By David Bull

May 29 - (The Insurer) - A softening pricing environment and consolidation are among the drivers expected to lead to a reduction in the numbers of MGAs and hybrid fronting carriers over the next few years, according to panelists at the Program Manager Conference 2025.

Moderating one of the panels at the event, Guy Carpenter managing director Des Bohan asked executives if after several years of expansion of the MGA market and the emergence of more than two dozen hybrid fronting carriers, a softening market would lead to any form of contraction.

Greg Williams, managing director at AM Best, said that he expects most of the drivers of growth such as talent, technology, alignment of interest and capacity flowing in to support MGAs will still be present in three to five years.

“So the question becomes, okay, in three to five years, what’s going to change? We’re starting to see some moderating rates. Over the last five or six years it’s been a boom, with the rate increases that commercial lines have seen… double digit, high single digit… and that’s where MGAs typically operate.

“If that starts to moderate, or maybe turns into a soft market, how does that impact the environment? MGAs really need to focus on operational effectiveness at this point. So I think there will maybe be a thinning of the herd at some point,” he commented.

He noted that currently, according to Target Markets data, there are around 1,100 MGAs in the U.S., as he pointed to consolidation in the space as a likely driver of reducing the number of participants.

“That being said, we still expect the delegated underwriting authority and MGA market to probably outpace the overall P&C market,” Williams predicted.

Jon Beckham, president of Amwins Program Underwriters, said he expects the MGA and programs space to remain on a growth trajectory over the next few years.

“It’s a great area to invest in, but I do expect consolidation to continue to occur,” he said.

He acknowledged that soft market conditions could be approaching, but added: “Look, markets come and go. The best MGAs will continue to build specialty underwriting and market resilience to last the test of time.

“Businesses that continue the tolerance, the discipline and willingness to grow when there’s opportunity, but also shrink when the market dictates, I think those entities will remain relevant throughout this process.”

Meanwhile, Liam Jones, CEO, Agency at Mosaic Insurance, said he expects to see a flight to quality in the MGA space as combined ratios move in the wrong direction.

Against a backdrop of a growing prevalence of broker facilitation, he said that as an MGA, the key will be to show underwriting leadership.

“If that continues, there will be a lead market and there’ll be a follow market. If you are an MGA, you’re being paid to find risk and underwrite risk, you need to be a leader,” he commented.

SHRINKING OF HYBRID FRONTING NUMBERS

Panellists also commented on the outlook for the fronting sector.

Paul Goodwin, executive vice president of reinsurance at MS Transverse noted a crowded competitor space with upwards of 25 companies currently operating.

“It’s inevitable that’s going to shrink,” he commented.

Goodwin suggested that the formation of new carriers in the segment was in part being driven by the boom in the E&S market, which has supported growth in the MGA sector.

Meanwhile full stack traditional carriers are also looking at the MGA and programs space as an attractive growth opportunity, adding further competition.

“You look at these new formations (of hybrid fronting carriers), whether it’s via acquisition or some of these companies possibly closing down, there will be a consolidation,” he predicted.

AM Best’s Williams said that while there has been an expectation of consolidation for some time among hybrid fronting carriers, the model “seems to be working”, with fronting fees holding up.

“It would be a leading indicator if we start to see fronting fees diminish somewhat. That said, there will be a point where, if you take a look at the fronting cohort, maybe the top five control a significant portion of the overall market.

“Then you take a look at some of the smaller ones that haven’t reached scale yet, or with some of the other fronts (maybe) their balance sheet isn’t as strong as they expected it to be,” said Williams.

He also noted that for some of the private equity-backed fronting carriers, the time frame could be running out.

“We keep on saying this, that over the next three to five years you would think there would be some thinning of the herd in the fronting space as well... As rates decline or moderate, there’s going to be pressure on the ones that don’t have scale,” he concluded.