Analysing results of the 60 biggest MGAs in the London Market

Only 15 of the 60 MGAs profiled here shrank in the period 2015–16—it was a positive year for the majority of the market. That is perhaps testament to the ability of MGAs to thrive during a soft market as they help carriers access niche business and diversify.

An agile and lean MGA market gives the London Market a cutting edge in many ways. It can help insurers respond to a soft market which makes finding profitable growth a challenging quest; equally they can respond quickly to changes in rates.

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During this period, a historically low interest rate environment has attracted investors looking for yield to the insurance sector, increasing the capacity in the market and pressuring rates. MGAs could help insurers grow in a more efficient way and without large up-front investments.

Fast-forward a couple of years to 2018 and the landscape has shifted. Severe catastrophe losses in 2017 changed the dynamic of pricing in many parts of the market —something which affected some MGAs more than others.

At the same time, the risk transfer industry is moving forward at breakneck speed in the way it is embracing technology—the insurtech revolution. MGAs are often at the forefront of this and the market has seen many new launches by new players not only carving out niches in the risks they manage but also changing the way they manage them using technology.

It will be some time before we know how this new landscape affects the overall performance of MGAs but we wanted to contact some of the companies to establish what they see as the key factors in their performance at the moment, how they fared in 2017 and what their plans are for this year.

It should be noted that the results we report on here are to FY16 for most companies. That is because many companies can take 12 months to file their full-year accounts and it allows us to compare like for like across the sector.

Click here to see the complete list of the Top 60 MGAs as a PDF

Strong growth

Castel Underwriting Agencies enjoyed strong growth between 2015 and 2016, its turnover increasing to £4.9 million ($6.6 million) compared with £3 million ($4 million) a year earlier—its profits also soared on the back of this growth.

Fast-forwarding to the present, however, Castel Underwriting CEO Mark Birrell notes that market conditions are tricky in the present environment with capacity a challenge in some areas.

“The key factors currently affecting the MGA market are availability of capacity following 2017s major cat losses, adding value to that capacity and the quality of underwriting. In these challenging conditions the market remains turbulent and the possibility of a carrier failing remains,” he says.

Plum Underwriting also enjoyed strong growth between 2015 and 2016, its turnover increasing to £3.1 million ($4.2 million) compared with £2.7 million ($3.6 million) a year earlier.

Mahben Quddus, head of operations and marketing at Plum, says he is very bullish on the carrier’s ability to grow and thrive in the current environment. He explains how the MGA is moving into new lines of business and embracing insurtech to steal a march on its rivals.

He notes that in 2017 the MGA released the first personal cyber insurance cover available in the UK and the Republic of Ireland (ROI) as well as three more specialist home insurance products in Ireland.

For 2018, Quddus says it will be a question of maintaining high standards and launching more products where appropriate.

“We want more of the same now—we plan to release another three specialist home insurance products this year to our brokers in the UK and the ROI,” he says.

In terms of the overall health of the MGA market, he adds: “Driving positive change in the industry through product innovation, insurtech-driven distribution capabilities and taking ownership over the claims process are all key factors currently influencing the success of the MGA market; MGAs are consistently proving to be more agile than their insurer counterparts, attracting the attention of brokers and investors alike.

“Our goal this year is to maintain our ranking by brokers as the UK’s #1 MGA by continuing to innovate while providing excellent service to our brokers and customers.”

European Property Underwriting shrank slightly in the period reported on here, its turnover dropping to £2.5 million ($3.4 million) compared with £2.9 million ($3.9 million) in 2016. Commenting on 2017, the MGA stresses that the main factors influencing its performance will be good risk selection in somewhat challenging environment.

“Highly supressed rating models are being adopted in the property investors arena, making risk selection ever more important,” says Andrew Whittaker, managing director.

“That means a high quality of service must continue to be provided to maintain relationships. Also, expanding the range of products underwritten to sell more products to each customer will be important.”

Whittaker adds that another big influence on the market has been the losses. “Underwriting losses by some insurers may lead to increased outsourcing of specialist lines of business to MGAs.”

He says that, in 2018, the company wants to continue to expand its product range available utilising its Lloyd’s coverholder status. He also notes that multiple product availability will increase broker distribution opportunities.

In terms of the MGA’s goal for this year, he says this will revolve around the continual expansion of the product range to enhance broker distribution and maintaining superior levels of risk selection to generate profits for capacity providers.

A year of investment

CFC Underwriting, the fourth biggest MGA in our table, enjoyed stellar growth between 2015 and 2016, its turnover reaching £30.6 million ($41.3 million), compared with £23.5 million ($31.2 million) in 2015. Commenting on 2017, the results for which are not available yet, David Walsh CEO and co-founder of CFC Underwriting, says that it was very much a year of investment for the firm.

“At a time when most of our competitors were retrenching, we increased our headcount by over 40 people and our City of London office space by 8,000 square feet. We also increased investment in our cyber infrastructure, from the frontline underwriting teams to the claims adjustors and our incident response capabilities.

“Cyber is one area where scale will be increasingly important in determining the cost and efficacy of insurers’ claims handling solutions and we are determined to lead the market in these areas,” Walsh says.

“But we didn’t just make an investment in cyber. We also ramped up our capabilities in the emerging areas of risk and the economy, from the insurance for cutting-edge technology, drug development and new media companies to solutions for intellectual property insurance and transaction liability insurance.

“Finally, during 2017 we also refinanced the business with a new minority investment from Vitruvian Partners. Again, at a time when many actors on our stage are being swallowed up by larger entities, we further demonstrated our belief in our business and our commitment to independence and broad employee share ownership.

“We are now majority owned by management and staff for the first time in our history, and are looking forward to the future with excitement.”

In terms of 2018, Walsh says that now the MGA has meaningful positions in the fast-growing emerging areas of insurance such as cyber and transaction liability, he anticipates more growth.

“To date we have grown faster than the market in these sectors and this momentum should power us forward in 2018. Indeed, we have outgrown the market in almost all of our 18 business lines and believe our passion for the business and our continued hard work and determination will hold us in good stead to continue those trends.

“We will also enter a few, carefully selected new business lines. At this stage in the cycle there is clearly risk to entering any new class, so we will only do this when we are sure that we are bringing something new to the market.”

And he plans for more of the same. “2018 will be another year of increased investment in people, expertise and technology. We will maintain our focus on emerging risks and do everything we can to forge ourselves as the market leader in these areas. We will also triple the size of our software development team to around 30 coders and will launch new technology platforms that will transform how we communicate with our customers.

“Notwithstanding all of this further investment, we are confident that we will drive increased efficiencies through the business and maintain our market-leading profit margin.”

He also admits that the performance of CFC is at odds in some ways with his assessment of the overall health of the MGA market which, he says, is still struggling to cope with low rates.

“The main challenge is obviously the continued effect of the longest soft market in history. MGAs need to contain costs while also ensuring that they add enduring value across the cycle. On the positive side, the increased acceptance of MGAs over the last five years is testament to the natural creativity and entrepreneurialism of MGAs, the efficiencies of the MGA model and a greater understanding and comfort among brokers.”

Single brand

Barbican Protect also enjoyed rapid growth in 2015–16, its turnover increasing from £1 million ($1.3 million) to £3.4 million ($4.6 million) year on year. This coincides with the change to the brand Barbican Protect from Professional Indemnity Protect in early 2016.

Stuart Kilpatrick, managing director, explains: “We launched Barbican Protect in January 2016. This combined our collective underwriting expertise and service capabilities for commercial small and mid-sized clients in the UK and Ireland under a single brand.

“During 2017, we have capitalised on the benefits of this more focused approach to build on our traditional property, casualty and financial lines classes of business, while also expanding into new lines of business including standalone casualty and marine.”

In terms of the company’s aims for 2018, Kilpatrick says that there is no doubt that the UK commercial insurance sector in 2018 remains a highly competitive and challenging arena.

“At Barbican Protect, we are responding to these conditions by seeking opportunities to work more closely with our brokers. We are working to further enhance our overall service model, and by so doing ensuring that we are in a stronger position to both retain existing clients and secure new business.

“The market in general is strong at present and MGAs are becoming an increasingly prominent component. This reflects a growing recognition on the part of carriers of the sustained value that such vehicles can deliver. Current market dynamics demand that carriers maintain a highly optimised and efficient strategy and MGAs provide a very effective mechanism for driving growth both in existing and in new lines of business in a very cost-effective manner.

“In this context, the onus on Barbican Protect is to continue to identify and secure profitable business for our capacity providers, to ensure our interests are fully aligned and to demonstrate our long-term credentials.”

In terms of the firm’s goals for 2018, Kilpatrick says its decision to unify its UK and Ireland commercial insurance operations under a single banner was the right one and it will now build on that.

“Our focus in 2018 is to build on the strong foundations we have set by securing new accretive opportunities, capitalising on the breadth and depth of our capabilities to strengthen our position in existing markets while being open to the potential of new markets where interests align and sustainable profit can be generated,” he concludes.

A great Lloyd’s export

MGAs are predominantly a UK phenomenon with some occurrence in the US as growth of the industry was driven by the Lloyd’s market. MGAs operate in a variety of arenas such as standard commercial products, package commercial and consumer business, using underwriting capacity from traditional insurer.

In principle, MGAs work in a similar way to brokers, except that a broker’s fiduciary duty is to its customers, whereas the MGAs’ fiduciary duty is to the capacity provider. This has in the past raised some suspicion from regulators as they suspected clients were being given a worse deal from MGAs than from brokers, but this is no longer an issue.