In a recent study conducted by Conning, it has been revealed that Managing General Agents (MGAs) in the U.S. property-casualty (P&C) insurance sector experienced remarkable growth in 2022, outpacing the broader P&C market.
The study indicates that premiums sourced by MGAs surged by an impressive 24%, a growth rate significantly higher than that of the overall market.
This surge in growth, totaling more than $85 billion in direct premiums written for the year 2022, can be attributed to several key factors.
Firstly, the industry witnessed a notable migration of talent from traditional insurers and brokers to MGAs, augmenting their expertise and capabilities. Additionally, MGAs benefitted from a robust ecosystem of cloud-based data and technology services, enhancing their operational efficiency and customer service.
Furthermore, the study highlighted a substantial influx of premium into the Excess and Surplus (E&S) market, as well as a strong flow of capacity from global reinsurers facilitated by fronting companies.
Notably, fronting companies played a pivotal role in supporting MGA premium growth, contributing over $12 billion in premiums written in 2022 alone, reflecting a remarkable 38% increase from the previous year.
However, as the competition among fronting carriers intensified, the fronting model faced increased scrutiny. This scrutiny was exacerbated by recent revelations involving Vesttoo, an insurance-linked security (ILS) capacity provider to many fronting companies, which raised concerns about collateral associated with letters of credit in specific transactions.
William Pitt, a director at Conning, emphasised that the terms under which MGAs secure capacity have been tightening significantly, and this trend is expected to impact future growth.
Despite this, he remained optimistic about the industry’s prospects, citing MGAs’ ability to attract talent from traditional carriers and brokers, as well as their appeal to both traditional and alternative capacity providers.
While historically a dominant source of capacity for U.S. MGAs, growth within the Lloyd’s market showed signs of deceleration. U.S. binder business for Lloyd’s syndicates expanded by a mere 2%, reaching $7.3 billion in 2022.
Experts like Lauryn Kothavale, a vice president for insurance research at Conning, noted that MGAs are likely to continue identifying growth opportunities as long as carriers retreat from unprofitable lines of business and fail to pinpoint lucrative niches within broader classes.
MGAs experienced robust growth in 2022, surpassing the broader property-casualty insurance market, driven by a hardening market and facilitated access to underwriting capacity through fronting companies, despite tightening terms.
While Lloyd’s syndicates, historically a significant supporter of U.S. MGAs, saw marginal growth, MGAs’ specialisation in niche markets and seamless access to business through broker relationships fueled their success.
The increased perception of volatility led to a surge in excess and surplus lines (E&S) market growth, where MGAs, particularly in the cyber sector, played an active role.
The tenth Strategic Study identifies MGAs’ rising prominence due to an evolving ecosystem of service providers, attraction to skilled professionals, and the emergence of hybrid fronting companies channeling substantial capacity into the U.S. MGA market over the past decade.
