3 Things – Specialty MGA Momentum, Arch acquires AXA XL divests & State Farm Downgrade

Hi Friends!  After a brief hiatus, we are back again with our weekly post that uses the headlines from the week, in this case, two weeks, to tell the story of our insurance industry.  We use these stories and tie them into significant themes we continue to see developing.  While the past two weeks were a little slower, with holidays and spring breaks taking precedence in most of our lives, ongoing themes continue to play out, including investments, launches, partnerships, and outright acquisitions of businesses by companies with solid balance sheets or capital structure.  As we gear up for the upcoming week, which is not only marked by a total solar eclipse but also the WSIA Insurtech conference, let’s dive in and explore the three things we learned.

Speciality MGA Platforms Continue Momentum

Major capital players continue to move into the specialty market through launches and partnerships of MGA platforms.  Topsail Re, a growing reinsurance and capital allocation player known for its innovative risk solutions, announced a joint venture with RedBird Capital, a private investment firm with a strong track record in the insurance sector, and Bishop Street Underwriters, an MGA platform lead by industry veterans.  This unique alliance, combining talented insurance leadership, reinsurance expertise, and capital, is set to create a full-stack offering for specialty distribution opportunities.  They have the ingredients to take advantage of the new-age opportunities that have emerged with market forces.

Former Spinnaker founders Dave and Ken Ingrey announced the launch of a new venture, Emerald Bay, an E&S (Excess and Surplus) managing general agent. This type of MGA operates in the insurance market areas that are not covered by traditional insurers. The venture is backed by Bain Capital and funded from their $1B+ fund targeted at insurance investments.  Bain previously launched The Mutual Group with Guideone to acquire underwriting capacity and now has a distribution channel with this structure.  They indicate they will look to leverage technology in this new venture, and Bain has released a report touting the $50 billion opportunity for insurers worldwide from generative AI potential.

Across the pond, UK MGA Devonshire launches to focus on transactional risk. With a seasoned team boasting a combination of over 45 years in transactional liability underwriting and professional expertise in law and tax, Devonshire is in a position to make a significant impact. Their focus on delivering bespoke solutions across a global footprint underscores a broader movement towards specialization and customer-centric services in the insurance sector, aiming to meet the evolving needs of brokers, corporates, and investors with agility and deep market knowledge.

Arch Acquires From Allianz, AXA XL Divests Crop and Other Moves

One of the more significant moves of late, Arch Insurance buys the MidCorp and Entertainment business from Allianz’s Firemans Fund unit. The acquisition is a strategic move by Arch to leverage their strong balance sheet to acquire complimentary P&C specialty books of business in the US.  This strategic acquisition, expected to close in the second half of 2024, subject to regulatory approvals, will significantly enhance Arch’s presence in the U.S. middle market and entertainment sectors. It will add a robust portfolio of specialty products and approximately 500 skilled professionals to its team. This marks a pivotal expansion for Arch, underlining its commitment to growth and excellence in the specialty insurance landscape. The potential increased competition in these sectors could impact other insurers and offer new opportunities for investors.

Farmers Mutual Hail Insurance Co. of Iowa’s acquisition of Global Ag Insurance Services from Axa XL marks a significant shift in the U.S. crop insurance sector with Axa’s departure. This move enhances Farmers Mutual’s national reach, responding to the growing demand among agricultural producers for specialized crop risk management solutions. Global Ag, based in Fresno, California, is known for offering crop insurance through the U.S. Department of Agriculture’s multi-peril crop insurance program and various specialty products, highlighting the strategic expansion of Farmers Mutual into more diversified insurance offerings.

DOXA Insurance has made two new acquisitions this week. The first is Renters Legal Liability, LLC, which will allow DOXA Insurance to expand into the rental market and offer innovative renters’ legal liability products for multifamily property owners in all 50 states. The second is International Hole In One Association, which will enable DOXA Insurance to enter the golf and special events industry. This acquisition will add a unique suite of prize indemnity and promotional products to their portfolio, giving them access to new market segments.

Fleming Insurance Holdings CEO Eric Haller’s indication of the company’s continued interest in acquiring JRG Re from James River Group Holdings, despite ongoing legal disputes and a “meritless lawsuit” filed by James River, demonstrates the industry’s resilience. The conflict centers around Fleming’s claim of contract breaches by James River. Fleming withdrew from a $277 million acquisition deal just before closure, demanding changes to the agreed terms. Fleming remains open to completing the purchase if James River addresses these alleged breaches amidst a contentious legal battle over the transaction’s terms and conditions.

State Farm Faces Downgrade Amid Forecasts of an Active Hurricane Season

In a insurance ratings landscape already clouded by uncertainty, the downgrade of State Farm General Insurance Co. by A.M. Best from an A (Excellent) to a B (Fair) rating signals potential turbulence ahead for the insurance giant. This downgrade reflects a troubling decline in policyholder surplus and risk-adjusted capitalization, aggravated further by a spike in claim severity across specific lines of business. State Farm previously announced its decision to discontinue renewing thousands of policies in California, also withdrawing from the commercial apartment insurance market within the state.

This comes after news from last month that twice as many downgrades happened in 2023 than in the previous year.  This trend extended to the broader U.S. P&C market, with a total of 55 downgrades. The downgrades were primarily driven by declines in capitalization and deteriorating operating performance, particularly among auto carriers. Despite some upgrades, mainly due to increased support from parent organizations, the industry faced substantial challenges, including under-performance and a rise in ratings placed under review with negative implications.

This financial trouble for personal lines insurers arrives on the heels of weather forecasters from Colorado State University projecting an “extremely active” 2024 Atlantic hurricane season. The expected surge in storm activity—encompassing five major hurricanes out of an anticipated 11, within a broader prediction of 23 named storms—exceeds the norm and signals a heightened risk of catastrophic weather events. With the 2024 season potentially mirroring the intensity of previous high-activity periods, primarily due to warmer sea surface temperatures and the waning El Niño pattern, the confluence of financial and meteorological warnings paints a stark picture for the future of insurance coverage and disaster preparedness.

Join us as we continue to explore the headlines and news shaping the insurance sector, and stay tuned for more insights on the unfolding narrative of our industry!  Stay productive, stay safe and stay in touch!