Briefing: Why RSA’s MGA losses casts doubt out on the model

By Saxon East

How many times have we been here before? A large UK general insurer admits problems with generalist MGAs and pulls out.

What’s interesting about yesterday’s revelation from RSA is the MGAs contribution to the losses.

RSA revealed yesterday that it made a £106m underwriting loss, but UK commercial could have improved by £120m if it had exited domestic MGA deals earlier, along with some speciality & wholesale exits.

Two generalist MGAs are specifically noted as ones RSA has pulled out from. 

The MGA contribution to the underwriting losses was just under a fifth, around £20m. 

Generalist MGA rarely work

The lesson here, and we see it over and over again in UK general insurance, is that generalist MGAs offering vanilla products rarely work. 

Can an MGA selling products in commercial combined really compete with major insurers? 

The insurers have more flexibility to offer brokers greater commission and have much greater scale to fall back on. 

The only way a generalist MGA could possibly compete is to have many outstanding and long-standing underwriters, but that is likely to squeeze their expense base. 

Another problem is that they are so vulnerable to capacity providers pulling out. When the market is soft, they are an easy route to growth. But when rates harden, capacity gets sucked away.

Perhaps most importantly, are their underwriters and pricing abilities really so good that they can write better results than general insurers? No. 

Crucially, once a major insurer adds in all the kickback work they have to unexpectedly do, the problem becomes even more apparent. 

It’s no wonder then that when the losses mount, insurer bosses ask themselves the very simple question: why an earth are we doing this? 

The proof is in the pudding for all to see: Aviva has been notching up impressive underwriting profits in the UK for many years, an insurer that is deeply sceptical of generalist MGAs. 

MGAs can propser 

MGAs can and do work. But this is almost always when they are on a specific class or business line.

High net worth is a great example of MGAs shining brightly and adding value for brokers.

Plum, Oak and loss recovery specialists Lorega all do an outstanding job for brokers. 

MUM has plenty of broker supporters on its liability and indemnity products. 

Such MGAs frequently top the Insurance Times Broker Service Survey - but they are always specialist or concentrated on specific classes.

As another insurer learns its lessons, perhaps people are finally waking up to the generalist MGA problem.