As of January this year, over 300 MGAs were operating in the UK, underwriting over 10% of the UK’s market, but are they still the future of delegated authority and can they ride out the hard market?
MGA’s have traditionally relied on two things, a soft market and easy access to cheap credit. In a soft market, when premium rates are low, and volume matters, why not give some of your authority to a specialist underwriter?
In a soft market, MGAs flourish, as insurers use them as an outlet for capacity in specialist or niche areas they do not cover. So, in recent years MGA’s boomed, but now the realities of the hard market are starting to hit.
Traditional capacity is becoming ever harder to come by, and interest rate rises will only exacerbate the issue. As capacity becomes ever harder to access, the belt-tightening process the market has been going through will only intensify. The question is, are MGAs engrained enough into the market to make the cut?
Even though the hard market is only going to intensify due to interest rate increases brought on by the current economic turmoil, there could be a respite in this for the insurance market and MGAs. Insurance is seen as a safe investment during times of economic uncertainty. This allowed us to largely skirt the 2008 recession where injections of capital and lower interest rates fuelled an already soft market.
If insurance is seen as a port in a storm for investments, that money could trickle into investments in MGAs. Other routes of capacity have also come into play, with reinsurance fronting arrangements becoming commonplace.
It will be an interesting time ahead for MGAs as the traditional conditions they thrive in aren’t likely to return any time soon. However, in the last ten years, MGAs have become such an integral part of the market, and so intertwined among its many moving parts, especially with new access to reinsurance capital, it’s hard to see them going anywhere.