SiriusPoint warns fast-growing MGAs may face shakeout

Bermuda-based insurer SiriusPoint has cautioned that the managing general agent (MGA) sector could face a shakeout, as some MGAs that expanded too quickly and exhausted private equity backing may struggle to sustain growth, a senior executive warned.

Patrick Charles (pictured), head of North America insurance for SiriusPoint, predicted that MGAs which have gone through capital reserves could find themselves stranded when it comes to more investment.

Charles was speaking at ‘The Evolving Distribution Landscape, the Rise of MGAs, and Strategic Partnerships for Profitable Growth’ panel at the Intelligent Insurer Underwriting Innovation USA conference held in New York on September 9.

Other panellists included Maria Long, chief underwriting officer, Resilience; Ellie Feldman, chief underwriting officer, Boost; and Josh Curry, head of capital advisory & chief growth officer, BMS Re. The moderator was Mayur Patel, senior vice-president, commercial head (North America) at Scor.

Charles said: “There will be sins of the past that will come out, right? The bear case is that MGAs have grown so fast, there must be a lot of mistakes which have been made. And so where will people turn who have burnt their capital providers? Where will they go? I think the next couple of years will be interesting.”

The SiriusPoint North America insurance head identified a ‘bad MGA’ as one with a short-term mentality. “There are people out there who would love to make a quick dollar,” he said.

And, just as there are good and bad MGAs, so there is good and bad private equity backing them, said Feldman. Part of the boom in MGAs stems from the amount of capital that has been invested in startups by private equity. But Feldman warned that MGA founders should avoid investors who are also looking for a quick return.

As to why there has been such a boom in MGAs (the market is worth over $100 billion in premiums, according to panel moderator Patel of Scor), fellow panellist Curry said that many underwriters at carriers feel ground down by excessive bureaucracy at large carriers “who are good at saying no”.

Curry said that talented, underpaid underwriters start thinking about setting up their own MGA out of frustration at how staid and risk-averse carriers can be.

Curry said: “Carriers move very slowly, while MGAs are good at finding a solution to an insurance problem. Talented underwriters are being under compensated or tired of carrier bureaucracy. Some of them also have great personal followings in the market. Add all that up and you start to think, is there an opportunity for me to build on?”

Long added that MGAs have an advantage in that they are much nimbler when it comes to innovation. “Traditional carriers represent so much stability and just so much certainty,” said Long. “[Underwriters] are sick of that … that’s kind of the reason why most underwriters are driven out into the MGA world.”

Another attraction of working at an MGA, said Long, was that they are not hampered by legacy IT systems. Instead, they can harness technology to really help their underwriters understand risk better.

Plus, unlike a huge organisation, underwriters in a startup MGA can have their voices heard and input acted on, she said.

Feldman agreed, saying the thing that her own MGA Boost does best is provide its clients data transparency in real time. “Singularly, the thing that we do best at good MGAs is data transparency,” said Feldman.

Curry added that underwriters can be hyper specialised when it comes to setting up their own MGA. Riches are in niches, he said, and if you can find smaller pockets of risk, that is where the returns will be.

As to advice for underwriters who want to break free and set up their own MGA, Feldman said “the secret sauce” was that they must really know their market, no matter how niche, inside out. “You must have the will to understand your market,” said Feldman, “not just the market today but where it’s going … That’s half the game really.”

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