Can a Start-Up DUAE Receive a PA Rating?
AM Best recognizes that new companies with no history are formed every year and rating start-up DUAEs requires a flexible approach. Since there is limited information and historical performance is unknown assessing a start-up DUAE is viewed more conservatively and the PA will generally be lower. In order to proceed with an initial PA for a DUEA that has been in existence for less than two fiscal years AM Best requires certain documentation in order to achieve a valid assessment: • Clearly defined two year business plan that outlines its partnership criteria to ensure the DUAE will generate a profit • Thorough description of products offered, pricing and marketing strategy • Financial statements or reports for the latest year of operation • Experienced management and appropriate staff and infrastructure to support initial activities • Management, Board members, investors, and other advisers available for discussions with the AM Best analyst team • Senior management and underwriters’ track record
What Are the Attributes of a PA-1 DUAE?
A DUAE with a PA-1 would have a diverse OR niche book of business that is profitable with experienced expert underwriters. The DUAE would use technology in every aspect of the business and have exceptional governance and internal controls to effectively manage risks. Financial performance indicators would be exceptional and sustainable with a clear path towards continued growth. The DUAE would partner with a broad range of strong, high profile insurers and relationships with outside parties would be stable and long term. Internal controls are regularly updated and enforced through periodic review of policies, procedures and risk management reviews. Is a Smaller MGA with a Single Niche Specialty Going to be Graded Differently than a Larger MGA with Multiple Programs? An MGA with a niche specialty book of business should not be graded differently than a larger multiline MGA. AM Best recognizes that a DUAE’s value may be derived more from its niche specialty o r access to a niche business rather than the level of diversification. How Will They View Companies that Handle Actuarial and Claims In-House vs. TPA/Broker? This depends on the DUAEs overall focus. Some DUAE’s may have expertise in the area of claims or actuarial and choose to keep them in-house. Other DUAE’s may choose to outsource to another TPA. If they outsource to another TPA the emphasis would be on how the DUAE monitors the TPA that performs the service and how they manage the risk posed by outsourcing certain functions. In Conclusion The BMS team will continue to track the development of the DUAE methodology. If you have questions on moving forward on seeking a PA, please have a discussions with our knowledgable Capital Management team and market-leading MGA team. We have a proven track record in rating agency advisory work and can help you successfully navigate this opportunity moving forward.
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