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Soft re/insurance market conditions now main obstacle to MGA growth

20th January 2017 - Author: Staff Writer

Soft re/insurance market conditions have replaced regulation and compliance as the main factor impacting growth of managing general agents (MGAs), according to a survey released yesterday by MGA start-up specialists, Castel Underwriting Agencies Limited (Castel).

The Managing General Agents’ Association (MGAA), a Castel research-based partnership, surveyed its members to identify factors hindering UK MGA growth and shifting strategies.

The impact from soft market conditions rose considerably from 46% in 2014 to 65% in 2017, while regulation and compliance fell from a 69% top impact factor three years ago down to 57%.

Mark Birrell, Chief Executive Officer (CEO) of Castel, commented that regulation and compliance dropping down to second place reflected “the strong investment that has been made by MGAs to ensure they meet regulatory demands.”

Nearly one-quarter of survey respondents in 2014 said the lack of availability of investment capital hindered growth – but this did not even feature as an issue in 2017, an indication of the speed of growth of the evolving insurance model, where capital is increasingly bypassing insurers and partnering directly with MGA’s and insurtechs.

Competition in the MGA sector has dropped from the second biggest challenge down to third place, while figures for availability of underwriting capacity and the impact of out-of-date technology have not changed in the last three years.

Impact of personnel-related factors plummeted, with finding and retaining talent who understood the MGA role at about 50% lower than it was in the last two years.

Respondents also identified their three main strategic priorities for 2017; the results reveal a change of emphasis in the approach of MGAs – from seeking new lines of business to focusing on consolidation.

In 2014, nearly 60% of respondents cited moving into new products and lines of business as their top priority – while nearly half of those surveyed still cited new expansion as a priority – 65% now say they are focused on increasing business development and marketing activities; suggesting a need to consolidate and expand on new business developments.

Updating technology and increasing business efficiency remain in the top three strategic priorities – and with keeping up with technological innovation being cited as key to survival it is likely this will remain a top MGA strategy in the coming years.

Peter Staddon, Managing Director of the MGAA commented; “MGAs remain optimistic about their opportunities to grow and it is no surprise that they are looking to broaden the scope and reach of their distribution partnerships.

“This strategic priority reflects the sector’s product knowledge and understanding of clients’ needs as well as its innovation and entrepreneurial skills.”

Birrell added that “levels of efficiency and profitability to meet the needs of their capacity providers,” would now be a greater priority for MGAs, given the soft re/insurance market conditions.

An example of how MGA’s are increasingly being used to leverage the latest innovations in re/insurance and risk transfer is yesterday’s independent insurance and reinsurance broker RFIB Group Limited’s (RFIB) revelation that its holding company, TopCo, has established a new MGA, called Limehouse Agencies (Limehouse) with the goal of positioning it at the forefront of the disruption facing re/insurance from efficient capital and technology.

The survey underscores a definite trend to focus more on M&A and consolidation, with 60% of participants saying they believed there would be increased levels of these strategies.

MGAs looking to increase their capacity base has moved from third, down to fifth place – again demonstrating how the capital markets have been increasingly moving down the supply chain, eager to offer their capital to innovative insurance and reinsurance business models.

Almost 63% of respondents said they expected an increase in MGAs in the coming year – but nearly half of the participants believe the UK’s MGA sector would not be able to sustain current growth levels over the next three years.

Birrell said the survey indicated; “a further period of sustained growth for the sector,” and paradoxically, the very circumstances making continued growth difficult to achieve, are also a major factor driving expansion in this sector as the industry rewrites its modus operandi in line with the technology revolution and soft market environment.

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