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AM Best Performance Assessments – A Must Have or a Nice to Have?

Research reveals that over 80% of brokers think MGAs should undergo AM Best performance assessments but is this the best measure of reliability?

According to a recent survey by Corin Underwriting, 81% of insurance brokers think MGAs should undergo AM Best Performance Assessments, whilst 77% said it would impact their decision of whether to collaborate with an MGA[1]. Andy Hurrell, founder of Corin Underwriting, commented, “Brokers insist on working with rated carriers, so why would they settle for less when choosing an MGA?”

What is an AM Best Performance Assessment anway?!

In AM Best’s own words, their Performance Assessment for DUAEs (Delegated Underwriting Authority Enterprise e.g. MGAs) is a “forward-looking, independent, and objective non-credit opinion of a DUAE’s relative ability to perform services on behalf of its insurance partners”[2]. The rating agency is clear that this is not a financial strength rating and is instead focused on “underwriting capabilities, governance and internal controls, financial condition, organisational talent and depth and breadth of relationships”. 

What could this mean for the industry?

Conceptually, implementing performance assessments for MGAs could be a real bonus for the MGA ecosystem. Not only would it be a significant differentiator for MGAs themselves but as a third-party assessment, it would provide an industry recognised rating. It is a clear standard that demonstrates real operational resilience, solid processes and good governance. Theoretically, only the best MGAs would be highly rated and this should, overall, raise the bar of excellence. Furthermore, a metric like this could have a considerable impact on the valuation of a business when it comes to sale.

What could this mean for brokers?

Historically, some brokers have been burnt by ‘flash in the pan’ MGAs that disappear overnight and this has perhaps created negativity in some camps regarding the MGA model. In their bid to provide a high-level of client service, brokers are looking for a resilient and capable partner to justify their insurance decision-making to their customers.  An AM Best rating would be tangible proof of that, beyond a broker’s usual financial due diligence and evaluation of levels of service (e.g. responsiveness of quotes etc). However, the question is whether there is a real need for additional checks when brokers are already thoroughly examining the financial strength of an MGA. The key thing would be for brokers to decide how they combine the assessment with the financial strength of the security behind the MGA as part of their overall due diligence process.

What could this mean for carriers?

These assessments could also be valuable validation for carriers, particularly as they are the ones that are delegating authority. It could even be argued that it may speed up the process of getting new schemes off the ground with a recognised standard that carriers can rely on, therefore reducing their due diligence.

Back in November, in a boost for the MGA market, AM Best maintained its positive market segment outlook for the delegated underwriting authority sector due to its “sustained growth and niche expertise”.

Perhaps it is time to take that one step further and make MGA ratings the new norm?

[1] Insurance Business Magazine – ‘Brokers Demand more AM Best ratings for MGAs’ https://www.insurancebusinessmag.com/uk/news/breaking-news/brokers-demand-more-am-best-ratings-for-mgas-519973.aspx

[2] AM Best Performance Assessment – https://web.ambest.com/ratings-services/assessment-services/bests-performance-assessment-for-delegated-underwriting-authority-enterprises

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