Capacity for MGAs is ‘challenging’ as traditional avenues are ‘being more selective’

“Traditional capacity” for MGAs “is being more selective”, meaning that insurers are “choosing to focus on fewer, larger relationships”, according to Jaime Swindle, chief executive of Ardonagh-owned MGA Geo Underwriting.

Speaking at a webinar hosted by Insurance DataLab this month (November 2022), Swindle explained what she believed was behind the capacity crunch being experienced by some MGAs.

She told online attendees: “It is true to say that traditional capacity is being more selective, so we’re definitely seeing a rationalisation of the volumes of MGAs that traditional capacity is supporting – they’re choosing to focus on fewer, larger relationships.”

“There’s definitely a reduced appetite for marginal business as [the] cost of capital is increasing.”

However, as the door to traditional capacity appears to be closing for a lot of MGAs, the window of opportunity around alternative capital models is opening, she continued.

Swindle explained: “[While] we are seeing a bit of a slowdown [in traditional capacity entering the MGA market], we are [also] definitely seeing more alternative capacity coming to the market and wanting to access this space.

“But that slowdown [in traditional capacity] I don’t think is making MGAs less relevant – it just means we need to be really, really clear about our purpose [and] what it is we are bringing to the table.”

A further consideration impacting MGA capacity is the fact that more insurers are being increasingly “mindful” about “cannibalisation”, which Swindle described as “supporting MGAs which are accessing the same clients or distribution outlets that [the insurer would already be targeting] in a more direct space”.

Swindle urged MGAs to be extremely clear on their purpose if they wish to weather these capacity-linked fluctuations.

“What am I, as an MGA, bringing to the table in order to get access to that capacity?” she questioned.

“Is it about the clients I can access? Is it about my underwriting specialisms? Is it about unique data insights that I can provide?”

‘Challenging’ conditions

Mike Keating, chief executive of the Managing General Agents’ Association, takes umbrage at the term ‘capacity crunch’, however.

He told webinar attendees that this descriptor was “over the top” and that a more fitting way to explain the current situation around MGA capacity is “challenging”.

He said: “I don’t necessarily agree with the word ‘crunch’. I think [capacity is] challenging in certain lines. I would reference professional indemnity and financial lines as being particularly challenging over the last couple of years.”

For Keating, broader market conditions are often “irrelevant” for MGAs and have little bearing on whether they obtain capacity or not because their backing is instead based on whether the MGA is performing as required.

“When I speak to our members – be it a hard or soft market – if MGAs are delivering on the expectations of the partnership with their capacity partner, then effectively those market conditions are irrelevant,” Keating explained.

“You have an expectation to deliver underwriting earnings and if the MGA is doing all the things it said to its insurer capacity that it would do, then the capacity is there for [the] long term.”