The US managing general agent (MGA) market is expanding rapidly and insurance origination and distribution specialist Amwins has highlighted growing interest in alternative capital sources in the space, with an increasing role for insurance-linked securities (ILS).
Driving home the rapid MGA market expansion, Amwins said in its recent State of the Market report that, “Growth in the MGA market has been expanding faster than the market itself.”
“This is due in part to carriers and reinsurers who are beginning to take a more delegated authority approach to penetrate the market,” the company explained.
Not a week goes by without new MGA’s forming, it seems of late and many of those are looking for deep and long-lasting partnerships with sources of reinsurance capital to help them build a business.
It’s a competitive space, but specialist originators and underwriters can partner with capital that has the right risk appetite, to capitalise on opportunities and build-out profitable books of business.
Of course, that’s not always how it goes and the MGA market has seen its fair share of challenges too, especially in performance terms after challenging catastrophe loss years.
But still, this market segment continues to be a focus and source of industry innovation, with many MGA’s looking to shorten the value-chain as well and deliver risk to reinsurance capital as efficiently as possible.
Amwins said that, from a property and casualty perspective, “We are seeing more non-traditional entities getting into the MGA space, as well as insurance linked securities.”
Adding, “Provided that underwriting results remain positive, we expect this upward growth trajectory to continue.”
Talent has been a driver of MGA market expansion, with top-tier underwriters looking to escape from often less flexible traditional P&C carriers.
The MGA market provides a home where platforms can be created and ideas incubated, with access to capital a key trait for those that are successful.
In the now much harder reinsurance market though, capacity has become more limited and also choosy over where it is deployed, which has driven a resurgence in interest in the capital markets as a reinsurance provider.
Of course, we’ve seen MGA partnerships with insurance-linked securities (ILS) funds and investors for some years now, with Amnwins itself one of the proponents of more directly connecting their originated and underwritten risk to investors.
“The continued dislocation of the property market has created a growing demand for insurers and reinsurers to get CAT risks off their balance sheets,” Amwins said.
Which is only going to drive increasing interest in ILS capital and ILS structures, as solutions that can allow profitable MGA’s to take greater control of their reinsurance capital needs.
While the reinsurance market remains so challenged and capacity levels less certain, we should anticipate increased interest in ILS from MGA’s, as they look for reinsurance capital.
Amwins said that MGA sourced business accounts for an estimated $70 billion in annual premium.
Critically, they say, “As long as the MGA market continues to demonstrate discipline, produce favorable underwriting results, and (most importantly) protect the capital of its partners, this insurance model will remain strong.”
MGA’s need to approach ILS as a long-term capital partners, that can be incredibly flexible and drive more certainty, if the incentives are aligned and the underwriting performance attractive.
MGA’s should not look to ILS as a possible source of lower-cost reinsurance capital, as that is not the right motivation to entice ILS investors to enter into long-term and fruitful partnerships.