Growth drivers in the MGA space included the strong rebound in the U.S. economy following the coronavirus pandemic and a continued broad-based rise in premium rates.
Premiums sourced by managing general agents (MGAs), a key distribution channel for U.S. property-casualty insurers, grew significantly in 2021, according to a new Conning study, which estimates that the total MGA market, including business written for the account of Lloyd's syndicates and non-U.S. insurance companies, exceeded $70 billion in direct premiums written in 2021.
The Conning study, "Managing General Agents: Firing on All Cylinders," presents MGA marketplace dynamics, trends, players and outlook. It includes analysis of the growing fronting market and findings from Conning's 2021 proprietary survey of MGA executives. Survey respondents shared insights into premium growth trends and the overall market, as well as insights into relationships with insurers.
Growth drivers in the MGA space included the strong rebound in the U.S. economy following the coronavirus pandemic and a continued broad-based rise in premium rates. Rate rises were particularly strong for some of the more challenging lines of business—notably cyber—that are typically insured in the excess & surplus lines market, where MGAs are very active.
"The economic rebound that spurred a robust recovery for the economy post COVID-19 boosted the business of MGAs and program administrators, including those that had been hit the hardest by the pandemic," said Lauryn Kothavale, an assistant vice president of insurance research at Conning.
"MGAs were historically looked upon by insurers as means to access additional premium in soft markets," she said. “But their risk pricing capabilities have expanded and their role in sourcing attractive niche business for insurers in today's hard market is every bit as important."
Despite the generally hard market conditions, capacity often has not been challenging for MGAs to access, the report noted, explaining that reinsurers have been increasingly attracted to MGAs and have found an easy means to provide support through a dramatic expansion of the fronting market.
"Fronting companies today play a critical role in securing capacity for MGAs, and we expect this to continue to grow," said William Pitt, director, insurance research and consulting, Conning. "Most of these fronting companies retain a portion of the risks themselves to ensure their interests are aligned with those of their reinsurers."
“We have also seen a number of the larger MGAs become risk-bearing entities themselves through the establishment of reinsurance captives," he added.
MGAs play a significant role in the E&S market, accounting for an estimated 38% of the E&S premiums placed in 2020, the report said. In both casualty and property markets, perceptions of volatility increased in 2021, spurring a 27.4% upsurge of business into the E&S market.
The Lloyd's market has historically been the biggest single source of capacity for MGAs in the U.S., and that remained the case in 2021. Lloyd's business sourced by U.S. MGAs rose from $6.7 billion in 2020 to $7.1 billion in 2021—a 6% growth rate. This marked a turnaround from 2019, when Lloyd's MGA-sourced business declined by just over 8%, reflecting the market's efforts to remediate unprofitable business.
Meanwhile, MGAs also appear to be utilizing technology to their benefit and winning the war for talent. With workers across the U.S. economy retiring and leaving the workforce en masse, the report suggests that “the more flexible business model of MGAs, and crucially, the greater sense of agency felt by people working at smaller and more nimble organizations may have contributed significantly to the allure of MGAs in competing for talent."
Further, MGAs also tend to be less burdened with legacy systems and “inefficient and disruptive processes" than traditional carriers—making them more attractive to data scientists and software developers. Additionally, the slew of investors that are fueling the most active merger & acquisition environment ever is adding to MGAs' ability to invest in updated technology and hiring the best in the business, which is culminating in an enhanced customer experience.
As a result, M&A activity in 2021 involving the acquisition of U.S. MGAs, managing general underwriters (MGUs), program administrators or wholesalers increased sharply in 2021, and the pace has remained strong in the early months of 2022, the report said. The 79 acquisitions in 2021 more than doubled the 29 acquisitions in the previous year. M&A activity continued into early 2022, with nearly 20 acquisitions announced in the first four months.
Target Markets estimates the entire MGA universe consists of approximately 1,000 MGAs and program administrators.
Will Jones is IA editor-in-chief.