European MGA optimism despite macro clouds on the horizon

At the Accredited Insurance European MGA Forum 2022, a panel of speakers from both the MGA and reinsurance markets highlighted the strength of the MGA sector despite inflationary and macroeconomic fears as well as a need for greater alignment between MGAs and reinsurers.

Speaking at the first Accredited Insurance European MGA Forum in Zurich, a panel of experts took a deep dive into the MGA sector and spoke of the “growth opportunities”, “strength” and “specialist expertise” which is driving the market.

“In 2020, according to a survey by Clyde & Co, only 6 percent said Europe was a growth area for MGAs,” said Andre Ford, group CUO of Nexus Underwriting. “Last year that doubled to 13 percent. We have seen more capital come in from private equity firms and the growth opportunity is definitely there in Europe. If European MGAs can continue to return more than the cost of capital to their partners, there should be even more growth.”

Bernadette Bode, associate director of DUPI, a Netherlands MGA specialising in niche classes, emphasised the sector’s agility.

“MGAs can be the entrepreneur and can move quickly,” she said. “Speed is very important. Our competitors have a long journey to introduce new things and MGAs can move much faster.”

Meanwhile, the reinsurance representatives on the panel agreed that MGAs remain an important component of their organisation’s strategy to access certain classes.

Konrad Babl, EMEA market unit head at MS Amlin AG, summarised the position: “From the reinsurance perspective, the most important USP is underwriting expertise in specific lines. MGAs have access to certain segments and expertise in claims handling which makes them very attractive.”

Andrew Clowes, director at reinsurance broker UlysseRe, said succinctly: “MGAs have something for everyone.”

Trust and alignment 

But critical to the relationship is genuine alignment between the underwriting agency and the capital – and this was a key focus of the 100+ attendees who had gathered in Zurich for the forum.

“From a reinsurer’s perspective, alignment is key when we engage,” said Rafael Schneider, global head MGA management and client review at Swiss Re. “We provide capital so they can write risk. We need them to protect our capital. Alignment of interest keeps it all running.”

MS Amlin’s Babl added: “Reinsurance wording needs to show alignment with the MGA. There must be a clear transparency of terms between MGA and the reinsurer. Reinsurers should have possibility to influence the MGA if things are going wrong.”

Those on the MGA side of the debate agreed that alignment between the two sides was key.

Ford said: “Interests between the two need to be aligned and MGAs have to understand the reinsurers’ cost of capital. We need to prove our story through data and meet regularly face-to-face.”

DUPI’s Bode explained that MGAs can help reinsurers understand the local market at ground level. “The biggest threat is the difference between what a reinsurer thinks and what actually happens in the local market. Reinsurance treaties are more global but there are general differences across markets. MGAs understand this,” she said.

Data dynamics

Both sides acknowledged the importance of data to the MGA journey, however they disagreed on who was in the data driving seat.

Clowes said: “The data journey starts with reinsurers. Whether MGAs are new or mature, lessons can be learned from reinsurers if they’ve been across a market for a while. And if there is that partnership, reinsurers can pass learnings down to the MGAs.”

Schneider added: “We have met with MGAs to monitor how they could use Swiss Re technology. MGAs don’t have the funds to invest in IT to build everything. Insurers have that tech.”

On the other hand, Ford noted: “Working in partnership is great but as an MGA you want to tell your own story and come to the answer yourself. Use your own data and collaborate after.”

Bode added: “We need a lot of data because reinsurers want to know everything. We have to know what clients are doing day to day.”

Regulation, inflation, recession

However, the panellists were in agreement on the challenges that MGAs face – in particular from rising inflation and stricter regulation.

“The challenges are not so different for MGAs and the whole industry,” said Babl. “Inflation is a big topic. And cost is likely to become a major issue.”

Schneider added: “Inflationary pressures will be a real test for resilience within the industry. In a recent study, Swiss Re predicted inflation in the EU is now 7.4 percent, with GDP only 2.5 percent. There will be massive change for the industry in how we do pricing.”

Those on the MGA side agreed with Ford, saying: “For longer- and short-tail lines, there will be claims inflation.”

From a regulatory perspective, both sides saw clouds on the horizon. Clowes said: “The main challenge is the regulatory environment that insurers face and the position of local regulators and their ability to provide new licences.

“Different regulators deal with things differently. Some don’t understand the outsourcing model. They are working towards the same rules but interpreting them in a very different way.”

Ford agreed: “Regulatory pressure has been increasing and will increase further. To withstand this, you need massive growth in compliance teams, either directly or via outsourcing. In terms of the regulatory landscape, consumer protection is creeping into the corporate world.”

Specialism brings growth

There was agreement across the board from both reinsurers and MGAs that the market would continue to grow, however all acknowledged that specialism was the key to success.

Schneider said: “MGAs can create value if they work in lines of business where you can make a difference as an underwriter. There will be growth in niche or more specialist lines or where you have access to a more unique customer base.”

And from the MGA side, Ford agreed: “Specialism is suited to MGAs. In particular where there’s a high barrier to entry for certain products for insurers, for example in transactional risk and W&I insurance, an area which has been outsourced to MGAs for some time.

“Despite macroeconomic and inflationary pressures, the MGA sector is in a good place and there is room to grow.”