K2 working on California reciprocal amid mounting MGA interest in the state

By Chris Munro

April 24 - (The Insurer) - K2 Insurance Services is currently raising capital to launch a reciprocal exchange to write admitted business in California in the latest example of MGA platforms making moves in the state’s dislocated property market.

During a Program Manager-hosted webinar, K2’s CEO Bob Kimmel said his company is “out raising capital to do our own reciprocal exchange in California”.

Kimmel said K2 “has serious interest” from potential backers to support the reciprocal, which he described as “essentially an MGA play”.

MGAs “thrive in dislocated markets, and I don’t know many more dislocated markets than California”, said Kimmel. “I think it’s going to remain hard for a very long period of time,” he added.

K2 already has a large book of California-based business across its portfolio of MGAs.

Kimmel added that K2 expects its property writings in the state will grow to $500 million by the end of 2026, compared with $100 million just three years ago, highlighting the increasingly prominent role the MGA sector plays in California.

California’s property market was challenged even before the wildfires that tore through parts of Los Angeles County and other nearby areas earlier this year, causing what is estimated to be in the region of $35 billion to $45 billion in insured losses.

Admitted homeowners carriers have pulled back significantly in recent years, with some stopping writing new business altogether, frustrated by their inability to secure the rate rises they feel are warranted.

With admitted carriers and their reinsurers having incurred heavy losses from the wildfires, there are growing concerns that property capacity will be scaled back further still.

That would put even more pressure on California’s beleaguered FAIR Plan, the state’s insurer of last resort which has seen policy counts soar over the past few years, and which suffered significant losses from this year’s wildfires.

Given those concerns, California’s Department of Insurance has in the weeks since the wildfires been processing admitted carriers’ rate requests, some of which have been awaiting approval for well over a year.

According to Raymond James’ CA Rate Tracker Update, since the wildfires ignited on January 7, California’s Department of Insurance has approved homeowners rate increases for at least eight companies.

But many more carriers are still awaiting sign-off for their rate requests.

It is against this backdrop that a host of MGAs are looking to make inroads into California’s stressed property market, with many backed by surplus lines capacity which can operate in the state with freedom of rate and form.

During the panel, Howden Re managing director and president of global programs Matt Beard said “MGAs excel in these market disruptive cycles”, with California “a huge opportunity” for the sector.

MGAs, he said, have an opportunity to enter California “and be the leaders in trying to present new products that fit where the marketplace is right now”.

With many players in the traditional market waiting for responses from California’s Department of Insurance on their rate requests, they will inevitably be slower to return to writing business in the state.

MGAs backed by non-admitted paper can instead come in with strategic aggregation controls, technology and a very focused niche and be successful, Beard said.

This year has already seen some MGAs that operate in California seek to strengthen their offerings.

Bamboo is one example, with the California-focused MGA having added Incline P&C Group to its panel of admitted and non-admitted capacity providers to support further growth in the state.

And in early April, sister title E&S Insurer revealed that Burns & Wilcox had launched an exclusive high-value homeowners program focused on catastrophe-exposed areas including California, backed by A-rated paper from HW Kaufman carrier Atain Insurance Companies.

Other MGAs that already operate in California’s homeowners market include Delos and Green Shield, while Arden focuses on the condo space, and others such as Wildfire Defense Insurance Systems and Kettle specialise in commercial property.

Many of these MGAs are backed by capacity from surplus lines carriers, whose writings in California have soared in recent years, from $13.2 billion in 2021 to $19.1 billion in 2024, figures from the Surplus Line Association of California show.

“The E&S market is no stranger to California homeowners,” said Emerald Bay CEO Tracey Sharis.

She noted there is also a big HO-3 and HO-6 market in London for Californian business – “they’ve participated for quite some time”, Sharis said.

Clear Blue CEO Jerome Breslin said the surplus lines market has been able to play an increasingly prominent role in the U.S. insurance industry because “the rules around E&S got loosened”.

“The regulators have lightened up on holding carriers accountable and surplus lines brokers accountable for three declinations of admitted paper before you can write it non-admitted,” he said.

“The MGAs are in a perfect position to take advantage of this,” Breslin remarked.