Analysis: Managing general agents - Gaining momentum or overheating?

The theme of this year’s conference from the sector’s trade association, the Managing General Agents’ Association, was ‘Survival of the Fittest’, with a focus on topics such as the hardening market, access to capacity and regulatory challenges, while mental health was also on the agenda.

So, is working for an MGA intensely pressurised? Certainly, there have been quick decisions to pull out of unprofitable sectors and capacity can suddenly dry up – such moves create uncertainty for employees, brokers and clients.

Recent months have seen MS Amlin exit nine lines of business, squeezing capacity for a number of MGAs it supported, while Aspen Insurance Holdings put its UK-based MGA, Aspen Risk Management into run-off and Aon’s Maven MGA scheme announced it would no longer be providing solicitors’ PI. But the past year has also seen a number of dynamic start-ups with Insenture Underwriting Services, C-Quence, Bewica and Kitsune joining the fray.

MGAs can take a ruthless turn on occasion, but even the biggest and outwardly stable insurer can lay off hundreds of workers should they restructure.

Certainly, MGAs do offer opportunities though, and those that have the marks of success are either large, but still fleet of foot, or niche specialists in the process of scaling up.

One of the market’s biggest players, Pen Underwriting, part of the Arthur J Gallagher, is a “virtual insurer” according to chief executive Jonathan Turner, with success coming from “adding value to the other parties involved; to the capacity provider, to our brokers and their customers. You need to prove that the service you are providing is unique and different to what could be done without the involvement of an MGA”.

He adds: “There will be continued change. Consolidation in the sector is likely to continue, particularly with smaller MGAs, due to the increasing cost of doing business, which in particular is being driven by increased regulation, the complexity of products on the market and the ability to work with a broad range of partners who are equally keen to develop their business.”

Broad spread of products

Nexus Underwriting Management was founded in 2008 and initially only offered financial lines but has grown rapidly, doubling every 36 months, to offer a range of 15 speciality products including marine, aviation, trade credit and accident and health. It’s a global business, operating in nine countries. Through the backing of venture capital firm, BP Marsh, it has been making around three to five acquisitions a year with two more due to be announced in the coming months – gross written premium has grown from £50m to some £313m.

Nexus Underwriting CEO Colin Thompson says: “You now need a broad spread of products and typically be able to reach higher risk markets that standard insurers can’t access. The bar is rising and the market has seen higher standards of conduct introduced with the need to invest heavily in IT and produce the highest quality management information. I’ve worked in the past for a conventional insurer and it’s different with an MGA – you really have to show you can outperform.”

Markerstudy is the UK’s largest MGA and has grown rapidly since its inception in 2001 – from some 40 staff to around 6000. Chris Collings, former insurer development director for broker Swinton and now non-executive director at Markerstudy, says: “The MGA market continues to grow and lately we’ve seen more new start-ups and enterprises, which is great news for the industry.

“However, in this soft market, finding capacity isn’t easy and some insurers, including Lloyd’s, are understandably being cautious. Insurers are not just looking for volumes, they need to see consistent profitability and if an MGA doesn’t get this right then they can quickly see insurers turning away. Insurers are also being much more rigorous in their partner selection, they might want access to new markets, but not at any cost. Regulation, compliance and governance is becoming more complex and burdensome, but it’s an absolute essential part of the relationship – ignore it at your peril.”

No coasting

MGAs cannot simply coast and their backers expect them to be nimble, highly in tune with the market and with all parties seeing rising profits as a given.

Large organisations tend to see their smaller MGAs as powerhouses. Aon Underwriting Managers is an MGA structured around international business coming into the London Market and a network of retail brokers in the UK, focused on niche lines. It also operates Maven Public Sector, an MGA offering products to local authorities and the police, fire and rescue services, along with claims and risk management expertise.

According to Andrew Brown, head of operations: “Our Maven Public Sector business is a good example of where we have been able to stand up a specialist team, secure capacity, and enter the public sector market as a new entrant with fresh capacity. We’re making strong inroads into the market with a focus on quality of cover and service, and tailoring our approach for each authority.”

Robert Munden, chief underwriting officer at Gresham Underwriting, says MGAs have the ability to react quickly and that controlled growth is key to success.

Last year, insurer Axa entered into a three- year partnership with Gresham – the MGA arm of the Tasker Insurance Group – to provide £20m of capacity, which it holds alongside capacity from Lloyd’s.

Munden, who joined in 2017 from Travelers, says there is a “real energy in the sector” and that scaling up can happen fast. “It’s not about having lots of committees, you react quickly and make decisions.”

On joining, he says he appointed a data analyst, as this area of running an MGA is crucial.

“Data is everything and there’s been a lot of progress in this area in understanding performance but also in enrichment, such as in areas like checking flood defences or county court judgements, so that you can ask fewer questions, boosting efficiency and making it easier for your brokers. Along with technology, you also need a good compliance team in place.”

He adds that offering brokers attentive service can also be a differentiating factor.

“We’re predominantly online but there is also a place for business development managers and ensuring you are in close contact with brokers. Successful MGAs have moved on from a stack it high, sell it cheap approach to a focus on quality and doing business in the right way,” he says.

Capacity challenges

The availability of capacity is uncertain and funding via Lloyd’s, a traditional supporter of MGAs, is expected to reduce because of the market’s increased emphasis on under-performance – the Lloyd’s ‘Decile 10’ review.

Thames Underwriting operates delegated authorities on behalf of Lloyd’s and insurers including Allianz, XL, QBE and RSA.

Keith Syrett, Thames Underwriting director, says: “The MGA market is still in a good place, but change is definitely in the air. The pursuit of underwriting profit is now very much the main focus for capacity providers as seen with the Lloyd’s Decile 10 review. Over the last year, we’ve seen a number of providers withdrawing or restricting capacity, that’s had a real impact for many MGA’s. It’s also affected new MGA start-ups that have struggled to gain capacity that perhaps just a year or so ago would have been granted.

“Brokers are reporting seeing the effects of these changes with rate increases and restrictions in risk appetite across many of their MGA markets. We’ll continue to see realignment and remediation work in the MGA space in the foreseeable future.”

Favouring the space

Thames Underwriting, which is headquartered in Southend, has just opened a second office in London’s Leadenhall Street and Syrett comments: “We’ve been trading now for almost 10 years and felt that, given the current market conditions and our desire to grow the business, now is the right time for the business to have a London presence and underline our long-term commitment to the UK broking sector.”

Investors favour the MGA space and this August, Avid Insurance Services

sold a majority stake of its business to Beech Tree Private Equity, the aim being to provide the firepower to accelerate growth.

Avid specialises in travel schemes and other niche products including social housing, students’ contents and contingency and it will continue to be run by managing director Stephen Gibson and commercial director, John Inwood.

Gibson comments: “The deal with Beech Tree will mean some exciting opportunities for us, but we’ll be staying true to what we do in that we have achieved growth, we don’t focus on vanilla products and we look to work closely with our brokers and offer them consistent rates. You also need to have regular updates with insurers and address any areas of concern promptly. We’ve also always been very focused on data – a successful MGA is all over their numbers.”

Inwood adds: “You have to be geared around underwriting management and really look under the skin of what you are doing. There certainly are a lot of skilled people working within MGAs and many are from an underwriting background.” The pair add that they are looking to expand and if businesses and people are the right fit, now is the time to be talking.

Appealing to entrepreneurs

Many MGAs are smaller and pride themselves on being agile. Ensurance specialises in construction, engineering, terrorism and high-net-worth home renovation among other niches. It was founded two years ago and secured capacity from Swiss Re and Axa XL, along with building strong relationships with a number of quality brokers.

CEO Tim James was previously with HSB Engineering and says: “For us, one clear advantage is that we’re not part of a broking group and we don’t have conflicts of interest. We’ve also been selective in the brokers we work with, although we are now building on our numbers.”

He adds the MGA world will not suit every employee: “When you work for a smaller company – and we started with just four people – there is nowhere to hide. You also won’t get the full suite of employee benefits. But, employees help build the culture and are passionate about what they do – there’s real opportunity for all to be involved as the business grows.”

Meanwhile, one tried and tested route to market is via an MGA incubator, which offer support in ways including underwriting, claims, compliance and structure.

Pro MGA Solutions is currently managing eight MGAs with a further half dozen in the pipeline and CEO Danny Maleary says the incubator model can be ideal when there is a need to bring a product to market quickly. Previously, he gained experience in this through working on Flood Re and the British Insurance Brokers Association-led solution for SME flood risk.

“There is a lot of potential and c-suite interest to support new MGA ventures that have the right model in terms of distribution, technology and people. We can also help those that want to expand their reach globally.”

Trade association the MGAA is also expanding and chairman Charles Manchester says recent developments have included greater compliance support and training in association with the Chartered Insurance Institute and moves to introduce chartered status.

He says: “I took this role on because in any profession, you need a strong trade association and I believed in what they are doing.

“The ‘Survival of the Fittest’ theme of our conference was relevant, given the conditions, and we will see the better MGAs rise to the top. But, there is still plenty of business out there and that includes for new start-ups – my advice here is be mindful that the Financial Conduct Authority is keeping a close eye on behaviour, so be properly regulated and I also believe we will overcome the Brexit challenge. Overall, entrepreneurial talent will continue to be attracted to MGAs – and they are going to increase.”

There may be some MGAs that fall by the wayside in 2020, but many more have plans to grow – so, yes, it remains hot and these dynamic players say they have no intention of cooling down.