Reinsurers flock to invest in MGAs, but are wary of startups

Reinsurers flock to invest in MGAs, but are wary of startups 1024 1024 Davies Group

Against a backdrop of record market losses in 2017 and underwhelming rate increases, reinsurers are continuing to consider the ways they deploy their capital and are showing an increased appetite for investment in managing general agent (MGA) platforms.

This is according to Chris Butcher, CEO of intermediary services at Davies Group. He said there has been a lot of interest from all types of investors (including reinsurers) in MGAs, but some are hesitant to take the first step.

“Nearly all are happy to invest once a business is trading, but clearly what a startup really needs is help with the seed investment capital,” Butcher said.

He added that MGAs are increasingly embracing more varied distribution models as they partner with insurtechs. “MGAs also reduce the layers between themselves and the client which is clearly attractive, reducing intermediation costs while rates are still under pressure,” he explained.

Davies Group acquired specialist insurance and MGA solutions provider Ambant in October 2017. Dan Saulter, CEO of Davies Group, said the acquisition should enable the firm to offer a broader range of insurance and claims solutions to its MGA, broker and insurer clients.

Butcher added that new MGAs can often face challenges, including slow and bureaucratic behaviour in carriers, with a lack of urgency at middle management level. Delays can also cause unforeseen additional cash burn in the first year, he noted.

“In order to compete, startup insurers and MGAs must be focused and nimble, and access new risks for the market,” he concluded.

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