A combination of challenges are testing the resolve of MGAs

27th January 2023

A combination of challenges are testing the resolve of MGAs. Davies’ insurance services Managing Director, Steven Goate, explains that the issue of how to effectively manage their run-off is a decision that requires serious thought.

The tough line taken by the reinsurance market at the 1 January renewals looks set to have far-reaching implications across the wider market, and for Insurtech MGAs those implications may well be profound.

While reinsurers have increased pricing they have also restricted capacity for many risk classes, with the available capacity now tending to activate at a higher point in the cedents’ programme than in previous years. It has left both reinsurers and insurers looking at how best they can utilise the capacity they have for their core risks. As such the capacity for the MGA market has become heavily constrained at a time when there is still no shortage of new MGAs looking to launch.

Insurtechs have long been a breed apart and for some they are reaching a point where they have serious decision to make. Underwriters see Insurtech in many ways as a “nice to have” rather than a must at present with the shift to core business and operations.

It leaves MGAs squeezed from both sides. Capacity providers are becoming far more prescriptive with their MGA partners and seeking a higher level of data on performance. Like the modern-day football managers, MGAs do not have much time to deliver before their capacity providers question their decision to continue the relationship.

For Insurtech MGAs they need to quickly establish that the product will work and has a market. The problem is that the market is becoming increasingly crowded with products all seeking to stand out from the crowd.

It comes at a time the clients are struggling to contend with inflation and the rising costs of living and with it brokers are fighting hard for the best rates and coverages.

It is not a single issue which is threatening MGAs, it remains a combination, but for some they threaten to push them over the edge. For many the decisions as to whether they keep operating is real and pressing.

Therefore, while we continue to discuss the launch of a steady stream of new MGAs, there is also increasing discussions around the future for MGAs. As many mature the decision has to be made as to whether they wish to continue or move to a new class of business which leaves a legacy issue to be managed.

If the decision is made that the operation has run its course, for whatever reason, MGAs remain at a disadvantage to the more traditional underwriting entities.

One of the major attractions of MGAs to the capacity providers has been their ability to remain nimble and to operate on the most efficient of costs bases.

It means that should they look to go into run off they lack in-house infrastructure. Their first task it is to find ways of delivering an efficient run-off of the business. That means protecting the capacity provider or owner, protecting the policyholders (if there are any), and ensuring the run-off complies with regulatory and financial rules.

It sees MGAs looking for options around claims, cost control, actuarial expertise, and policy administration.

The MGA sector is like any other part of the industry. It is a natural cycle which is driven by ever changing risks and the dynamics of the underwriting cycle.

At Davies we have clients which are at every stage in that cycle. We support those with ambitions to launch, we support MGAs once they are established and throughout their operating life. We also have the capabilities to support MGAs who have decided that their business has run the course and in many ways it is the time when the business requirement for that support is so acute.

The media and the wider market have been discussing the threat to the MGA sector in recent months and we are in ongoing discussions with MGAs, who are facing the need to make possibly the most difficult decision they will take, over how we can help to manage the run-off and legacy processes for the benefit of all stakeholders.

If you would like to continue the conversation, get in touch with Managing Director, Steven Goate at steven.goate@davies-group.com 

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