MGA market still maturing; this is the best prop cat market in 30 years – K2 Insurance Services
The latest Voice of Insurance podcast, produced in association with AdvantageGo, saw Mark Geoghegan interview Bob Kimmel, CEO of K2 Insurance Services, and David Carson, K2’s head underwriter for catastrophe risk business.
The world of managing general agents (MGAs) has been equal parts exciting, rocky, ambitious and perilous in recent years. Trends are still emerging in the fast-developing “hybrid insurance” space, as MGAs swap underwriting backers and acquire each other in a rambunctious market.
One such acquisitional MGA, with a chief executive brimming with energy, is K2. The San Diego firm was formed by two insurance industry veterans with the purpose of acquiring managing general agents and developing multi-line programmes.
As Mark Geoghegan points out in episode 165 of his Voice of Insurance podcast, enthusiasm can be infectious. He found Bob Kimmel, CEO of K2 Insurance Services, “buzzing with energy” about the hunt for new business.
“When we started K2 there were about 1,000 MGAs. At least 600 have been sold. Today there are 1,000 MGAs,” Bob said. “So, there will always be new opportunities and new MGAs developing.”
What is also clear from the conversation is that MGAs are very different animals to carriers.
“It’s still hard for carriers to bifurcate and to be a really good MGA. Some will try, some will fail, and there will be fallout,” Bob observed.
Since 2011 K2 has been acquiring, developing and growing profitable insurance businesses. Having established a core group of specialty insurers and MGAs in the US, the firm is now also building its business in the UK through K2 International.
Responding to Mark’s question about whether the boom of MGA incubation had peaked two years ago, Bob suggested K2 has taken a different trajectory, and like many in the market: “we were somewhat stymied by Covid; it was difficult to grow initially.”
That has changed since then, he emphasised, with acquisitions combined with organic growth “riding the wave of higher rates” available in the market. And like all successful startups, scale brings its own challenges, as the business has changed its focus.
K2 has also swapped private equity providers, going from regional to global backers. This has led to more appetite for acquisitions than just a year or two ago, Bob suggested.
“Today we’re in hunting mode, and we’ll do a lot more of that next year. We’ve got people out there looking,” he said. “Now we’re hunting all kinds of game.”
The best prop cat market in 30 years
Bob’s enthusiasm is partially explained by the opportunities now in the property catastrophe market – for those capacity providers brave enough to take advantage of huge rises in rates after “constant bad news” of recent loss years.
David Carson, K2’s head underwriter for catastrophe risk business, spoke on the podcast about the best property cat market since 1993 – when the effects of the disastrous Hurricane Andrew revolutionised the US property catastrophe underwriting market for generations to come.
Recent losses have been a similarly traumatic experience for many capacity providers. However, this has driven big pricing shifts and big market opportunities as players have exited the stage pursued by a bear.
“The US is the largest property cat market in the world. You’ve had something like 35% all losses in the past thirty years have been in the last five. Results have not been good and capital has walked as a result.”
In this environment, K2 has been replacing lost capacity and talking to new providers. David sees new resolve in the market.
“There is a collective backbone in the market. Market conditions [for prop cat business] are the best they’ve been since 1993,” he said.
K2’s US cat book has experienced risk-adjusted rate increases of 60-70%, which, once inflation and structural changes are factored in, means premium dollar figure has doubled.
“Deploying capacity is not an issue, it’s just finding the capacity – and that’s my job,” David added.
One final and separate note from us. At AdvantageGo we would like to congratulate Mark on recently hitting the milestone of 300,000 downloads for his podcasts. Onwards and upwards!