ARTes launch redraws roadmap as ‘MGAs lose their way’

A desire to return to the true nature of managing general agents (MGAs), something that has been “lost in the noise of continuing acquisitions and mergers”, and an alignment of fortuitous and market-driven events led to the launch of UK-based MGA ARTes Specialty in February 2022.

“It was fortuitous in that my business partners and I all found ourselves at the end of projects or at crossroads in our careers, and all shared a vision of what we wanted to achieve in setting up an underwriting operation,” explained Chris Thomas, founder and director at ARTes, speaking to Intelligentinsurer.com.

“It was market-driven by the hardening rating environment, the effects of COVID-19 on target industries for ARTes and a growing feeling from strategic partners we have established over the years of becoming disillusioned with the inefficiency and inconsistency of the London Market in its current guise.”

This disillusionment and hunger for a renewed standard helped create the MGA, which is wholly owned by its founders and directors. ARTes has been collaborating with Asta, the leading third-party managing agent at Lloyd’s, via its flexible MGA platform, and was established in partnership with JPO Consulting, a boutique management consultancy.

A balanced USP

Outlining ARTes’s unique selling point, Thomas pointed to the MGA’s focus on creating an equilibrium between its strategic partners and their risk portfolios and the MGA’s panel of capacity providers, who are seeking opportunities in specialist areas of insurance.

“The team is managing this balance while acknowledging that underwriting profit should be measured over the market cycle rather than a ‘dip in, dip out’ open market approach,” said Thomas.

“Access to robust data is the key in these relationships, which is why we form exclusive partnerships with established brokers or managing general underwriting specialists that focus on specific areas of risk rather than adopting a generalist approach,” he added.

Thomas emphasised the importance of a return to the original purpose of MGAs, which is apparent in ARTes’s thinking.

“In the noise of continuing acquisitions and mergers, we feel the true nature of the MGA has been lost. Originally MGAs were vehicles set up to allow capacity providers to access specialist products and distribution channels that were not economical for them to underwrite directly, or for which they did not hold the technical knowhow, rather than operate as direct competitors to the capacity in areas such as general P&C,” he said.

“ARTes’ philosophy is to offer access to specialist, niche portfolios to strong, stable capacity and prove that there still exists room for MGAs to operate in the manner they were intended.”

Thomas acknowledged that the rise of the MGA “incubator”, which has emerged over the past few years, “is in principle a good concept”.

However, he said, while setting up ARTes he found that a lot of incubators want excessive shares of the underwriter’s business and charge very high service fees.

“This is not conducive to creating an equilibrium where the focus is on underwriting profit rather than growth to achieve an earn out,” he said.

“ARTes is excited to have found such equilibrium and we are now able to offer underwriters, individually or teams, a different, collaborative approach.”
An earn-out is the compromise reached during an M&A when the buyer and seller  cannot agree on a valuation for the business being purchased. An earn-out bridges the gap between the different valuations and means the seller has to ‘earn’ an additional amount of money based on the future performance of the business.

Challenges and opportunities

In 2022, the MGA will focus on underwriting a US inland marine specialty book, which covers products, materials and equipment transported over land via truck or train, rather than over water. Thomas said he has known the strategic partner involved in this book of business for many years and had been looking for the opportunity to work with them.

“The conditions in London had made me feel uneasy. Rates were too low, and capacity available was under pressure from various factors such as Lloyd’s decile 10, which did not give me the confidence of a long-term partnership,” he said.

By choosing a portfolio that is a proforma derived from 10 years of data, which the ARTes team selected and actuarially reviewed in collaboration with its capacity providers, Thomas felt confident about moving forward.

“Through being an exclusive distribution-to-play to ARTes in London, and an exclusive capacity-play to our broker partner in the US, the equilibrium was achieved,” he said. “It also helps that US President Joe Biden has recently signed off a $110 billion infrastructure bill which will benefit many of our insureds.”

The MGA has plans to expand its plant and engineering underwriting footprint in South America and Australia although, Thomas said, the team is still working through some interesting data. “We anticipate bringing those portfolios to market by Q3, 2022. They are territories we are familiar with and we are considering opportunities in addition to the plant and engineering.”

ARTes is also fearless when it comes to deploying facilities for the COVID-19 pandemic-hit UK leisure and hospitality sector.

Thomas explained that business partner Richard Brown is a specialist in this area and has been working with strategic partners to implement the ARTes portfolio model, with positive results.

“This area of insurance is currently dominated by one or two capacity providers trying to achieve market share rather than applying strategy to achieve underwriting profit, which is not the correct approach to offer long-term stability to the many well-run insureds in this sector,” he said.

“This is an area of the UK economy that we expect to bounce back extremely quickly and strongly, but it is also a sector scarred by the denials of claims by certain insurers which were only too well publicised over the last 14 months. We feel the conditions are perfect for an ARTes product launch.”

With plenty of plans in the pipeline, what are the main challenges and other opportunities for the MGA’s team in the next 12 months?

Thomas said the primary challenge will be to manage the many opportunities that come up with the MGA’s current resources. ARTes will need to scale up with new staff or teams that fit the culture while also attracting those people by demonstrating that the MGA has adapted to the new hybrid working environment, he said.

The MGA’s “green” credentials and approach to equity diversity and inclusion are other areas to watch, Thomas said.

“The landscape for the insurance industry has changed. To attract the best you have to offer a market-leading proposition. In addition, finding markets to lead on portfolios rather than follow is a challenge as there still exists a nervousness after the events of the past three years,” he concluded.