election”

Spouse Speaker:


Lisa Ling: National Geographic Channel
Business Meeting Speaker:

Vince Lombardi, Jr “What it takes to be #1: Lessons from the
Greatest Coach”
The 2008 Annual Meeting
Gala Entertainer
AAMGA University

New strategic plan in place





Certified by all 50 state insurance departments to provide
continuing education
More concentration on bottom line financial, underwriting,
claims, litigation and developmental training subjects
Classes focused on specialized LOBs and tracks
On-line CE & Office Suite classes in place
Taking the University “on the road” for MGA’s and
their producers
University Developments












University Weekend, I/T, Business Planning and Human Resources
classes
AAMGA Chair on Insurance & Risk Management at Georgia State
University
Emphasis and marketability of the CMGA, CWIS & CIW
Designations
Internships
Scholarships
Duesenberg Family Business Chair
American Modern Chair on Insurance Marketing
Williamson Chair on Insurance & Business Ethics
UFO Annual Summit Conference at Lloyd’s or Bermuda
MGA & Brokerage School
Insurance Beginners School
Commercial Property School
Professional Development Center

Enhancing the professional business acumen of
AAMGA Members with classes and expert instructors
on:







Writing business plans
Writing and understanding financial statements
Negotiation practices
Presentation skills
Strategic planning
Time management
Marketing & Communications
Ethics Classes
AAMGA is the only professional
trade association to have and offer
insurance and business ethics class
curriculum in the US & the UK
AAMGA Committees: a collaboration
of strength & versatility


Automation
Marketing






Code of Ethics
Meetings
Governmental Affairs
Membership




Communications
Inter-Association Liaison
Member Services & Benefits
Nominating & Bylaws
Under Forty Organization
University Curriculum Committee
AAMGA Committee Day 2007:
Dallas, TX
The Real Value of the AAMGA…
Is
You
The Real Value of the AAMGA…





Get involved in a committee
Attend University classes
Get your young professionals involved in the
UFO
Take advantage of world class meetings
Network with your colleagues
The value of AAMGA
Membership
…are all the opportunities and doors that are
opened to you and your agency, company and
your employees.
Thank You
AAMGA Headquarters
150 South Warner Road
Suite 156
King of Prussia, PA 19406
610.225.1999 (office)
610.225.1996 (fax)
bernie@aamga.org
www.aamga.org
American Association of Managing General Agents
Annual Meeting Attendees by State
2009
130
80
67
59
59
58
48
46
43
41
39
42
31
25
16
13
6
3
4
2
4 3
7 6
6 5 5
16
15
8
5
7
2
5
0
4
1
14
0
4
3
1
2
AK
AL
AR
AZ
BM
CA
CO
CT
DC
FL
GA
HI
IA
IL
IN
KS
KY
LA
MA
MD
MI
MN
MO
MS
NC
ND
NE
NJ
NM
NV
NY
OH
OK
OR
PA
RI
SC
TN
TX
UK
UT
VA
VT
WA
WI
WV
1
4
16
American Association of Managing General Agents
Annual Meeting Attendee Historical Trend
Member Type
500
450
400
350
300
250
200
150
100
50
0
2006
2007
2008
2009
Spouse
331
322
223
149
Active
364
388
429
314
Associate
345
414
454
421
Business Services
45
60
55
65
Stamping
10
8
13
12
Press
3
4
3
5
American Association of Managing General Agents
Annual Meeting Attendee Historical Trend
Total
1,103
972
1,196
1,180
2006
2007
2008
2009
Average for last 4 years = 1,090.2