1. MGA's Managing for Success 1 COM3 MGAs: Managing for Success Wayne Keller – Arch Insurance Company Cameron Vogt – Munich Reinsurance America, Inc. 2007 CAS Ratemaking Seminar March 8, 2007 - Atlanta, GA

2. MGA's Managing for Success2 Agenda Overview of MGA/Program Business Overview of MGA/Program Business Due Diligence Process Due Diligence Process Managing a Program Managing a Program Summary Summary

3. MGA's Managing for Success3 Overview Program Administrator (PA) Program Administrator (PA) –An agency that provides some or all of the following services: Marketing Marketing Underwriting Underwriting Binding Binding Policy Issuance Policy Issuance Premium Collection Premium Collection Data Processing Data Processing Loss Control Loss Control Claims Management Claims Management

4. MGA's Managing for Success4 Overview Program Administrator (PA) Program Administrator (PA) –Independent contractor, not a branch of the company –Could be called managing general agent (MGA), managing general underwriter (MGU) or simply general agent (GA) –Aggregator of retail agents and insureds that meet business model for program –Some larger PAs employ an Actuary

5. MGA's Managing for Success5 Overview Insurance Company PA/MGA/MGU Retail/Wholesale Agent Policyholder Reinsurer Third Party Administrator (TPA)

6. MGA's Managing for Success6 Overview Program Business Program Business –A well defined and narrow segment of insurance marketplace –Company interfaces with PA only –PA “controls” business –PA assumes some underwriting risk –Specialized coverage –Proprietary rates and rating factors

7. MGA's Managing for Success7 Overview Other Attributes of Program Business Other Attributes of Program Business –Life span of program varies –Premium rolls on and off in large, identifiable blocks –Meaningful expenses at both end points. Due diligence process at the start Due diligence process at the start Run-off expense without premium income at end Run-off expense without premium income at end –Expired programs can pile up and strain current resources –The universe of established PAs is limited and known. –More parameter risk than a book of business produced directly through retail agents.

8. MGA's Managing for Success8 Overview Why discuss MGA/Program Business? Why discuss MGA/Program Business? –Significant Market Segment –Past Failures

9. MGA's Managing for Success9 Overview Causes of Past Failures Causes of Past Failures –Soft Market E&S Programs lead the market E&S Programs lead the market Binding Authority granted to agency who’s compensated based on premium volume. Binding Authority granted to agency who’s compensated based on premium volume. –Inadequate Controls Too Much Binding Authority Too Much Binding Authority Lack of Monitoring Lack of Monitoring –Lack of Understanding regarding all aspects of the deal

10. MGA's Managing for Success 10 Due Diligence Process for New Business

11. MGA's Managing for Success11 Introduction to Due Diligence Process Due Diligence Process consists of two phases: Due Diligence Process consists of two phases: –The decision to write the program; and –Preparing the program for operation Initial program conditions (e.g. rates, underwriting guidelines, audit schedules, forms and other contractual items) are crucial to program success Initial program conditions (e.g. rates, underwriting guidelines, audit schedules, forms and other contractual items) are crucial to program success The due diligence process is interdisciplinary The due diligence process is interdisciplinary A due diligence process that is arduous has advantages. A due diligence process that is arduous has advantages. –The programs that succeed in the process know that the company’s program portfolio is of a high quality. –A high quality portfolio implies stability and longevity for the company in the program business and stability and longevity for each PA within the company’s program portfolio.

12. MGA's Managing for Success 12 Phase 1 – Program Selection

13. MGA's Managing for Success13 Initial Program Guidelines and Selection Criteria Business model: Business model: –aggregator of small risks –niche market –timing play Premium volume threshold Premium volume threshold Successful business plan Successful business plan Excellent reputation Excellent reputation Strong PA financials Strong PA financials

14. MGA's Managing for Success14 Initial Program Guidelines and Selection Criteria Cont’d Competent underwriting and program management skills Competent underwriting and program management skills Existing market presence Existing market presence Agent participation keyed to profit-sharing return Agent participation keyed to profit-sharing return Agreement on Avoided classes Agreement on Avoided classes Program Structure Program Structure –Fronted or not –Reinsurer participation

15. MGA's Managing for Success15 Program Submission from Program Administrator Marketing Plan Marketing Plan –Staff experience and background –Historic and expected premium volume –Distribution of premium by line of business –Major competitors –Size of potential market –Program aspects that differentiate it from other programs

16. MGA's Managing for Success16 Program Submission from Program Administrators Cont’d Current Program Structure Current Program Structure –Existing carrier –Admitted / non-admitted –policy forms –policy limits profiles –current capacity limits –reinsurance structure –commission and other compensation –claims handling –loss control –processing and systems capabilities

17. MGA's Managing for Success17 Program Submission from Program Administrators Cont’d Underwriting considerations Underwriting considerations –Changes to program exposures –Pricing of new versus renewal business –account retention –Submit/Quote/Bind ratios Producer Profile Producer Profile –Agency history –insurance protection (fidelity, E&O) –licenses –agency financials –Producer profile questionnaire Submission is reviewed by Program Area Management Submission is reviewed by Program Area Management

18. MGA's Managing for Success18 Underwriting Review Review and audit of information contained in submission Review and audit of information contained in submission In depth discussion of Business Opportunity In depth discussion of Business Opportunity –Discussion of current program –Fit with company business model –Alignment of interests between company and PA –Reason for PA changing carriers Discussion of general U/W guidelines with PA Discussion of general U/W guidelines with PA –Excluded risks –Premium caps –Referrals

19. MGA's Managing for Success19 Actuarial Review Major Objectives include: Major Objectives include: –Appropriateness of current rate level –Appropriateness of rates and rating factors –Any characteristics of program that might affect profitability e.g., CAT exposure or high severity

20. MGA's Managing for Success20 Actuarial Review Much of the process involves: Much of the process involves: –Collecting data from PA –Validating the data –Selecting industry data to augment PA data as needed

21. MGA's Managing for Success21 Actuarial Review - Losses Claims runs evaluated at several evaluation points to facilitate construction of loss and claim development triangles, and for auditing summary loss data Claims runs evaluated at several evaluation points to facilitate construction of loss and claim development triangles, and for auditing summary loss data Loss descriptions used to identify underlying exposures Loss descriptions used to identify underlying exposures Large loss listing with detailed descriptions Large loss listing with detailed descriptions Obtain industry LDFs (as needed) by studying loss data. Obtain industry LDFs (as needed) by studying loss data. CAT losses CAT losses TPA history: changes in TPAs with dates. TPA history: changes in TPAs with dates.

22. MGA's Managing for Success22 Actuarial Review - Premium Policy listing by year Policy listing by year –Premium by coverage or LOB –Premium by policy limit –Premium by state: CAT potential –Premium by class: ISO or program specific –Audit summary data

23. MGA's Managing for Success23 Actuarial Review – Premium Cont’d Evaluation of rate level change history Evaluation of rate level change history –Individual policy rating methodology Rating “grid” Rating “grid” ISO base rates with company LCMs ISO base rates with company LCMs Individual risk rating Individual risk rating –Comparison of same policy from year to year. –Comparison to rating benchmark, e.g.CIAB –Review the rating history for a well selected sample of insureds

24. MGA's Managing for Success24 Actuarial Review – Premium Cont’d Identify underlying exposures, classes or coverage, e.g. premises versus products GL or type of truck; light, heavy etc. or type Identify underlying exposures, classes or coverage, e.g. premises versus products GL or type of truck; light, heavy etc. or type Evaluate exposure trend Evaluate exposure trend –Bureau statistics –BLS statistics Discuss pricing monitoring with PA Discuss pricing monitoring with PA CAT exposure for modeling CAT exposure for modeling

25. MGA's Managing for Success25 Actuarial Review – Other Considerations Program expenses Program expenses –Many expense items are contractually defined –State premium taxes, if admitted –TPA fees compensation formula compensation formula evaluation based on type of claim and claim counts evaluation based on type of claim and claim counts –Upfront commission –Expected Profit commission –Loss control fees –Brokers fees

26. MGA's Managing for Success26 Actuarial Review – Other Considerations U/W Profit (Reflect parameter risk?) U/W Profit (Reflect parameter risk?) Investment income Investment income Benefit and cost of reinsurance protections Benefit and cost of reinsurance protections Review of underlying rates and factors Review of underlying rates and factors

27. MGA's Managing for Success27 Accounting Review Review of Agency financials Review of Agency financials Discussion of minimum net worth requirements Discussion of minimum net worth requirements Discussion of performance guarantees with PA Discussion of performance guarantees with PA Review of agency financial controls Review of agency financial controls Background check on principals Background check on principals Review of agency physical plant Review of agency physical plant Discussion of premium trust and segregation of assets with PA Discussion of premium trust and segregation of assets with PA

28. MGA's Managing for Success28 Accounting Review Cont’d E&O insurance E&O insurance Fidelity insurance Fidelity insurance Financial audit schedule Financial audit schedule Cancellation procedures Cancellation procedures Use of collection agencies Use of collection agencies If acting as TPA: If acting as TPA: –approval and timeliness of payments –recovery of subrogation, salvage and deductibles –control and use of loss funds Advise on state premium tax and assessments Advise on state premium tax and assessments

29. MGA's Managing for Success29 Summary to Program Division Head Commentary on PA personnel and history Commentary on PA personnel and history Discussion of Business aspects of submission Discussion of Business aspects of submission –The motives of each party –The benefits to each party –Possible areas of conflict A general description of the program including: A general description of the program including: –Underlying exposures –Coverage forms –Limits –Deductibles –Geography –Other unique and critical aspects

30. MGA's Managing for Success30 Summary to Program Division Head Cont’d Comments on any deficiencies in the submission Comments on any deficiencies in the submission Preliminary Program specific U/W guidelines Preliminary Program specific U/W guidelines The Actuarial report with rate level indication and other observations The Actuarial report with rate level indication and other observations Required reinsurance with company retentions, proposed reinsurance structure and reinsurance cost Required reinsurance with company retentions, proposed reinsurance structure and reinsurance cost

31. MGA's Managing for Success31 Summary to Program Division Head Cont’d Pricing targets, estimated premium volume and proposed premium caps Pricing targets, estimated premium volume and proposed premium caps Expected TPA and costs Expected TPA and costs Type of PA IT system, know deficiencies and possible certification problems Type of PA IT system, know deficiencies and possible certification problems Proposed start up date. Proposed start up date. Decision is made on second phase of due diligence Decision is made on second phase of due diligence

32. MGA's Managing for Success 32 Phase 2 – Program Implementation

33. MGA's Managing for Success33 Development of Program Underwriting Criteria Negotiation of deal structure Negotiation of deal structure Underwriting guidelines Underwriting guidelines Referral criteria Referral criteria Individual risk eligibility criteria Individual risk eligibility criteria Underwriting audit schedule Underwriting audit schedule SIR criteria SIR criteria PA authority by lines of business PA authority by lines of business Program geography Program geography

34. MGA's Managing for Success34 Development of Program Underwriting Criteria Prohibitions in general and by line of business Prohibitions in general and by line of business Required reports from PA Required reports from PA Required underwriting information for each retail risk Required underwriting information for each retail risk Rules for Retail underwriting practices Rules for Retail underwriting practices –Quote good for 30 days –Application of loss control –Fully completed applications –Premium audit Retail Underwriting file requirements Retail Underwriting file requirements

35. MGA's Managing for Success35 Policy Forms review Manuscripted policy forms unique to the program Manuscripted policy forms unique to the program Reviewed by Underwriting, Claims and Legal Reviewed by Underwriting, Claims and Legal Must be filed, if admitted Must be filed, if admitted

36. MGA's Managing for Success36 Development of Filings Applies to Admitted programs only Applies to Admitted programs only Creation of countrywide manuals Creation of countrywide manuals Actuarial review of underlying rates and factors Actuarial review of underlying rates and factors Filing strategy Filing strategy –Priority states –DOI regulation by state Compliance review of filings Compliance review of filings

37. MGA's Managing for Success37 Development of Filings Cont’d Filing regulation Filing regulation –File and use –Use and file –Prior approval Typically most forms and rates are previously filed bureau products. Only the program specific rates and forms are filed Typically most forms and rates are previously filed bureau products. Only the program specific rates and forms are filed The filing process is costly and time consuming. The filing process is costly and time consuming. The filing process is one of the “hooks” that ties the PA to the company. The filing process is one of the “hooks” that ties the PA to the company.

38. MGA's Managing for Success38 Systems Review Software Software – Analyze PA systems and their capabilities Policy information Policy information Financial reporting Financial reporting Rating engine Rating engine Claims system, if TPA Claims system, if TPA Outside reporting, NCCI, DMV Outside reporting, NCCI, DMV

39. MGA's Managing for Success39 Systems Review Cont’d Software Cont’d Software Cont’d –Create interface with company, if necessary –Suggest third party vendor, if necessary –Testing -Various policy issuance scenarios are run with the PA system and the results in the company system are reviewed for accuracy and completeness.

40. MGA's Managing for Success40 Systems Review Cont’d Hardware Hardware –Ability to interface with company –Ability to handle expected tasks –Print capability –Internet access, e.g. T1 line Disaster recovery plan Disaster recovery plan Protocol for ensuring data quality Protocol for ensuring data quality

41. MGA's Managing for Success41 Claims Review Initial Review Candidates for Claims Handling: Candidates for Claims Handling: –TPA from company approved list –“Outside” TPA that meets program’s unique needs –PA –TPA / PA mixture Review of claims logistics Review of claims logistics –Types of claims and effort needed to handle. –geographic spread of claims handling

42. MGA's Managing for Success42 Claims Review Initial Review Cont’d Description of Program coverage and its impact on claims handling Description of Program coverage and its impact on claims handling –Discussion of policy forms or endorsements that is unique to the program. –Discussion of special perils, e.g. mold Size of claims inventory and claims flow Size of claims inventory and claims flow

43. MGA's Managing for Success43 Claims Review Selection of TPA Review of PA candidacy Review of PA candidacy –Review of PA physical plant –History of PA relationships with prior carriers –Organizational structure and resumes of claims personnel Level of PA claims service Level of PA claims service –Timeliness of contact with claimant, investigation and settlement –Claimant satisfaction

44. MGA's Managing for Success44 Claims Review Selection of TPA Cont’d Supervision Supervision –Relationship between PA management and claims personnel –Relationship between PA and insurer Reporting level Reporting level Written reports on claims Written reports on claims Overall Documentation Overall Documentation –Hard copy files –Claims system

45. MGA's Managing for Success45 Claims Review Selection of TPA Cont’d Quality of Investigation Quality of Investigation –Investigation procedure by type of claim –Use of outside vendors, by geography or type of claim –Investigation documentation Photographs Photographs Recorded statements Recorded statements Action plans for further investigation Action plans for further investigation –Timely contacts

46. MGA's Managing for Success46 Claims Review Implementation Claims Authority: Claims Authority: –Line of business –$ amount –Special situations Set up claims audit schedule Set up claims audit schedule Litigation Management Guidelines Litigation Management Guidelines

47. MGA's Managing for Success47 Claims Review Implementation Cont’d Licensing requirements by state (licensing for claims handling? Yes, for many states) Licensing requirements by state (licensing for claims handling? Yes, for many states) –Some states reciprocate (i.e. these states will recognize the license of certain other states), but some do not. –Expensive and time consuming. –Some states require a presence in their state to be licensed. –A vendor with in-state presence can be used –State unfair claims practice laws. –Continuing education to retain license –Compliance audits licenses

48. MGA's Managing for Success48 Claims Review Implementation Cont’d ALAE/Medical Case Management/Independent Adjusters ALAE/Medical Case Management/Independent Adjusters –Independent adjusters Management of Management of Level of use Level of use –Impact of unique program coverage features on ALAE, e.g. construction defect or pollution claims. Claims that are expensive to handle, if not expensive to settle.

49. MGA's Managing for Success49 Claims Review Implementation Cont’d –Compensation for TPA Typically a flat fee per claim feature. Varies by LOB Typically a flat fee per claim feature. Varies by LOB Can be time and expense under certain circumstances Can be time and expense under certain circumstances –size of claim –specified type of claim Can be % of premium Can be % of premium Cradle to grave service. Breakdown in relationship could mean moving claims and extra expense. Cradle to grave service. Breakdown in relationship could mean moving claims and extra expense. –Discussion of the overall cost to PA of claims operation –Expense of claims system and collection of claims data

50. MGA's Managing for Success50 Claims Review Implementation Cont’d Reserves Reserves –Level of authority –Documented reserving philosophy or best practices. Negotiations/Settlements/File Closure Negotiations/Settlements/File Closure –Rate of file closure –Documentation for extended claims Salvage/Subrogation/Deductible Recovery Salvage/Subrogation/Deductible Recovery –Meeting statutory reporting requirements for S&S –Pursuit of deductibles Claim system Claim system Loss Run Review Loss Run Review –LOB distribution by loss and claim

51. MGA's Managing for Success51 Review of Program Reinsurance Design of protections Design of protections –Existing treaties –Program specific placements –Use of facultative reinsurance Approval of reinsurance contract wording Approval of reinsurance contract wording Reinsurance negotiation Reinsurance negotiation –New placement –Fitting new program into existing treaty Oversight of relationship with reinsurer Oversight of relationship with reinsurer

52. MGA's Managing for Success52 Licensing Admitted = agent, licenses requires for all states in which the agent operations Admitted = agent, licenses requires for all states in which the agent operations Non-admitted = broker, no licenses required Non-admitted = broker, no licenses required Company appoints PA in all states of operation Company appoints PA in all states of operation No relationship with retail agents No relationship with retail agents Compliance area audits licenses Compliance area audits licenses

53. MGA's Managing for Success53 Contracts Underwriter: “We need to adjust your contract.” Agent: “The contract cannot be changed. It is like a marriage vow.” Underwriter: “The contract is not for the marriage. It’s for the divorce.”

54. MGA's Managing for Success54 Contracts Cont’d PA is sent contract, reviews and replies with comments PA is sent contract, reviews and replies with comments Contract forms the basis for subsequent audits and program termination Contract forms the basis for subsequent audits and program termination

55. MGA's Managing for Success55 Contracts Cont’d PA Contract Features PA Contract Features Premium trust account Premium trust account –PA nets out commission and places remainder in account –An account for company separate from other insurers –Transmission By company via signatory By company via signatory By PA By PA –company retains right to timely statements –A time limit is placed on remittance of premium by PA to account –Agent is liable for collecting all “uncollectible premium”

56. MGA's Managing for Success56 Contracts Cont’d Insurance coverages required Insurance coverages required –Fidelity for theft of funds held in trust –Error and omission for negligence by PA in performance of his duties –Auto Liability to protect principals’ financial solvency

57. MGA's Managing for Success57 Contracts Cont’d Security Security –Used for: Non-servicing of policies Non-servicing of policies Non-payment of premium Non-payment of premium –Accomplished thru: Letter of credit, evergreen in negotiated amount Letter of credit, evergreen in negotiated amount Personal guarantee Personal guarantee –1st party –3rd party

58. MGA's Managing for Success58 Contracts Cont’d Profit Sharing Commission Profit Sharing Commission –Based on agent experience –Actuarial input into design –Size of commission and commission threshold in formula should motivate PA –Payment of commission and company goals

59. MGA's Managing for Success59 Contracts Cont’d MGA is defined in statute. MGA is defined in statute. An MGA is an agent that; An MGA is an agent that; –Purchases reinsurance –May settle its claims –Has binding authority MGA typically represents more than one company MGA typically represents more than one company An MGA’s responsibility includes: An MGA’s responsibility includes: –Periodic reporting of audited financials to state –Posts performance bond with state –Has profit commission terms regulated by state An MGA may choose this status due to lucrative fees and the power claims handling confers upon the agent An MGA may choose this status due to lucrative fees and the power claims handling confers upon the agent

60. MGA's Managing for Success60 Contracts Cont’d PA contract is not renegotiated annually. Only certain appendices are: PA contract is not renegotiated annually. Only certain appendices are: Items attached to standard contract as amended: Items attached to standard contract as amended: –Underwriting guidelines –Profit commission

61. MGA's Managing for Success61 Contracts Cont’d Claims contract features Claims contract features –Handled by the claims area –Since there are few TPAs, the contract issue is simplified. –Claims funding, Claims trust account –Annual contracts with same anniversary date as PA contract. –“Cradle to grave” fee –Fee determined from schedule that depends on type of claim. –Fee subject to negotiation –Fee schedule varies by programs –Fee schedule used to estimate TPA fee for pricing

62. MGA's Managing for Success62 Summary of Due Diligence Initial program conditions are crucial to program success Initial program conditions are crucial to program success Parameter risk is potentially large Parameter risk is potentially large Start up expense is meaningful (esp. filing and IT Start up expense is meaningful (esp. filing and IT Need to create common incentives Need to create common incentives Monitor everywhere else Monitor everywhere else Contract defines all phases of relationship Contract defines all phases of relationship

63. MGA's Managing for Success63 Risk-Sharing Types: Types: –Captives / Rent-a-Captive –Profit Sharing Commission –Sliding-Scale Commissions How much is appropriate? How much is appropriate? –Review PA’s financials –What would 1 or 2 years of bad results do to the PA?

64. MGA's Managing for Success64 Risk-Sharing Pros: Pros: –Alignment of Interests (“Skin in the Game”) Cons: Cons: –Collateral Requirement –Shrinks the universe of potential business partners

65. MGA's Managing for Success65 Risk-Sharing - Captive Insurance Company PA/MGA/MGU Retail/Wholesale Agent Policyholder Reinsurer Third Party Administrator (TPA) CAPTIVE

66. MGA's Managing for Success66 Risk-Sharing – Captive Characteristics: Characteristics: –Can (somewhat) “mimic” the insurance company’s results –Insurance Company cedes a share of the business to the Captive –Insurance Company (or an affiliate) provides stop loss protection to limit the PA’s risk –Collateral Statutory Requirement – Up to the Expected Losses Statutory Requirement – Up to the Expected Losses Additional Credit Risk – From Expected Losses to Stop Loss Attachment Additional Credit Risk – From Expected Losses to Stop Loss Attachment –Captive Manager (another expense)

67. MGA's Managing for Success67 Risk-Sharing – Sliding-Scale Characteristics: Characteristics: –Profit Commission that also slides downward –“Provisional” (up -front) Commission usually set in the middle of the slide –Adjustments: Annually Annually Include IBNR (Contractually defined) Include IBNR (Contractually defined) –Can be multi-year blocks with profit/loss carryforwards. –Difference between the Provisional Commission and the Minimum Commission is credit risk to the company.

68. MGA's Managing for Success68 Risk-Sharing – Sliding-Scale Example: Example: Provisional Commission = 20% Loss RatioCommission 40%22% (max) 50%20% 60%18% (min) “Initial” Credit Risk = 2% of Premium (20% - 18%) “Initial” Credit Risk = 2% of Premium (20% - 18%)

69. MGA's Managing for Success69 Risk-Sharing Collateral Example: Collateral Example: –$10M Program –2% downward slide –Required Collateral = $200,000 (2% of $10M) Issues: Issues: –When is it “safe” to release collateral? –Collateral Accumulates - How much collateral is needed after year 2, year 3, etc.?

70. MGA's Managing for Success 70 Managing a Program

71. MGA's Managing for Success71 Managing a Program During the Due Diligence Process, an “underwriting box” for the program is created: During the Due Diligence Process, an “underwriting box” for the program is created: –Lines of Business –Classes –States –Limits –Coverages –Etc. So now what?… So now what?…

72. MGA's Managing for Success72 MONITOR, MONITOR, MONITOR “Trust, but verify” - Ronald Reagan

73. MGA's Managing for Success73 MONITOR, MONITOR, MONITOR Is the PA adhering to the underwriting guidelines? Is the PA adhering to the underwriting guidelines? Is the PA selecting the right risks? Is the PA selecting the right risks? –U/W Guideline should include a section describing the characteristics of a target risk. Is the program achieving the desired results? Is the program achieving the desired results? –Target Loss and Combined Ratios –Mix of Business (e.g. State, Class and Limits Distributions)

74. MGA's Managing for Success74 MONITOR, MONITOR, MONITOR Monitoring Methods: Monitoring Methods: 1.Individual Account Referrals 2.Reports Underwriting Results Underwriting Results Rate and Price Monitoring Rate and Price Monitoring State and Limits Distributions State and Limits Distributions 3.Audits

75. MGA's Managing for Success75 MONITOR, MONITOR, MONITOR 1. Individual Account Referrals Accounts where the PA does not have binding authority Accounts where the PA does not have binding authority Criteria defined in the underwriting guidelines Criteria defined in the underwriting guidelines Typical Criteria: Typical Criteria: –Premium/Exposure Threshold –Higher Limits –Hazardous Class –Location (e.g. CAT zone) –Poor Loss History

76. MGA's Managing for Success76 MONITOR, MONITOR, MONITOR 2.Reports Underwriting Results Underwriting Results Rate and Price Monitoring Rate and Price Monitoring Renewal Ratios, New vs. Renewal Split Renewal Ratios, New vs. Renewal Split Profiles Profiles –State/Territory –Limits –Classes Submit/Quote/Bind Ratios Submit/Quote/Bind Ratios

77. MGA's Managing for Success77 MONITOR, MONITOR, MONITOR 3.Audits Underwriting Underwriting –In-depth file review of a “representative sample” Claims Claims Financial/Systems Financial/Systems

78. MGA's Managing for Success78 EXIT STRATEGY “You can put wings on a pig, but you don’t make it an eagle.” - William Jefferson Clinton

79. MGA's Managing for Success79 EXIT STRATEGY “Fish or Cut Bait?” “Fish or Cut Bait?” Considerations: Considerations: –Poor Results –Underwriting Guideline Violations –Key Person Defections –Softening Market –Run-off expenses with no premium income

80. MGA's Managing for Success80 USING PA’s: PROS AND CONS PROS: PROS: –Allows a company to enter a new market segment without significant fixed overhead expense. –Ease of Entry and Withdrawal –Special Line/Class Expertise –Geographic Targeting –Portfolio Diversification

81. MGA's Managing for Success81 USING PAs: PROS AND CONS CONS: CONS: –Incentive Divergence –Systems Mismatch –Expensive way to do business –Flight Risk

82. MGA's Managing for Success82 SUMMARY KEY TAKE-AWAYS 1.Know your Business Partner – Start with a thorough due diligence 2.Align your interests – Provide the PA with a financial incentive to produce good results 3.“Trust, but Verify” – Monitor, Monitor, Monitor 4.“Fish or cut bait?” – Have an exit strategy

83. MGA's Managing for Success 83 Questions?? This material is not intended to be legal, underwriting, financial, or any other type of professional advice. The reader should consult her/his advisors and attorneys regarding any business or legal issues arising from any particular circumstances with respect to this subject matter.