MGA capacity set to grow but carriers split on direction of travel, finds Clyde & Co survey

Fourth fifths (80 percent) of carriers expect to increase MGA capacity in 2019, according to a survey of more than 100 insurers and MGAs conducted by global law firm Clyde & Co.

The finding goes some way to dispel concerns that competitive and regulatory pressures might be about to burst the MGA bubble. However, survey respondents were split on how the predicted growth in the UK's existing £4.7 billion MGA market would materialise.

Interestingly, more than half (53 percent of insurers and 51 percent of MGAs) said they expected to see a rise in the number of MGAs, despite more than two thirds of respondents highlighting that the market has become more competitive (69 percent of MGAs and 67 percent of insurers) and as a result starting an MGA is “harder than ever before” (67 percent of MGAs and 78 percent of insurers).

The law firm’s report ‘Which way now? Is the UK MGA market at a crossroads?’ also said its research “demonstrates that Lloyd’s is no longer viewed as the best location to develop MGA business”. Fewer than a third of respondents picked Lloyd’s as their top choice, pointing to rising regulatory and compliance burdens as the main reason for looking elsewhere.

Almost two-thirds (63 percent) of MGAs believe that the London company market offers the greatest prospects for growth, while carriers show greater interest than MGAs in the US market and other geographies.

Jennette Newman, partner at Clyde & Co, said: “The entrepreneurial spirit of MGAs adds tremendous value to the market but the drive for efficiencies in the company market, combined with regulatory hurdles and a lack of capacity at Lloyd’s, has seen MGAs come under increasing scrutiny to ensure that they are delivering on their promises to efficiently reach new customers in new markets in a way that delivers profitability for all parties involved."

Ivor Edwards, partner at Clyde & Co and European head of its corporate insurance group, said: “The contraction in capacity at Lloyd’s is a necessary evolution for it to return to profitable underwriting. There will be a concern that the business it loses should not be the profitable business.

“But while carriers are keen to focus on new opportunities outside the UK, Brexit has thrown a spanner in the works by creating issues around licensing. It has focused attention on where companies are licensed to do business and impacts how they conduct it.”

Newman added: “A change of location does not mean that the challenge of regulation is going to be any easier. It is becoming progressively tougher for MGAs to get established – wherever they choose to set up – due to the rising regulatory and compliance burden, the FCA’s systems and control requirements and more particularly, the new Senior Managers and Certification Regime which comes into force in December 2019.”

Looking to the future, Newman said that as the opportunities to establish new MGAs diminish, but capacity increases, companies that survive the increased scrutiny and pressure to perform “will emerge from 2020 as bigger, better run and more profitable. These are the hallmarks of a maturing sector”.

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