MGA Business Set To Boom

The amount of business placed through managing general agents in the U.S. is tipped to grow this year. Observers say carriers will look to use MGAs aggressively as rates soften.

The amount of business being placed in the MGA market has been low since 2001. But brokers report that interest is growing in using MGAs to write program business.

“More carriers are now calling me up soliciting for business,” says Kevin Kennedy, senior v.p. at broker Gill and Roeser. “In the post-September 11 era, the market retracted a great deal. There wasn’t a lot getting done in the MGA market. Carriers were putting their money into the treaty side. That will change. The market is more aggressive now than it was two years ago. And in two years’ time it will be more aggressive than it is today.”

At the height of the previous soft market, many looked to MGAs to help them write more business. Agents generally retained little risk themselves and were rewarded based on the volume of business they wrote. Because MGAs were not concerned with the profitability of the business they wrote, insurers suffered big losses.

After September 11, insurers became more careful about their use of MGAs. Some believe carriers have learnt their lesson. Rod Fox, chief executive of Praetorian, a new Hannover Re subsidiary set up to take on the continuing speciality business of Clarendon, believes his company is part of a new breed of speciality insurer. He says maintaining strong relationships with MGAs is vital to success.

“MGA was a bad word even up to six months ago,” says Fox. “The market is not for the faint of heart. There have been some bad results historically. But now more attention is paid to it and capital is starting to flow in. The volume of business going through MGAs is going to grow.”

The MGA market tends to work counter-cyclically to the wider property/casualty cycle. Carriers become more wary of using MGAs in a hard market and are able to write a lot of business without them because of higher prices. As rates fall, competition grows fiercer, prompting carriers to look for new avenues to grow their business. This makes MGAs more attractive.

“As rates soften, insurance companies look to other channels for growth,” says Dan Malloy, executive vice-president at reinsurance broker Benfield’s US division. “Today, with rates flat or softening in most lines except catastrophe-exposed property risks, carriers are again looking to grow their MGA business.”