Delegated authorities sail on tail-winds from insurers & investors

The market for delegated authorities looks well supported on growing interest from both capacity-providing insurers and capital-bearing investors, the  AM Best ratings agency said in setting the sector outlook to positive.

Delegated authorities are having a heyday post-pandemic, helping insurers recapture business in a hardening post-pandemic market, analysts note. Speciality lines are in focus.

AM Best likes signs of “ongoing growth throughout this distribution channel” driven by technology, talent, diverse sources of capital as well as “growing interest in programme business by capacity providers.”

Specialty lines are increasingly in focus behind the gains to date and outlook ahead. Delegated underwriting authority enterprises (DUAE) are “increasingly proving their ability to manage emerging risks such a s cyber and climate” via better data, more expertise and a nimble approach that “traditional carriers are not accustomed to.”

That makes the segment the employer of choice for some top talent.  Delegated authorities “have proven their attractiveness as employers” for underwriters seeking “enhance ed compensation and equity rewards” alongside the “flexibility” of the delegated authority approach.

Global reinsurers are also providing a notable share of the growth space. “Global reinsurers’ appetites for DUAE business have grown” analysts wrote. “Additionally, the expansion of participatory fronting companies is providing greater access for reinsurer participation.”

Capital could prove plentiful to back the segment. Private equity investors have taken note of low balance sheet risk, high free cash flow generation and wide EBIDA margins. They might also be looking at the M&A and consolidation opportunities in a still-fragmented marketplace.

ILS capital could also support, AM Best claims. “ILS capital is seeking to back DUAEs with strong track records, for which the traditional reinsurance market is proving tougher at this time,” analysts wrote. “As DUAEs increasingly look to maintain reinsurance capital. This trend is likely to continue into next year.”

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