Are MGAs torn between Lloyd’s boxes and company-backed paper?

Recent headlines have revealed that a series of MGAs have secured boxes at Lloyd’s of London – however, industry commentators believe the choice between gaining capacity through company-backed paper or opting to join the Lloyd’s market remains “a topic of debate”.

For example, Pen Underwriting secured a box at Lloyd’s in November 2023, followed by Amwins-owned MGA Unicorn Underwriting in February 2024. Aventum Group’s Rokstone additionally secured a box in April 2024.

For Mike Keating, chief executive of the Managing General Agents’ Association (MGAA), there is an “ongoing debate” within the MGA sector as to the benefits of tapping into Lloyd’s versus UK insurers’ company-backed paper.

Company market paper or capacity is issued by traditional insurers – complying with local regulations, these insurers typically have their own capital reserves.

Lloyd’s paper, meanwhile, involves syndicates at Lloyd’s of London underwriting policies using collective capital from market members.

Keating explained: “Admirably, Lloyd’s is trying to attract more business into its fold, but it’s a competitive environment.

”The company market is equally keen on retaining and expanding its clientele. Ultimately, these are the dynamics of the market.

”While Lloyd’s is making progress, it still has a way to go before its offerings rival those of its competitors in the company market.”

Duncan Pritchard, founder and managing director of MGA Commercial Express, echoed Keating’s sentiments, explaining that Lloyd’s paper “does not make it easy for MGAs to trade”.

He highlighted that the commission structures at Lloyd’s, whether maximum or average, result in higher fees paid out.

Pritchard explained: “It’s sometimes difficult to be pro-Lloyd’s because the operating costs are far greater, which puts pressure on loss ratios, which is what MGAs are aiming to achieve for their capacity providers. That’s the downside of Lloyd’s.

”We are Lloyd’s coverholders, but we don’t have a box. It is very expensive, which is why it is unlikely for MGAs to start having a box there.”

Richard Turnbull, managing director at Collegiate Underwriting, is another MGA leader that feels a box at Lloyd’s is not viable for his business.

He told Insurance Times: ”We do not believe that a box at Lloyd’s would be a good fit strategically for Collegiate at this time.

”For us to enter the Lloyd’s market, we would need to be confident that the cost of maintaining a box and other related services will be offset against the levels of passing trade in the underwriting room.

”It is my view that advances in the market’s digitisation journey and increasing electronic trading capabilities has made this a less clear calculation, particularly in some business lines.  

”While we respect the traditions and the value that face-to-face risk negotiation can add, we are seeing higher than ever volumes of business being transacted electronically and less requirement for in-person negotiation.”

License

However, Adrian Scott, managing director for international lines at Gallagher-owned Pen Underwriting, argued that “MGAs having Lloyd’s paper would typically be seen as a benefit to brokers” due to the market’s specialised expertise and flexibility, which can help firms meet client needs.

He added that Lloyd’s of London’s global reach and licensing enables brokers to access international markets and provide coverage across multiple jurisdictions, enhancing their ability to serve multinational clients.

Scott continued: “[Lloyd’s] worldwide licenses are extremely valuable if you are looking to write business across multiple territories.”

Lloyd’s has licenses to sell insurance in 80 countries and for reinsurance, it is licensed in over 200 countries.

These licenses enable insurance companies to legally write and manage insurance policies across multiple regions, providing a significant advantage for those looking to grow their global presence and footprint.

Lloyd’s licenses were an important advantage that appealed to Pen Underwriting ahead of it gaining a box.

Scott told Insurance Times: “Lloyd’s is unique in its ability to trade globally, operating as it does in over 200 countries and territories – that fully supports Pen’s drive to expand further into international markets.

“As a globally important insurance hub, we see Lloyd’s as a valuable distribution channel in Pen’s future – not only for marine risks, but other specialist lines of business.”

Ian Anson, managing director of Rokstone, agreed with Scott. He noted that Lloyd’s licenses formed a significant advantage for his MGA because they enhanced its distribution models.

Lloyd’s explained that its boxes offer a dual benefit for MGAs.

A spokesperson from the marketplace told Insurance Times: ”While we wouldn’t provide a detailed breakdown of costs for individual firms, the MGAs occupy space in the company market trading area – this reflects the opportunity for the MGA to write business not only for the Lloyd’s market, but their own company as well.”

Complex risks

For Rokstone and Pen Underwriting, the decision to secure boxes in Lloyd’s underwriting room was straightforward because the MGAs recognised it could provide convenient in-person access for brokers and facilitate trading complex risks.

Anson explained: “Most business done at the box tends to be transactional, so there’s not much room or need for blue sky thinking. Having said that, for the more complex risks, it is much easier to design a fluid programme at the box for a broker, so it can facilitate innovation from that perspective.”

Although Scott feels that in-person underwriting at Lloyd’s represents the “antithesis of innovation” because it has been done the same way for nearly 350 years, he additionally believes the opportunity to have a face-to-face presence with market partners is what can drive new ideas.

He explained: “Face-to-face offers a different type of interaction, which can spark innovation and fresh ideas in a unique way – especially through detailed discussions centred on the most complex risks and finding ways to underwrite them.”

Pen Underwriting secured its space at Lloyd’s in order to make more of its underwriters available to brokers for face-to-face trading.

Manned by specialist marine underwriters, Pen Underwriting’s box 393 aims to provide brokers with support placing complex risks such as brown water hull, war risk and ports and terminals liability.

Chris Goddard, marine managing director at Pen Underwriting, added that having a box in Lloyd’s “facilitates connections” between its specialist marine underwriters and brokers, creating an environment that enhances relationship building, enables efficient communication and fosters collaboration and innovation.

He said: “In-person meetings at the box enable more direct and efficient communication, allowing for immediate clarification of complex issues, quick decision-making and rapid problem solving.”