Accredited Europe: Growth in fronting space must be “controlled”

Accredited Europe’s CUO Magnus Heimann has warned that growth in the rapidly expanding fronting program space must be “controlled”, stressing the relevance of thorough onboarding and oversight processes to ensure sustainable growth.

At a time when the fronting program sector is seeing rapid growth both in Europe and the US, Heimann alerted to the need for processes to ensure this expansion is managed successfully.

“In general, I would say growth is key, but here I would say we talk about controlled growth,” Heimann told The Insurer TV during the Monte Carlo Rendez-Vous.

“One of our USPs is doing the onboarding process which is very thorough, which is very important to us,” he noted.

Heimann also pointed to the importance of oversight while working with counterparties, noting that the aggressive pursuit of growth could potentially undermine the quality of the underwriting.

“If you do the oversight properly, working hand in hand with our partners, then I believe growth is not jeopardising. Growth can be an accelerator both for profit and the business,” Heimann added.

Colin Johnson, Accredited Europe’s CEO, echoed Heimann’s thoughts that it is imperative to ensure sustainable growth.

“I think there’s no substitute for quality – we don’t substitute quantity for quality in what we do, and we don’t expect our MGAs to do that either,” Johnson said.

“There is the potential for that issue to creep in, but I think we’ve got it fairly well pinned and our MGAs understand what we expect from them, and that’s more quality – not quantity,” he added.

As pointed out by Johnson and Heimann, the US fronting market has exploded in size in recent years. Participatory members have grown to more than 25, Heimann noted.

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The European market has developed later than its US counterpart, and there are “less than a handful” of participatory players in the region, according to Heimann.

“But both have growth potential, definitely,” Heimann noted.

Tapping the potential

Accredited, which provides A- rated insurance capacity in the US, UK and Europe, is the program management arm of London-listed R&Q.

During one of the Casino Square Sessions hosted by The Insurer TV at the 2022 Monte Carlo Rendez-Vous, Accredited’s US CEO Pat Rastiello said reinsurers have shown signs of confidence in the models used by their fronting partners, which is attracting more players into this space.

Johnson said that similarly to what its US counterpart does, Accredited’s European operation is trying to capitalise on opportunities in this space by focusing on strengthening relationships as the market matures.

“One of the things our colleagues are trying to do in Europe – and I think our colleagues in the US are trying to do in the US as well – is forge longer-term relationships between that partnership, between the MGA, the reinsurer and the insurer,” Johnson noted.

“I think if we can successfully do that and make those 12-month contracts three-year contracts or five-year contracts, that gives much more certainty for the partnership arrangement, much more faith in each other’s abilities,” he added.

More players in the US are beginning to realise the emerging opportunities in Europe, leading them to replicate their models in this region, Heimann noted.

“It might work or not… I can’t tell at this point,” he reflected.

He added that he was also seeing reinsurers entering the direct side to participate in this segment of the market, which provided “an interesting point”.

Inflationary pressures

Discussing headwinds for the sector, inflation was referenced as a factor putting pressure on fronting carriers that will force them to adjust rates and terms.

Johnson said inflation is “of more concern to the market today” and that he’d been having numerous conversations to discuss its impact during the Monte Carlo Rendez-Vous.

“Every conversation we’ve had has started with ‘what are you doing about inflation’, and ‘are you covering inflation’ – I think that’s this year’s topic almost,” Johnson noted.

“It’s key that, regardless of rate, regardless of terms, that we get those inflation measures covered, and I think that’s what’s going to interest the market for the rest of the year,” he concluded.

The Insurer TV conducted this interview at its pop-up studio at the Hôtel de Paris during the Monte Carlo Rendez-Vous. Click for more from Colin Johnson and Magnus Heimann on:

  • Growth in the European fronting program space
  • How the European market compares with the US
  • Accredited Europe’s strategy in the face of competition
  • The impact of the P&C market on the fronting sector