Are difficulties in the motor market having a ‘negative impact’ on capacity for MGAs?

The last couple of years have been tough for the motor market, with insurers having to raise premiums due to rising costs driven by economic headwinds.

Such pressures include high inflation – this started to bite in 2022 and in January 2023, figures from the Office for National Statistics showed UK inflation at 10.1%, as measured by the Consumer Prices Index (CPI).

The good news for the insurance industry is that inflation has started to come down in recent times, with the latest CPI measuring its current rate at 4%.

The bad news, however, is that inflation has hurt key financial metrics, such as a firm’s combined operating ratio (COR).

Indeed, an analysis of the latest Solvency and Financial Condition Reports (SFCRs) by Insurance DataLab revealed motor insurers across the UK and Gibraltar reported a COR of 111.1% for 2022/23, up from 97.4% for the previous year.

Therefore, this has played a part in creating the need for capacity providers to get a grip on their exposures and reserving strategies.

Worries about this were cited in Insurance Times’ 2023/24 MGA Data Book, with many brokers highlighting concerns about the longevity and stability of capacity.

And one mid-corporate broker highlighted that the current state of the motor market was creating capacity issues.

It said: “Poor performance in [the] overall motor market [is] having a negative impact on capacity for MGAs.”

‘High and dry’

This comes at a time when MGAs and the functions they perform in the market have become more vital – especially to brokers.

When brokers were asked how important the underlying capacity arrangements of an MGA were for Insurance Times’ Five Star Rating Report: MGA market 2023/24, some 45% said this was very important, while 24% said it was somewhat or extremely important.

However, Tim Baxter, head of broker development at MGA Prestige Underwriting, told Insurance Times that the motor market had been a “rollercoaster”, with the sector receiving “significant adjustments in rating and underwriting appetite”.

In turn, he highlighted that his firm had spoken to brokers who have been left “high and dry” by other businesses regarding capacity arrangements.

“It is really difficult to see and we try to help where we can with our partners,” he said.

“It is really tough – the market is creating opportunities, but it is also creating a lot of challenges.”

In turn, he stressed the need for MGAs to focus on market conditions and the rate at which they change.

“[This is because] you can quickly find yourself over-exposed in certain areas,” he said.

Preparation 

Andy Hurrell, founder and managing director of Corin Underwriting, added that “poor thoughts on the motor market especially affects casualty-led MGAs”.

“Reinsurance costs increase and, therefore, that increase has to go down the line, so it does affect rate,” Hurrell said.

In turn, he felt that discussions needed to be had in terms of where the rating sits and the excess of loss costs.

However, Hurrell said that while this is something MGAs have to deal with, it should not affect them if they have prepared for such pressures in the right way.

“A well setup MGA should be able to deal with that quite easily,” he added.

“It should not be a barrier to capacity and should not be a barrier to being able to trade.”