‘New breed’ of MGAs spearheading sector growth – Xceedance

In recent months, a growing number of newly established MGAs have been making headlines.

For instance, Connect Underwriting launched reinsurance MGA Brics UW on 9 September 2024 and a day later, Thomas Miller introduced a new standalone MGA – called Navata – focused on the energy sector.

According to an August 2022 article by McKinsey and Company, entitled Insurance MGAs: Opportunities and considerations for investors, the UK has in excess of “300 MGAs placing more than 10% of the United Kingdom’s £47bn in general insurance premiums”.

So, what’s driving this surge of MGA growth in the insurance industry?

Speaking exclusively to Insurance Times, Justin Davies, head of commercial insurance and distribution at insurance support firm Xceedance, attributed this trend to ”MGAs allowing insurers to enter new markets at a relatively low cost”, with “a new breed” of MGAs emerging as a result.

He explained: “MGAs allow insurers to enter new markets at a relatively low cost. Instead of having to pull together a team of people to write a line of business, it can be written through an MGA.”

This insight comes after Mike Keating, chief executive at the Managing General Agents’ Association (MGAA), told Insurance Times on 3 June 2024 that the partnership between insurers and MGAs was “flourishing”.

Keating said: “Through the lens of the insurer, they now recognise that to get access to underwriting expertise in certain product lines – and sometimes distribution – they are taking a serious look and asking ’is there a better way of doing this rather than designing and doing it ourselves?’

“[MGAs] enable insurers to look at new classes, new product innovation and new distribution with a more efficient use of capital.

”MGAs can deliver speed to market, expertise and forensic insight into specialist classes and risks.”

Davies added that another reason insurers are turning to MGAs is that “MGA underwriters may have much deeper expertise in certain lines of business.”

He continued: “They are usually set up by entrepreneurial underwriters who have worked at large insurers and have a great deal of experience in particular lines.”

New breed

Davies believes a new breed of MGAs is emerging that is “utilising a hybrid fronting model”.

Davies explained: “Typically, an MGA is backed by capacity that carries the entire risk.

“However, we are now seeing a hybrid fronting model, where a fronting company retains some of the risk and cedes the remainder to a reinsurer rather than an insurer.”

A hybrid fronting model aims to lower costs and enhance agility for MGAs by distributing risk between the fronting company and reinsurers, reducing capital requirements and compliance costs.

This setup allows MGAs to work directly with reinsurers, enabling quicker decision-making and greater flexibility in underwriting, which helps them respond rapidly to market changes.

By diversifying risk and tailoring reinsurance, this hybrid model supports MGAs in targeting niche markets with specialised products, ultimately leading to more efficient and adaptable operations.

One example that uses this approach is Bridgehaven Specialty UK, founded in 2023. Davies noted that the firm is the first UK hybrid fronting insurer.