AM Best reports that premiums written by Managing General Agents (MGAs) stood at US$60 billion in 2021, up from US$51 billion in 2020 – record growth fuelled by technology and talent, according to the ratings agency, and reflecting the vital role that MGAs play in matching risks and insurers. 

We couldn’t agree more – in fact the demand we have seen for MGA incubation in 2022 has exceeded what we saw in 2021, so we wouldn’t be at all surprised if another record-breaking year is reported for MGA premium growth in 2022 as well. 

And the overall premium figure written by MGAs for insurers is in fact likely to be larger still – as AM Best notes: “the actual premium produced by MGAs is more than US$60 billion since insurers report only MGAs that generate premiums greater than the 5% surplus; there may be a number of MGAs whose premiums have not been captured because of the 5% threshold.”

By AM Best’s estimates, the premium generated through the MGA market has doubled over the past decade. It is a significant global growth market that Pro MGA Global Solutions is proud to be at the forefront of supporting. 

It’s clearly been a busy year, defined by a focus on multi-territory strategies, matching risk appetite with MGA partners, talent acquisition and technology. And these themes will continue to shape the market for the rest of this year and into 2023. 

MGAs attract talented entrepreneurs

The migration of talent to the MGA sector also continues apace, with entrepreneurial underwriters seeking flexible working environments matched with the most innovative technology available to harness their skills where they can bring most value. 

The MGA teams we work with are ambitious and forward-thinking, and want to work in an environment where good ideas flourish quickly. We think the attractiveness of the MGA sector to this type of personality will only continue to grow in the future, and our pipeline of opportunities and enquiries reflects this forecast. 

Going into 2023, we also anticipate negotiating different global regulatory frameworks will be a challenge for MGAs, placing focus on oversight frameworks that meet, if not exceed, regulatory requirements in every territory in which they operate.

Shared with the kind permission of Insurance Business UK.

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You can’t have sunshine without a little rain, as the old song goes – and Danny Maleary, CEO of Pro MGA Solutions, can attest that the saying holds true for the MGA market. As an MGA incubator platform, Pro MGA Solutions works closely with a diverse range of clients, supporting their transition from a conceptual idea to a fully operational business.

But in addition to the time spent curating the evolution of its internationally-spread existing client base, the team is also kept busy finding new opportunities to nurture innovative, entrepreneurially-minded firms. Pro MGA Solutions has taken on an additional 12 clients this year, he said, and now supports 41 MGAs across the UK, the EU and North America.

Shared with the kind permission of the Intelligent Insurer.

Insurers can expand their product ranges in Latin America as customers become more risk-aware, according to Valentina Garcia, Swiss Re’s senior client manager for reinsurance in the region.

Garcia said Swiss Re had recently issued a survey to Latin America consumers which showed the raised awareness. Garcia, speaking on an Intelligent Insurer panel titled “Land of opportunity: Why Latin America presents such an opportunity for growth”, outlined how she saw Latin America developing in the next five to 10 years.

“We issued a consumer survey after the COVID-19 pandemic. For this edition, the third, we included Mexico and Brazil and we received some quite interesting insights, mostly on customer behaviour.

“Part of it, of course, is that people are more aware about their health. They’re more willing to take checkups to see how to cover their physical and mental health. That’s a huge opportunity for us as insurers, because people are becoming truly risk-aware,” she said.

“This happened similarly in Mexico when we had the last big earthquake in 2017. After the earthquake everyone was interested in earthquake insurance. Now with COVID-19, health is like that—a topic that is in everyone’s minds. It also gives us a huge opportunity to close the protection gap in the life and health area, which is quite relevant because it’s super costly to government.”

As well as health and life, non-tangible products such as cyber and directors and officers are developing well in Latin America, said Nicolau Daudt, chief executive of Latin America at brokerage firm Oneglobal Broking.

He said that surety products were now being sold in Latin America. “We are taking a product that used to be a bank product into insurance. As the insurance market develops, we expect to see other lines of product that are more finance-related,” he said.

Martin Smith, director of Latin America at Pro Global, believes that in the future consumers will need better education on products and services.

“Many countries have policies that are very basic, or the coverage is pretty basic. People don’t really know what they’re getting. We need to educate on different niches, and different coverages. The population is growing; the markets are growing and maturing slowly, but maturing more and more.”

Data opportunity

There was agreement around the table that exploiting data was important for the future of the region.

Companies featured on the discussion panel were working hard at harvesting and analysing data to benefit customers in the region.

Smith said: “Companies have a huge amount of information, but sometimes they don’t know how to use it, or they don’t use it properly. Pro in the UK has already generated some partnerships with tech companies on these subjects and we are replicating that in Latin America.”

In Argentina, clients were now using the tools generated from the partnerships, he added.

For Garcia, better data insight and understanding would improve natural catastrophe risk. She said modelling capability is improving in Latin America, which would expand the scope of insurance on weather-related perils.

“Data is super-relevant, especially in our region where the lack of standardisation in information is very different from the situation in our other regions. The US is one of the closest regions we have, we see the data they have there and it’s super-standardised. They can get insights fairly easily.

“In this region, it is not as clear or as easy to get. Now with updates in the nat cat models, and new perils becoming more relevant, the thunderstorms and floods that were before considered secondary perils are now becoming very relevant.

“If we’re willing to use the data to get more accurate modelling, that will give us more efficient use of the capital and other resources we have. In that way, we will help the region close the protection gap.”

Shared with the kind permission of the publisher.

The original article can be accessed here

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Many reinsurers across the globe increasingly have been doing business with certain select managing general agents (MGAs), seen as market innovators, by reinsuring the fronting insurers that provide the paper for MGAs to underwrite.

In recent years, it is a trend that has continued from the soft market into the current hard market—as long as the interests of MGAs and their capacity providers are aligned.

“Reinsurers have been increasingly attracted to MGAs and have found an easy means to provide support through a dramatic expansion of the fronting market,” said Conning in a recent study titled “Managing General Agents—Firing on All Cylinders.”

“Total direct premiums written by the top 17 fronting companies [in the U.S.] rose by 45.3 percent to almost $9 billion in 2021,” said the report. Owned by Markel, State National is the largest and oldest fronting company, which saw gross premiums written rise by 31 percent to $2.7 billion and fee income rise 21 percent.

The fronting market has expanded in recent years because reinsurers want to get closer to the customers and to innovators, according to Danny Maleary, chief executive officer of Pro MGA Global Solutions, a London-based MGA incubator, which is currently supporting 41 MGAs. “A lot of the MGAs are very data driven, and, obviously, reinsurance is extremely data driven, so there’s an alignment in terms of proposition.”

“The appeal of MGAs has been particularly strong for reinsurers seeking to get closer to the end client,” agreed Conning in its report. “To take one among many examples, RenaissanceRe supports a management liability offering for start-ups offered through Boost, an InsurTech firm specializing in embedded insurance products that trades as an MGA.”

Included in the category of delegated underwriting authority enterprises (DUAEs) are MGAs, managing general underwriters (MGUs) and program managers.

From a handful of companies led five years ago by State National, Conning said, there are now more than 20 fronting insurers operating in the U.S. MGA market. “Most of these are so-called hybrid fronts, retaining a share of risk (often as much as 20 percent), which serves as a further source of comfort to reinsurers,” said the report.

A fronting insurer typically only retains a very small proportion of the risk—about 20 percent or less—which makes it essential that the MGA develop a close relationship with its reinsurers, Maleary said. (The reinsurer would assume the remaining balance of the delegated authority portfolio.)

On the other hand, a traditional insurer would retain anything up to 80 percent of the MGA’s risk and then make a 20 percent quota share arrangement with its reinsurance partners, he added. However, because of the growing appetite from reinsurers who want to reinsure delegated authority business, some traditional insurers “are deciding to reduce their MGA retention level to 40 percent and reinsure 60 percent out the back.”

When reinsurers provide capacity for fronting companies, it enables them to get access to a portfolio of MGAs where there’s perhaps a greater level of diversification, which supports longer-term involvement from that reinsurer or a group of reinsurers, said Myles Gould, director, Analytics, AM Best.

Abundant Capacity

In recent years, MGAs haven’t had much difficulty accessing capacity—in both soft and hard markets. Industry practitioners say this is a change from five-plus years ago when insurers sometimes pulled capacity during hard markets because they had plenty of options for their capital deployment. And there have been other times when capacity exited markets when rates were too low.

“While we were in a soft market, there was a desire to support a broad number of MGAs in specific territories, across specific classes, and as the market started to harden, I did not see that change from a reinsurance perspective,” said Maleary.

“If anything, I saw [MGAs] becoming more sought after. While insurers were chasing those classes that were seeing rate increases, reinsurers decided it would be more beneficial for them to allocate their capital. I was also seeing insurers still supporting MGAs, but they were quota sharing a bigger proportion of the portfolio, out the back to the reinsurance market.”

“MGAs were historically most active in soft markets, when insurers were hungry for premium and turned to MGAs to develop niches that they could not readily access themselves,” the Conning report said.

“MGAs now serve as an all-weather distribution channel, as valuable to insurers in hard markets (such as we are now seeing) as in soft markets,” the report noted. “In terms of technology adoption and exploitation—particularly in rating hard-to-price risks—they have some advantages over the insurers themselves. They are not normally burdened by legacy systems and the inefficient and duplicative processes (sometimes known as tech debt) that go with these systems.”

Historically, during soft markets, insurers and reinsurers increasingly reached out to the MGAs to drum up business, to make up for those soft market conditions, commented Greg Williams, senior director at the ratings agency AM Best. However, that has changed over the past five years or so, and capacity now seeks to develop relationships with MGAs because they underwrite in specialty niches, he explained.

If MGAs are able to stay ahead of the curve and provide competitive advantage with innovation, they can keep that value-add in the chain, in all market cycles, said AM Best’s Gould.

Capacity has pulled back in some areas at some points in time for MGAs, Maleary said, but for most classes of business, if the MGA has delivered good quality results, is entrepreneurial and innovative, “then irrespective of whether it’s a soft or hard market, the MGA should be okay.”

Why would the capacity provider want to change that? he questioned.

Better Underwriting Performance

MGAs across the globe generally have better combined ratios than insurers, right across the board, according to David Howden, CEO of Howden Group, which comprises the broker Howden and DUAL, the international MGA. Howden spoke at the June conference of the Managing General Agents Association (MGAA) in London.

Over the past five years, the emergence of InsurTech MGAs, which are driven by some form of technology, such as algorithms and artificial intelligence, “have started to look at and analyze data in such a way that it is actually giving them a bit of a deeper insight into the risk they should be accepting—i.e., what’s good risk and what’s bad risk,” said Maleary.

Such models are helping to drive the better combined ratios for MGAs because they’ve got data “that’s helping them to slice and dice what’s good or bad,” he noted.

Attracting Talent

Howden discussed a number of key traits that are seen in successful MGAs: underwriting credibility (outperforming the market), being nimble, employing strong data and analytics, having alignment with their capacity providers, and talent.

MGAs have an enormous ability to attract talented underwriters who are seeking a slightly more entrepreneurial and empowered business model, Howden said.

Indeed, the Conning report suggested, the ability of the MGA model to attract talent in a post-pandemic world could have played a significant role in MGA formation in 2021, although this is hard to quantify. “[T]he more flexible business model of MGAs and, crucially, the greater sense of agency felt by people working at smaller and more nimble organizations may have contributed significantly to the allure of MGAs in competing for talent,” the report noted. (Related online article: “Are MGAs Winning the Insurance Talent War?”)

Culturally, MGAs are often attractive to the talent that traditional insurers are finding hardest to attract—including data scientists and software developers.

MGAs are much more nimble than traditional insurers, akin to a speedboat versus an oil tanker trying to change course, said Maleary.

MGAs provide a great mechanism for the industry’s entrepreneurial underwriters, who, after the pandemic, are less interested “in working for the man,” said Simon Burton, chief executive officer and chief underwriting officer for Greenlight Capital Re, in an interview.

“They’re very good at what they do. They’re super competent; they’ve got great relationships. They’ve got long track records, but they’d like to have a bit more autonomy, and, frankly, have greater participation in the profit of the business that they generate.”

“Most of MGA talent, from an underwriting perspective, is coming from large named insurers where maybe they’re No. 1 or No. 2 in line, but they want to work in a more entrepreneurial environment,” said Williams at AM Best.

Alignment of Interests

All the executives interviewed or quoted in this article mentioned “alignment” of interests as being crucial to strong, long-term relationships between MGAs and their capacity providers.

Maleary defined alignment as sharing the same vision, work ethic and approach (in terms of acquisition costs, in particular)—all helping to structure a strong commercial relationship that benefits all partners. One example, he said, would be to reward underwriters by the profitability of the portfolio.

Howden was dismissive of old preconceptions about MGAs and those insurers that are concerned about giving away their pens to MGAs. He called this type of talk “‘old hat, old thinking,’ and we need to change that.”

If MGA owners lose their capacity, they lose their business and they have no value, said Howden during his speech. “That is alignment.”

On the other hand, when a line underwriter gets told off by a CUO “for having written a crap risk—that’s not alignment,” said Howden. “And I think that message really needs to come across. MGAs are absolutely aligned to their capacity advisers and really care.”

“The MGA market has become much more professional. The talent pool is deeper; it’s more experienced. And then the insurers’ and the reinsurers’ enterprise risk management practices around audits have increased as well,” Williams explained. The rating agency has introduced a performance assessment for DUAEs to distinguish the best performing MGAs. (See related article from AM Best).

Misalignment of Interests

Burton recalled a period from a few years ago when risk capital was being undercompensated in MGA relationships—when there was a serious misalignment of interests.

He cited one example when Greenlight Re was offered three points of margin for an MGA’s business. “Frankly, three points of margin, after we overlayed our own expenses, would not even be breakeven. My response was that it simply wouldn’t work for us. But some of these deals were getting done, which wasn’t very healthy or sustainable for reinsurers or the market.”

The market was soft, and too much reinsurance capacity was chasing too little demand, Burton said, noting that ultimately, the situation caused a backlash and capacity withdrawal, including from MGAs.

“We only enter into relationships with MGAs where there’s a good alignment of interests. Put plainly, we can’t be in a situation where the reinsurance contract is a significant loser over a several year period while the MGA remains highly profitable.”

“Now it’s a matter of selecting the very best MGAs—the MGAs that are truly delivering the best value to their customers and for everybody in the value chain,” Burton said. Nowadays, when reinsurers go into a discussion with MGAs, “there’s an appreciation for the risk capital that reinsurers are bringing to the table and an understanding that there’s a fair amount of compensation that comes with that deployment of capital.”

Although greater recognition of abuse issues has led to significant improvements in safeguarding and risk management, organisations and their insurers still face many historical and recent child abuse claims. They can include personal injury arising from emotional, physical and sexual abuse but all require sensitive and expert handling.  It is important to ensure that any abuse cover provides specialist defence representation in the event that a claim is brought against a provider.

One of Pro’s trusted legal partners, Clyde & Co has written an excellent article Clyde & Co’s costs team achieve significant reduction in claimant’s costs : Clyde & Co (clydeco.com reporting on a child abuse claim where the issue of claimant legal costs was addressed, leading to settlement mid-way through the assessment hearing and a significant saving for clients.  

Alan Metzger, Pro Global Head of Strategy for abuse claims commented: “Pro Global and our clients are committed to handling child abuse claims fairly and sensitively, with payment of appropriate compensation where liability is established. It is important that survivors receive expert legal advice through the claims process but we will robustly challenge solicitors costs where the sums claimed are unreasonable.”