European MGAs: The next phase of growth will be about quality as much as scale

Reflections on The Insurer’s European MGA Summit in Paris

By Gemma Grainger, Head of Business Development, Davies Insurance Solutions

Europe’s MGA market has no shortage of ambition. That was apparent at The Insurer’s European MGA Summit in Paris in September, where discussions ranged from new sources of underwriting capacity and specialist opportunities to consolidation, technology and the challenges of expanding across European markets.

There is considerable confidence in the sector’s prospects, and good reason for it. MGAs have demonstrated their ability to bring specialist underwriting expertise, entrepreneurial thinking and access to distribution channels that traditional insurers may struggle to replicate. Investors, insurers and reinsurers increasingly recognise the value of those capabilities.

What interested me most, however, was the growing emphasis on the quality of that growth. As market conditions soften and competition for business increases, the distinction between MGAs that have benefited from favourable pricing conditions and those with genuinely sustainable underwriting propositions is likely to become more apparent.

For the European MGA sector, this raises some important questions about capacity relationships, operating models and the capabilities businesses will need to support their next stage of development.

Capacity: More choice, but different expectations

One of the most interesting developments is the growing range of capacity arrangements available to MGAs. Traditional insurer partnerships remain important, but hybrid fronting models, reinsurance-backed structures and alternative capital are providing additional options.

Increased competition among capacity providers should be positive for MGAs, particularly those with established underwriting records and specialist portfolios. It may create opportunities to negotiate more appropriate arrangements, access new markets or diversify their sources of capacity.

However, the quality and longevity of those relationships are just as important as the availability of capital. An MGA looking to build a business over five or ten years needs confidence that its capacity partners understand its underwriting strategy and are prepared to support it through changing market conditions. Equally, insurers and reinsurers need evidence that the MGA can deliver consistent underwriting performance, reliable information and effective control of the risks it manages.

This makes capacity selection a two-way process. MGAs should be as rigorous in assessing the financial strength, commitment and suitability of prospective partners as insurers are in assessing their delegated underwriting businesses.

At Davies, we see this broader consideration of capacity as an important part of MGA development. Whether a business is establishing its first underwriting relationships, diversifying capacity or considering more substantial structural changes, the arrangements need to support its longer-term commercial objectives.

Growth is becoming more selective

Another theme from Paris was the increasing selectivity of investors and potential acquirers. There remains considerable interest in European MGA businesses, but the quality of the underwriting proposition, management team, capacity relationships and operational infrastructure is attracting greater scrutiny.

This is particularly relevant as insurance pricing comes under pressure. Premium growth achieved during a hard market is not necessarily evidence that a business can sustain its performance when conditions change.

For MGAs, underwriting discipline and the ability to demonstrate profitable performance across the market cycle will become increasingly important. So too will the quality of the information they can provide about their portfolios, claims experience and exposure to risk.

There is also an interesting distinction between growing an MGA and building a larger MGA platform. Acquisitions and consolidation can provide access to new products, territories and distribution, but combining businesses with different systems, reporting practices and capacity arrangements introduces complexity.

A successful acquisition strategy therefore needs to consider integration and operational consistency alongside the commercial opportunity. Investors may be attracted by premium volume and specialist expertise, but the ability to manage those businesses effectively will ultimately influence the value of the combined platform.

Different routes to the next stage

For established MGAs, further development does not necessarily mean continuing with the same delegated underwriting model on a larger scale.

Some businesses will focus on deepening their existing capacity relationships or entering new territories. Others may consider taking a more direct financial interest in underwriting performance, whether through a captive insurance structure or participation in a Lloyd’s syndicate.

These options have different implications for capital, governance, regulatory oversight and operational responsibilities. A captive may allow an MGA or its owners to retain a defined share of underwriting risk while maintaining existing insurer and reinsurer relationships. Establishing a Lloyd’s syndicate can provide a different platform for development, including opportunities for greater control over underwriting strategy and participation in risk and returns where appropriate capital arrangements are in place.

Through Asta, Davies has experience supporting underwriting businesses at different stages of development within Lloyd’s, including progression to full syndicate status. Davies’ captive management capabilities provide another perspective on the structures available to businesses considering greater participation in underwriting risk.

The important point is that there is no single model for a successful MGA. The appropriate structure depends on the business’s ambitions, financial resources, underwriting proposition and appetite for additional responsibilities.

Europe’s regulatory differences remain a practical challenge

The ambition to develop a more connected European MGA market was another important topic at the Summit. Yet Europe remains a collection of individual insurance markets, with different regulatory frameworks, authorisation requirements, distribution arrangements and business practices. Those differences can complicate expansion, even for MGAs with an established underwriting proposition and capacity support.

For businesses seeking to operate across borders, the challenge is to secure appropriate market access while meeting local requirements and maintaining consistent governance and underwriting oversight. The solution will depend on the territories involved, the insurer relationships and the way the MGA intends to operate.

Established European infrastructure can help address some of these challenges. Asta Europe, Davies’ Brussels-based business authorised by Belgium’s Financial Services and Markets Authority (FSMA) as a mandated underwriter, supports MGAs and syndicates seeking to access and underwrite business across the European Economic Area. Working with EEA-authorised insurers, including Lloyd’s Insurance Company, it provides regulatory oversight, governance and operational support for cross-border underwriting arrangements.

That does not remove the differences between national markets, but it illustrates how an MGA can draw on established structures and expertise rather than building every element of its European operating model independently. The practical arrangements matter as much as the commercial opportunity when assessing where and how to expand.

Technology has to deliver practical improvements

Artificial intelligence and automation were prominent in discussions, particularly their potential to improve efficiency and reduce the administrative burden associated with underwriting and reporting.

There is considerable scope for progress. Many MGAs still depend on processes involving repeated data entry, manual reconciliation and information held across different systems. As businesses grow, these inefficiencies become more difficult and expensive to manage.

Automation can improve the speed and consistency of routine activities, while better data management can give underwriters and capacity providers a clearer view of portfolio performance.

However, the value of technology depends on the quality of the underlying information and the processes it supports. Introducing sophisticated tools will achieve relatively little if exposure data is incomplete, bordereaux are inconsistent or responsibilities for reviewing and acting on information are unclear.

This is also where independent audit can add value. Davies Audit Solutions International combines local market understanding with consistent audit standards, helping insurers assess the quality of data, reporting and operational controls across their international delegated authority portfolios.

Technology should also support, rather than displace, the specialist underwriting judgement on which successful MGAs are built. The most useful investments will be those that allow experienced people to spend less time on administration and more time assessing risk, developing products and managing relationships.

A more mature European MGA market

My main reflection from Paris is that the European MGA market is entering a phase in which the ability to demonstrate quality will become increasingly important.

The opportunities remain substantial. Specialist underwriting teams have room to develop new products and reach underserved markets, while changing capacity arrangements and continued investor interest offer different possibilities for expansion.

But growth will be subject to closer scrutiny. Capacity providers will want evidence of sustained underwriting performance and effective oversight. Investors will look more closely at the resilience of business models and the quality of management information. MGAs expanding internationally will need to address regulatory, operational and claims requirements that become more complex with each additional market.

For Davies, the discussions reinforce the value of helping underwriting businesses choose structures and operating arrangements that fit their ambitions, rather than assuming that growth must follow a single model.

The European MGA sector has demonstrated that it can create and develop successful specialist underwriting businesses. The next test will be how effectively those businesses can maintain their performance, strengthen their capacity relationships and manage the additional responsibilities that come with growth.

That is likely to be an increasingly important measure of success as the market develops.