Impact of AM Best performance assessments of delegated underwriting authority enterprises on the insurance industry and insurance regulators

On February 1, 2022, AM Best issued the Methodology and Criteria for the Performance Assessment for Delegated Underwriting Authority Enterprises . A Delegated Underwriting Authority Enterprise (“DUAE”) is a blanket term to reference managing general agents, managing general underwriters, coverholders, program administrators, program underwriters, underwriting agencies, direct authorization, and appointed representatives. The DUAE role in insurance distribution is essential as they generate growth, provide specialized market expertise, and undertake administrative functions. The essential nature of the DUAE and their impact on insurance operations and distribution of insurance products necessitates this type of assessment.

At this time, AM Best is anticipating performing the first performance assessments during the first quarter of the year 2022. A DUAE will receive a performance assessment by AM Best if requested. Certainly, insurance entities doing business with a DUAE could suggest a performance assessment, though the request needs to come directly from the DUAE entity. This would also apply in situations where a State Insurance Department would prefer an insurer’s DUAE have a performance assessment conducted. The performance assessments are intended to provide a tool to the market to differentiate and evaluate entities considered DUAE. This purpose should drive value perceived by DUAE entities in receiving these performance assessments as a strong assessment could differentiate them from other entities, while a lack of assessment could be perceived as a negative by insurers.

Ultimately, the performance assessment is intended to be assigned to DUAEs with underwriting authority with a top priority for underwriting risks. The completion of the analysis leads to a recommended performance assessment and outlook. In addition to the performance assessment, an outlook of positive, stable, or negative will be assigned to the DUAE.

• A positive outlook indicates that the continuation of favorable trends may lead to a positive change in the performance assessment
• A stable outlook indicates that if current trends continue, movement in the performance assessment is unlikely