These are tough times to start an MGA, and even tougher if you’re targeting the PI market. But with the right people, a strong strategy and a real lust for life, the founder of Manchester Underwriting Management thinks he has what it takes

in 2008, Charles Manchester had an epiphany. He was considering putting pen to paper on a new deal with HCC International when he went through a life-changing experience. His wife was onboard a Qantas jet when it plunged out of the sky under extreme turbulence, dropping thousands of feet in just a few seconds. The plane eventually landed safely, but the impact on Manchester was lasting.

Manchester recalls: “I was about to start talking to the group about the renewal of the contract and it reminded me that life is too short. It was time to move on and do something different. So I told HCC I would not be renewing the contract and took a year off.”

He certainly lived life to the full in that year off: he drove a Harley from Chicago to LA along Route 66; indulged his passion for shooting and watched plenty of games at the non-league football club he part-owns, Chesham United. The year off rejuvenated Manchester and he’s now back in the entrepreneurial saddle, running his own business, the newly formed Manchester Underwriting Management (MUM).

Manchester, PI

Initially MUM, which has Amlin onboard as a capacity provider, will focus on professional indemnity. It’s been well documented that the market is flush with capacity and competition is fierce. Manchester agrees that the market is grim, but is sanguine about MUM in the longer term.

“In the PI market right now, 95% of insurers have a book of business that is losing money, and what they’re doing is increasing their distribution costs and reducing their rates on a book of business that is probably losing money across the market. There are bits that will be making money, but in the market as a whole, the lack of discipline is such that they’ll all be losing money,” he says.

“You could say ‘what a daft time to start an MGA’ and you’d be absolutely right, but it’s the right time for me. The people who have backed me in Amlin have backed a strategy we have for the market cycle, not something we are going to do in the next six or 12 months in isolation. We’re not going to write business to lose money. We believe we’ve got the expertise to write the business, because we’ve got quality people with a track record. Plus, we’ve got a lot of broker relationships where the brokers who know us realise that not only do we do deals and are disciplined, but will be good people to do business with.”

Manchester has established a reputation as a solid operator in the PI market. He started up Dickson Manchester in 1997, offering PI to the SME sector at a time when other insurers weren’t interested. Good results eventually caught the eye of US giant HCC Insurance Holdings, which bought the firm in February 2003. After three years, Manchester became chief executive of its UK subsidiary and also active underwriter of HCC’s Lloyd’s Syndicates 4040 and 4141.

Manchester has nothing but good words for HCC, saying the decision to leave was more of a personal one. “HCC is a very successful, $2bn market cap, US-listed insurer. That’s a lot bigger than Dickson Manchester. When I joined it was great fun because HCC was an acquisitive company and had acquired a lot of similar agencies to us. It was interesting: people in the company were impressive, and that’s something I haven’t experienced in other places. It was a good time and I learned a lot.”

With typical candour, Manchester explains that after five years at the company boredom crept in. “While it is great to be paid a lot of money, when you’re getting up in the morning not looking forward to the day’s work, then it’s time to move on. It’s not a reflection on HCC; it was more a reflection on me that it was time to do something different.”

MUM will be competing in the same space with HCC. Is there room for another competitor?

“I suspect they’re watching this space. I think the market is big enough for the two of us because group-wide HCC writes $2bn-$3bn of premium in the world market.”

No time like the present

But enough of HCC, for Manchester it’s all about the here and now. The MUM team includes Michael Cant, previously director at Saturn Professional Risks, and former colleague Richard Webb, who resigned as head of marketing and broker at HCC to join. MUM will also have a team of six professional indemnity specialists from RSA.

The firm is now writing business. Looking to the future, Manchester says: “We’ll certainly be writing packages already within Manchester Underwriting. There will be specialty business. We’re not going to develop another Sun Alliance or AXA. We’ll look at specialty business where we can bring some real value added to the capacity, so that we’re not just a distribution play.

“We will be looking for quality underwriters who will join us. They could come in anything from aviation hull through to liability. The most obvious ones will allow us to build on our broker distribution, so they will be quite possibly things like liability, D&O and property. But if it happens to be in a more esoteric line of business, then that is where it will be,” he muses.

One more MGA

Okay, so MUM is up and running, and it looks a sound prospect. But the MGA business model has come under scrutiny in recent times. The past 18 months have been turbulent as insurers, such as AXA and Aviva, have withdrawn capacity. But recently there has been a renaissance of the concept, and MUM is one of many underwriting agencies that have sprung up. Other new kids on the block include Pat Ryan Specialty, Cooper Gay’s Oliva and SSP’s new baby, Keychoice Underwriting.

Manchester has even started an MGA in Warsaw, Poland – Central European Underwriting – which writes accident and health, and high net worth home insurance, targeting the newly affluent. “We’re bringing Lloyd’s capacity to the Polish market in a different way to some others,” he says.

But does the MGA business model have a future? Manchester’s view is straight to the point: “I think the market has too many MGAs. My view on MGAs is quite cynical. The vast majority of them are the last hurrah of the soft market, if you like.

“In a soft market, brokers get increasingly powerful and they drive rates down, brokers get increasing commissions and underwriters are increasingly desperate to get market share in an ever-shrinking market size. To do that, they pay for distribution. And so they pay increasing commissions. When brokers have squeezed the last drop of commission out of insurers, they then say ‘hey, we’ll do your job for you and save your costs’. And that’s when MGAs mop up. These are often broker-owned or broker-led MGAs and, again, they have their place in the market and it’s generally when the market is least profitable. That is not because of them, they’re a symptom of that.

“MGAs, if they are to survive the market cycle, need to add something. At the moment, we’re focusing on PI; that’s the first product line, we’ll do others. But what we have is a track record of underwriting profitability in a disciplined way through the complete market cycles.”

Manchester is a determined man, and he’s clearly enjoying life. He’s back doing what he loves, being his own boss. It looks like there won’t be any more epiphanies – Manchester is certain he’s made the right decision. IT