By Chris Munro

May 12 - (The Insurer) - Many MGA commercial auto programs have been more profitable than the open market and can continue to provide reinsurance partners with positive results as they differentiate themselves from the wider sector, according to Gallagher Re Program Solutions.

There are many profitable commercial auto MGAs, the reinsurance broker said in a newly published report, but those that are underperforming are being impacted by longer development patterns and an unpredictable political and legal environment.

Legacy commercial auto MGA partnerships may face continued adverse development from accident years 2016 to 2020, Gallagher Re said.

“The fronting market for commercial auto has historically reported gross loss ratios below 70%,” Gallagher Re said in its report.

“As of year-end 2023, the reported gross loss ratio was 100% to 140% for AYs 2016 to 2020; however, the recent year-end 2024 annual statements show that the loss development continues.

“As of year-end 2024, AYs 2016 to 2020 have now exceeded 160% in all of those respective years,” Gallagher Re noted.

More positively, the reinsurance broker said there seems to be minimal loss development post 2020, with commercial auto market loss ratios reported at 90%, albeit still at elevated levels.

“Experienced MGAs and fronting companies writing commercial auto can differentiate themselves and produce profitable business for their reinsurance partners,” the reinsurance broker said.

The challenges faced by fronting carriers supporting commercial auto MGAs are indicative of broader issues within the specialist sector.

The overall commercial auto insurance market in North America has reported combined ratios north of 100% for 12 of the past 13 years through to 2023, Gallagher Re said.

Those operating in the sector are implementing multiple improvements and those are working through the system, and results are expected to revert back to broader P&C industry levels.

“It needs to be noted that these poor industry results are weighed down by the horrific NY livery results over the last few years and should not be viewed as widespread loss deterioration for all players in this market,” Gallagher Re said.

BROADER MARKET ISSUES

The challenges facing the fronting carriers supporting commercial auto MGAs are to a far lesser extent also reflected in the sector’s wider results.

Industry gross and net loss ratios have been under pressure for many recent accident years, Gallagher Re said.

Since 2015, the reinsurance broker’s fronting carrier composite – a group that comprises Accelerant, Accredited, AF Group, Ag Workers, Benchmark, Clear Blue, Concert, Core Specialty, Everspan, Falls Lake, Fortegra, Incline Casualty, Knight, National Summit/ReAlign, Obsidian, Skyward Specialty, Southlake, Spinnaker, State National, Sutton, Topa, Transverse and Trisura - had original incurred loss ratio selections of 55% to 70% since 2015.

However, year-end 2024 annual statements show adverse loss development on those years, most notable in AYs 2016 to 2019.

“With recent social inflation and increased litigation funding, liability lines are witnessing more adverse development, especially in other liability occurrence (mostly general liability) and commercial auto liability,” said Gallagher Re.

Within these specific lines of business, original loss ratio selections for the fronting carrier composite averaged around 68% for AYs 2016 to 2020.

But as Gallagher Re noted, actual developed net loss ratios for that five-year stretch are north of 90%.