How has the Covid-19 pandemic affected the MGA sector? Have the past two years been favourable?
The MGA sector mirrored the overall property and casualty (P&C) industry and showed itself to be resilient overall through the pandemic. In the US, there are certain pockets of MGA business, such as contingent liability / event cancellation and travel insurance, that had some challenges, but are now making a comeback.
The biggest issue has been around talent. In the post-pandemic working environment, in situations where remote working has proved successful employees can now be a part of an overall MGA platform or MGA entity irrespective of where they live. So we are seeing MGAs that comprise individuals based in perhaps twenty different states now, whereas before they may have required their employees to move to certain offices.
On the theme of talent, in Aon’s recently published report, ‘MGAs: A Market on the Move’, you highlighted the attractiveness of MGAs as employers. Do you see a migration of talent from the traditional sector to the MGA sector?
We continue to see a migration of talent to the sector, and we expect this trend to continue as we see many more MGA platforms being created in the years to come. MGAs are not necessarily a single line, or single delegated underwriting authority, but a platform with shared services that is designed to accommodate an underwriter or a team of underwriters, and provide a good compensation, equity structure and total reward in a transparent way.
In 2022, we have a new set of challenges, including rising inflation, interest rate rises, and the reduced supply of reinsurance capacity in certain key areas. How do you think the MGA sector has responded?
The sector has responded quite well. A lot of these MGAs are just like insurance companies without a balance sheet, so they have responded quickly. Some of those that are specialised are able to respond even more quickly than the overall P&C market.
Right now, we are seeing the most demand for capacity in the MGA world from the critical property catastrophe business, as well as cyber. So those are two of the key areas where we’re seeing a lot of demand and not as much capital supply.
What is the value of MGAs as a distribution channel to reinsurers? Do they represent a way towards profitable growth in what has become a challenging traditional market?
For insurtechs, success comes initially with growth and scale, and then over time they work towards profitability.
Some are having to reduce their workforces as they try to achieve these goals, and we are going to see more MGAs focusing as much on bottom line and profitability, as top line.
It’s all about scale, and we are going to have to see that balance come back, in particular as reinsurers, for example, determine how they want to allocate their capital.
They're going to choose good products and good operators, but also increasingly want to make sure that the business is profitable.
What is the outlook of the MGA market over the next five years?
The outlook is very promising and we will continue to see it grow. Demand will remain in the marketplace from private equity, even with rising interest rates. We also continue to see demand from other entities entering the space.
A key example of that would be Mitsui Sumitomo, which has purchased Transverse, a dedicated MGA carrier. More organizations and capital are trying to figure out how to get into the MGA space, whether it’s in product or distribution.
The biggest trend we’re seeing now – and that we’ll continue to see – is risk-taking by MGAs. We have more MGAs setting up on their own, whether as captives or via reciprocal arrangements, or even as re/insurance carriers, so that they have their own balance sheets, and therefore the possibility of retaining more of their business, or maybe offering something else to their own businesses.
