2014: Managing General Agents - A Look at the MGA Specialists


Price : $1,750.00



MGAs represent a key access point for insurers interested in specialty markets consisting of risks not widely accepted by standard insurers. In this study, Conning provides an overview of the MGA market and its characteristics, details the MGA and insurer participants, provides an assessment of the business model and analyzes the performance of both MGA’s and MGA insurers.

1. Introduction

2. Executive Summary

3. MGA Market Overview
 

  • Overview of MGA Market
  • Summary

4. Participants in the MGA Market
 

  • The Managing General Agents
  • Insurers’ Use of MGAs
  • Summary

5. Characteristics of the MGA Market
 

  • Operating and Underwriting Characteristics of MGAs
  • Lines of Business
  • Distribution—Who Controls the Business?
  • Summary

6.  MGA Business Model
 

  • Historical Failures Lead to More Sustainable Business Model
  • Economics of the MGA Model
  • Are MGAs Attractive Acquisition Candidates?
  • Lloyd’s Coverholders
  • Summary

7. Performance of MGA Business
 

  • Growth and Profitability of MGA Insurers
  • Performance of Excess and Surplus Lines Market
  • Near-Term Pressure, but Long-Term Potential for MGA Market
  • Summary

Introduction

This study on the MGA (managing general agency) market marks Conning’s first report on this topic. MGAs have evolved, and their role as an access point to specialty markets and risks not widely accepted by insurers has positioned MGAs as a meaningful distribution relationship for many insurers.

The MGA market has endured periods of volatility due to their association with a number of insurer failures. Notable recent announcements including QBE, Tower Group, and SPARTA raise the questions: Are further troubles to come for insurers associated with MGAs? These appear to be more isolated events as insurers’ and MGAs’ response to addressing historical issues has created a more stable business model. An improvement in risk management practices has been successful in helping insurers manage MGA relationships and reduce systemic risks. The size of the MGA market relative to the broader commercial market confirms insurers’ commitment to using MGAs as producers of premium.

Chapter 3 provides an overview of the MGA market and discusses the relationship MGAs have with insurers and agents. We look at the benefits and risks insurers assume when using MGAs to produce premium. When managed properly, MGAs offer insurers access to attractive specialty markets and potential additional revenue opportunities. The MGA market remains a key source of premium for insurers attracted to these specialty risks. Our analysis of statutory filings found that MGAs produced $25.7 billion of direct premiums written, which represented approximately 9.7% of commercial premiums in 2012.

Chapter 4 looks at individual MGAs and insurers that participate in this market. Those insurers that produce the largest amount of premium through nonaffiliated MGAs have remained fairly consistent over the past five years. The universe of insurers that are most active in using affiliated and nonaffiliated MGAs to produce premium tend to be larger global (re)insurers and midsized insurers with a business model focused on sourcing premium through the MGA channel. Insurers of all different sizes use MGAs to produce premium, and larger insurers represent a meaningful portion of our database. However, MGA relationships often represent a more meaningful source of premium for the small and midsized insurers.

Chapter 5 discusses the operating and underwriting structure of the MGA business model and characteristics specific to MGAs that offer value to insurers. MGAs can vary in the size of programs underwritten, type of coverage offered, and geographical focus. These characteristics can provide insurers flexibility and the ability to maintain control over risk management when establishing and managing MGA relationships. A number of larger MGAs produce an outsized portion of premiums, but overall the MGA industry is composed of a large number of small and midsized independently owned MGAs focused on distinct types of coverage or geography. Our database indicates that approximately three-fourths of MGAs are not affiliated with an insurer and are focused on offering some type of commercial coverage.

In Chapter 6, we provide further discussion on our conclusion that the MGA market has evolved into a more stable market and review the history of the MGA industry and periods of volatility that challenged the MGA business model. The increased utilization of risk-sharing and other controls appear successful in limiting large, disruptive events in the MGA market. We also looked at acquisition activity in the MGA industry and the market’s consolidation. The supply of willing buyers outnumbers sellers and has pushed valuation multiples to the high end of the historical range. The pool of potential acquirers has remained fairly consistent with insurers, insurance brokers, private equity-backed brokers, and other MGAs as the most active.

In Chapter 7, we look at the underwriting performance of premium sourced through MGAs using a composite index of insurers that generate a significant portion of premium through nonaffiliated MGAs. The composite average loss ratio over the past ten years outperformed the property-casualty commercial industry and suggests that insurers can gain an underwriting benefit from using MGAs. We also look at the E&S market as an alternative benchmark for the underwriting performance of MGA market. Historical data support the idea that profitable opportunities exist for insurers underwriting in the specialty markets. An expectation of lower rates over the near term could put pressure on MGA underwriting profitability. However, the long-term outlook appears more favorable as the MGA market is positioned for future growth, and the adoption of technological innovation and data analytics can help drive growth over the long term.