Amwins: Capacity scandals have highlighted the importance of counterparty security
The James Allen affair and Vesttoo fraudulent letter of credit scandal have highlighted the importance of counterparty security for capacity used by MGAs, with AM Best’s recently launched performance assessment framework one way a company can demonstrate the controls it has in place.
These were the views of Amwins senior management talking to Program Manager at last month’s WSIA Annual Marketplace in San Diego.
Speaking to this publication, Amwins CEO Scott Purviance and president James Drinkwater emphasized that the wholesale broking and underwriting platform had only limited exposure to Vesttoo – with that capacity now replaced – and no exposure to James Allen.
“James Allen was a start, and I think Vesttoo now has brought it to light that security matters. Ratings matter, and what you’re buying – certainly the industry has been re-awakened to this,” Purviance said.
“It’s not now as though if a wholesaler gives [a client] a policy and it’s the cheapest, that you’re going to sell it. I think security is going to matter more. Is it ultimately going to matter to a buyer to pay 20-25 percent more? Probably not,” he suggested.
Purviance said wholesalers will still present clients with options, but that his firm wouldn’t “go down a rabbit hole” to do business with trading partners the firm can’t get comfortable with.
“We try and always apply a rigorous approval process for any new capacity and MGA,” he added.
“I think you will see more focus around the reinsurance supporting fronted programs. I know we are certainly taking a different approach than in the past,” said the Amwins CEO.
AM Best PA-1 rating
The Amwins executives said the Vesttoo controversy specifically hadn’t been much of a talking point at the WSIA Annual Marketplace. But Drinkwater touted the lessons his firm had learned more broadly after it secured the inaugural PA-1 top performance assessment from rating agency AM Best for its delegated authority unit.
“I think it's so important. I hope that insurance companies look at the importance of the PA-1, which handicaps people differently as a result of it,” Drinkwater said of the rigorous evaluation process his firm went through with AM Best.
“It demonstrates we've got the systems, we've got the people, we've got the product, we've got the ability just to behave like nobody else. So hopefully there's a value to that,” he added.
Regarding some of the dust-ups that have been witnessed in the market in the last year, Drinkwater said it was “a little frustrating that some [in the market] give their capacity away to anybody”, while also arguing that “there's very little checks and balances”.
“Oftentimes we just look at it and go, ‘Why would you give that person capacity?’
“Hopefully, all these issues are going to come home to roost, and will make people look at MGAs differently in the long run,” he explained.
Competitive advantage
“We think it's a competitive advantage for us as a company,” he added, regarding the firm’s PA-1 rating specifically.
Speaking to Program Manager last month at the CIAB Insurance Leadership Form in Colorado Springs, Amwins CUO Mark Bernacki agreed that the PA-1 from AM Best was proving to be a competitive advantage.
As previously reported, the firm entered into a strategic partnership with the US platform of MS&AD earlier this year, and the executive said the PA-1 had been beneficial in that process.
And Bernacki also revealed that having the PA-1 had resulted in “audit-lights” rather than full carrier audits being required in a number of cases, with the auditors combining that with viewing the most recent AM Best report on Amwins’ underwriting platform.
Amwins has delegated authority underwriting across 100+ programs with more than 500 underwriters and around $5bn of managed gross written premium.