MGAs feeling the squeeze as capacity constricts

MGAs feeling the squeeze as capacity constricts 1024 342 Davies Group

//This article was first published by Insurance Times 

MGAs have been told they will need to deliver the unexpected if they are to access underwriting capacity as the market hardens.

The effects of the decision by Lloyd’s to target poorly performing business and the withdrawal of underwriters such as TMK UK have reduced both the size and the appetite of available capacity for MGA partnerships.

Signs that prices are hardening also point to decisions by insurers to focus their capacity at core business classes as returns improve.

MGAA managing director Peter Staddon said the appetite from some to provide MGA capacity had changed, however, the association was working with its members to find ways to access support.

“You can understand Lloyd’s wish to address poorly performing business and capacity providers are certainly now redeploying capital to areas where they believe they can achieve the best results.

“We have seen a focus on some classes of business and portfolios where questions have been asked and the market is starting to harden as capacity is removed.”

However, Staddon said that with prices beginning to firm it is opening the door to new entrants keen to benefit from the rising premium levels.

“There is capacity which is looking to enter the market, but it is not simply willing to underwrite anything.

“Like the established providers those wishing to enter the market have to see the benefit,” he added. “MGAs have to have a proper and clear business plan if they want to access any sort of capacity. I would like to think that MGAs are upping their game given the changing conditions.”

Staddon said while the capacity providers are still open to suggestions it is clear what they are no longer interested in.

“What they are no longer interested in is volume,” he said. “They are looking for something that differentiates the MGA from the rest of the market.  It may be the product, the way it is being distributed or a new audience.”

The MGAA launched a capacity exchange five years ago to enable carriers with capacity and MGAs to meet face to face. The event then became the MGAA’s annual conference but earlier this year Staddon said he received a demand for the exchange to be resurrected.

“We held another capacity exchange and had 20 carriers in the room with 70 MGAs,” he added. “It shows there is capacity out there, but it remains a question of matching that appetite with the right MGA partner.”

The other option for many is to look at whether they can transfer their expertise and systems to underwrite a new class of business within the current framework, he added.

An area where Staddon believes MGAs can add value is around the question of data.

“MGAs have a real opportunity to enhance their ability with the capacity provides around data capture. I say to our members don’t simply capture the data the carrier wants, instead of capture the data that you need to drive and grow your business.”

MGAs themselves are aware of the squeeze and the move by some Lloyd’s syndicates to shift their MGA capacity into the company market.

Chris Butcher Chief Executive Officer of Intermediary Services at Davies Group said that the traditional MGA model was struggling in an era of technology backed start-ups.

“It is getting more difficult for what we would describe as the traditional MGAs,” he explained. “There is closer scrutiny of the MGAs business plan and operations and we are seeing greater restrictions placed on line sizes and how the capacity can be utilised.”

“That said MGAs are still seen as an efficient underwriting model if an insurer is looking to enter a new class of business,” he added. “They not only allow firms to embed new teams, but they can be designed around new technology platforms.”

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