Revolutionising Insurance MGAs: The Power of Third-Party Capital

In the dynamic and ever-evolving landscape of the insurance industry, Managing General Agents (MGAs) stand at the forefront of innovation and specialisation, skilfully navigating the complex interplays of underwriting and distributing insurance products.

The allure of third-party capital has become increasingly prominent as a catalyst for growth within this sphere, heralding a new era where MGAs transcend conventional boundaries. In this exploration, we unlock the essence of the MGA model, shed light on the magnetic pull of alternative investments, and venture into the visionary world where there is boundless potential for growth. Join us in this intricate dance where MGAs and third-party capital collaboratively chart a course toward a vibrant and reimagined future.

Staying ahead means embracing innovation. Enter the Managing General Agent (MGA) model – a game-changing approach reshaping the insurance landscape. MGAs are not your typical insurance providers. They are specialised entities authorised by insurers to underwrite policies, handle claims, and carry out administrative functions. Here’s how they're shifting the industry paradigm.

First off, the agility of MGAs is unmatched. They pivot and adapt to emerging risks faster than traditional insurers, thanks to their lean operations and sharp focus on niche markets. Take cyber insurance, for example. MGAs saw the surge in digital threats and responded with tailored coverage options before many others caught on.

Customisation is another area where MGAs triumph. Rather than a one-size-fits-all policy, MGAs often offer personalised solutions that cater to specific industries or customer groups. They understand that the construction business faces different risks compared to, say, the tech industry, and they craft coverage accordingly.

Technology, a key player in the MGA model, offers a seamless, user-friendly experience that attracts today's digital-savvy consumers. MGAs leverage cutting-edge tech to streamline processes, from policy issuance to claim settlement, positioning themselves as pioneers in InsurTech.

The impact of this model extends to capacity building. By allowing insurers to tap into the expertise of MGAs without expanding their infrastructure, insurers can diversify their portfolio and access untapped markets. It's a strategic alliance, with MGAs absorbing some risks while insurers provide the financial backing.

Finally, MGAs are redefining the distribution network. They often circumvent traditional channels, opting instead for direct sales or partnering with tech platforms to widen their reach. This approach cuts down on distribution costs, making premiums more competitive, which is a win-win for clients and insurers alike.

The MGA model is a vanguard of modernisation within insurance. By fusing expertise with efficiency and technology, MGAs offer a compelling proposition that's hard to ignore for anyone keen on staying relevant in the evolving insurance ecosystem.

Why Third-Party Capital is a Game-Changer for Managing General Agents (MGAs)

As the insurance industry is rapidly evolving, Managing General Agents (MGAs) continue to spearhead innovation and provide exceptional value in the market, and many have shown that time and time again they can produce strong level of returns for their capacity providers not to mention high growth capabilities.

In 2018 after Lloyd’s implemented its decile 10 remediation plans following large losses in the property cat segment of the market, it brought with it a retrenchment of program capacity via MGAs from Lloyd’s syndicates, yet this created ample opportunity to non-Lloyd’s markets to take advantage and in 2021 we saw a re-emergence of the fronting carrier model. Whilst Lloyd’s has since stabilised somewhat, the US domestic players, international carriers and various forms of Fronting companies coupled with strong reinsurance appetite for MGA business have taken advantage of a potentially more efficient landscape.

Whilst 3rd party capital has been around a long time, it is ever more evident that it is now playing a much greater role within insurance risk transfer, particularly with the rise of fronting capabilities. Third-party capital has the potential for being rocket fuel for MGAs and there are various ways in which capital markets can participate into the reinsurance sector, namely via equity, dept and Insurance Linked Securities. With additional funds from outside investors, MGAs could in theory scale operations quicker, delve into new markets and enhance their product lines with greater economic efficiency. From a third-party investor perspective, the insurance market is attractive due to its low correlation with other investments. This allure encourages diverse sources of capital to flow into the market not just being allocated to catastrophe risk but across the spectrum of Property and Casualty segments. For investors, it's a strategic hedge against volatile market swings, while for sophisticated MGAs, it’s unlocked potential and poses opportunity to access collateral which they may not be able to tap into via traditional means.

With the importance of strategic alignment between MGAs & Capacity partnerships being ever more crucial, 20Twenty Search & Advisory adds value to MGA clients and offers a different approach.

MGA clients can immediately access a global network of deep relationships already forged with Fronting Carriers, Reinsurers, Third Party Capital & Brokers on a global level which can be leverage as required.