‘MGAs need to look a little bit laterally’ when it comes to capacity - Mum

Despite insurers today being “more picky” around agreeing relationships with MGAs, there are “more opportunities” than ever for underwriting agencies to secure capacity – they just “need to look a little bit laterally”, said Charles Manchester, chief executive of Manchester Underwriting Management (Mum).

Speaking exclusively to Insurance Times following the Mum’s acquisition by Gallagher-owned Pen Underwriting earlier this month, Manchester cited law firm Clyde and Co’s September research, which found that 84% of surveyed MGAs believe the impact of the Covid-19 pandemic on capacity has been neutral or positive, compared to 74% of carriers that feel the same way.

He said: “Insurers are more picky over MGA relationships and rightly so.

“Whilst capacity remains a major concern for MGAs, MGAs are much more optimistic or less pessimistic than they were a year ago on the subject and I think that’s partially because there are more opportunities around than perhaps there were a year ago for capacity.

“You’ve got some good quality, well rated insurers that now that the market has had a bit of a shake-up, they’re willing to support high quality MGAs that can provide the analytics [and] that do have the underwriting track record.

“There’s also some of the smaller reinsurers [that] are keen to get closer to the primary insurance market through the use of fronting companies and the same for the insurance-linked securities (ILS) market as well.

“There’s more opportunities around than perhaps there were – sometimes MGAs need to look a little bit laterally.”

James Cooper, head of insurance at Clyde and Co, added: “Our research shows that while we are not yet back to normal in terms of capacity availability for MGAs, it is already clear that Covid-19 has not precipitated a widescale insurance disaster.

“The big threat of an economic armageddon has not materialised and confidence among the carrier and MGA community has improved.”

‘Dynamic’ capacity

Tom Downey, Pen Underwriting’s chief executive, agreed with Manchester’s perspective.

He told Insurance Times: “The future shift of capacity is moving. It’s becoming more dynamic, it’s looking in different ways and – using Charles’ expression – to look more laterally, that’s really important too.”

Having successful capacity arrangements partially hinges on being disciplined around loss ratios, Downey added.

He continued: “Our longest capacity relationship is 30 plus years and we’re really, really proud of that relationship and I know the insurer is really proud of it as well. Next year, we mark a 20 plus year relationship with one of our capacity providers.

“Having that longevity, and of course there will be bumps in the road, that happens through the insurance cycle, but it’s about working together through that and making sure there’s a pathway through it.”

More transparency needed

Manchester added that he is surprised more brokers do not enquire about MGAs’ capacity arrangements – he believes there needs to be greater transparency around capacity provision, especially in light of the FCA’s fair value focus.

“It just seems interesting to me that brokers almost never ask us to provide evidence of our underwriting authority from insurers and when they do, insurers are quite international these days and you rarely get asked about licensing or anything like that,” he explained.

“Along with the FCA’s focus on product governance and value to the customer, I think there’s going to be [talk] about the quality of what the customer gets and therein for the MGA is maybe the transparency [piece].”