A hardening market, the FCA’s test case and the overall Covid-19 landscape is having a domino effect on capacity for managing general agents, Insurance Times takes a closer look 

According to Insurance Times’s Five Star Rating Report: MGA Market 2020/21, published last month, a third (33%) of the 1,276 brokers surveyed are very concerned about the prospect of removal of capacity from a managing general agent (MGA).

Around 38% of brokers said they were moderately concerned about this potential problem and 8% were extremely worried.

One broker in Scotland, for example, commented that they were concerned about the “limits in [the] deployment of capacity and tightening appetites among insurers, [as well as] the narrowing affect this has on the availability of cover and rates”.

Industry voices concur that MGA capacity is very much on their radar as a potential issue.

Clive Nathan, chief executive of underwriting at GRP, said MGA capacity “can be a problem”, while Bernard Mageean, chief executive of Q Underwriting, the MGA arm of broker PIB Group, added that “there is undoubtedly less appetite from the UK composite market and Lloyd’s at the moment, which is expected considering the hardening or uncertain market we are experiencing.”

Peter Diskin, chief client officer at Gallagher Bassett, agreed that “it’s a real issue and will be for some time”.

For Derek Templeton, director of D2 Corporate Solutions, a Compass Networks member, “capacity does seem to be reducing, with most MGAs having to refer much more [than] before to confirm terms”.

Templeton continued that this capacity crunch is adversely affecting his clients. “We have experience where due to a change in underwriting capacity at the MGA, many long-term clients [who we have worked with for more than 10 years] are no longer being offered renewal terms,” he explained.

Fellow broker Luigi Maggio, managing director at Kennett Insurance Brokers, has also seen this trend. He said: “In the past 12 months we’ve seen appetite and willingness to distribute capacity diminish.”

A lack of capacity in the MGA market can also lead to solvency issues for this sector. “We have seen MGAs who haven’t been able to continue and a large part of that is because of capacity,” Nathan admitted. Maggio added that he has also “heard a few horror stories”, although he hasn’t worked directly with an MGA that has gone bust.

A knock-on effect of this is that MGA startups may struggle too if they are unable to secure the required capacity to enter certain markets; Mike Keating, managing director of the MGAA, described this as a “hurdle”.

Keeping the pen

Conversations around MGA capacity have become more prominent following the verdict from the FCA’s test case, published last month, as insurers conduct a microscopic evaluation of their policy wordings and partners. Keating, for example, believes that insurers will increase their due diligence as a result.

“The conversations between MGAs and the insurer partners around product design and policy wordings will probably become more constructively robust,” he continued.

Nathan also sees the test case affecting MGAs. He said: “The test case, depends on which way it goes, but if it costs the insurers a huge amount of money, which it could do, then that could result in rates going up and tightening of underwriting capacity in certain areas, so I think almost certainly it will have an impact.”

Mageean agreed: “Insurers have their own internal aims and targets to meet and when that doesn’t happen, delegating authority or ‘giving away the pen’ is one of the first areas to come under heavy scrutiny.”

For Diskin, the overall pandemic environment is causing insurers to retain their business lines rather than risk putting “the pen out there”; Gallagher Bassett has noted, for example, that insurers are reviewing their existing business lines and cutting out poor performing areas instead of looking to maintain MGA partnerships.

Keating added: “Insurers who support MGAs are quite rightly taking the opportunity to look at their risk appetite and that may put some challenges around capacity. It may be that at this time insurers are taking that scrutiny in the hardening market.”

Market undercurrents

MGAs, however, could simply be at the mercy of insurers’ refocusing their business strategies away from certain lines of business, such as the niche areas that MGAs typically focus on.

“If an MGA is delivering underwriting earnings as an agent of its insurer, then capacity shouldn’t really be an issue unless that particular insurer decides to take a completely different strategic decision, which can happen, where they don’t want to support an MGA sector completely,” Keating explained.

“They have a complete change of risk appetite in terms of what they want to underwrite and MGAs may just be a victim of that.

”But, if you’re delivering professional services on behalf of the insurer, which includes all the necessary governance, data, innovation, product delivery and that’s delivering underwriting profits, then as an MGA you should be pretty confident that you will retain your existing capacity and be attractive to new capacity as well.”

The hardening market is also no friend to MGAs looking to retain their capacity. Templeton said dwindling MGA capacity is often “just a sign of a hardening of the market.

”As usual when there is a correction in the market, instead of insurers looking at the qualities in some risks rather than just the trade, many good cases are becoming extremely challenging to place.”

Diskin continued: “It’s a pretty unique time with a hardening market like this - we’re seeing coverage limits being reined in, but price being trebled in some instances. That will be an ongoing challenge for MGAs to seek and hold on to their capacity.”

Maggio agreed: “In a highly competitive marketplace, premiums have to be set at rates that can be eye-wateringly competitive, which will often lead to problems when claims occur and there isn’t enough critical mass within the MGA.”

Nathan, on the other hand, explained that “the main driver is loss history” when it comes to MGA capacity.

“The ability for an MGA to get capacity will be based on their experience, so the lack of MGA capacity may be because your experience has not been good, so you’ve not driven a good loss ratio in the past, or you’re new and therefore you don’t have any experience to rely on,” he said.

“The main drivers are around performance - not purely about the performance of a particular MGA, but it might be sector performance as well. Things like tour operators, it’s not entirely driven by your own experience, some of it will be driven by the fact that the insurers have had a poor experience themselves and one of the first places they look to correct that is in their delegated models.

“It’s all about the quality of the underwriting that you do, your knowledge of a particular niche and sector - that protects you against those external factors that are out of your control.”

Keating added that brokers may spot changes in MGA capacity through “slow turnaround of new business quotes, slow turnaround of renewals” as a “drop in service, if not explained, can sometimes be a lightning rod that there could be challenges in terms of capacity tightening up its rules and basically the authority given to them [is] changed”.

Exposed lines

Certain lines of business are facing more of an uphill battle when it comes to securing capacity. Most notably, this includes financial and professional lines, such as professional indemnity, directors’ and officers’ (D&O) and errors and omissions (E&O).

Keating confirmed that the MGAA membership is specifically struggling to source PI capacity.

Nathan added that high net worth (HNW), waste and recycling and property investors’ insurance are also proving problematic. This last line in particular “has traditionally been a profitable sector, [but] we’re now seeing rates going up, capacity becoming harder to find.

”There is less capacity around for MGAs and insurers are less inclined to delegate their authority when that MGA hasn’t got a good track record”.

Mageean said motor insurance is also having capacity issues; Templeton breaks this down further to flag single commercial vehicles and mini fleets as experiencing capacity crunches.

Property is another line of business encountering a capacity standstill, added Diskin.

Mageean, however, provides a potential trump card in terms of where to find capacity. He said: “As the market hardens, the reinsurance market will become a more important provider of capacity direct to MGAs.”

MGA success

On the flip side, experienced and well-performing MGAs have nothing to fear in terms of retaining their capacity, Nathan added.

He explained: “If you’ve purely established an MGA in what you might call a ‘vanilla’ sector [and] you haven’t taken good care of your underwriting results, then you’re going to find capacity hard to come by.

”If, on the other hand, you’re in a niche area where you bring a lot of skill and know-how and expertise to it, and have got a good track record of underwriting performance, then capacity isn’t that hard to come by.

“If brokers are choosing their partners carefully and they’re using MGAs for specific types of risk where they have expertise, then I don’t think they have a reason to be concerned [about capacity].

”I think where brokers have used MGAs because they’re either cheaper or less discerning around their underwriting, then they’re going to run out of road quickly on that stuff.”

Keating agreed, stating that the current coronavirus climate could even open opportunities for MGAs.

“Challenges around capacity also bring opportunities for professional MGAs, MGAs which can clearly articulate their risk appetite, their underwriting expertise [and provide] supportive forensic data in that underwriting expertise. They will always be extremely attractive to insurers,” he said.

“There’s no doubt capacity and a hardening market brings its challenges, but for MGAs it brings fantastic opportunities, not least the fact that they’re able to adapt very quickly.

”The Covid era has brought opportunities around product design – MGAs are very quick to deliver that product design to their customers.”

What brokers said:

All brokers:

How concerned are you by the prospect of removal of capacity from an MGA?    %









Not at all


 Small independent brokers (a privately owned company with a turnover of less than £10m)

How concerned are you by the prospect of removal of capacity from an MGA?   %









Not at all


 Large independent brokers (a privately owned company with a turnover of £10m and over)

How concerned are you by the prospect of removal of capacity from an MGA?    %









Not at all


Broker capacity concerns

Verbatim comments from the Five Star Rating Report: MGA Market 2020/21 shows that capacity in MGAs is a key concern for brokers.

“Capacity, primarily in property and financial lines. Insurers are reducing deployment.”

“Further reductions in the capacity available to our MGA partners. The best thing they can do is keep an open dialogue with us about the situation if it is likely to change so we can manage that with our clients.”

“Capacity reduction will see fewer MGAs.”

“Capacity drying up.”

“Reduced capacity - increased rates and the general ability to continue to find the answers required for clients. MGAs need to rate sustainably and take a long-term approach to their rating.”

“Main concerns are [the] hard market and lack of capacity in Lloyd’s syndicate markets. MGAs can have a more flexible approach, albeit still underwritten to a high standard.”

“MGAs losing capacity is a major concern. We need to be kept informed at all times.”

“Lack of capacity in the financial lines market, especially with a number of composites not willing to provide excess of loss cover above an MGA.”

“Capacity. Exclusions added. Believe it is going to be a very hard market with us struggling to find terms for more hard-to-place business.”

“It is beginning to get harder to obtain cover for some of our clients seeking PI insurance, so there is the worry that it will get worse, the hope would be that the MGAs don’t reduce their capacity.”


Exiting MGAs

Last November, MGA Pioneer Underwriting placed its Lloyd’s syndicate into run-off, saying it was “no longer economically viable” compared with its other capital arrangements.

Also in November 2019, MGA Vibe put its Lloyd’s syndicate into run-off, with chief executive Joe England attributing the decision to the company not having “the right scale to thrive in the current market environment”.

More recently, MGA startup Coverly announced it was closing in July. The firm’s parent company Bibby Financial Services (BFS) said the Covid-19 pandemic had hampered plans for external investment, stunting the business’s growth.