MGAs need to bond with the ILS market: Chilton

The ILS capacity brings more efficient funding into the insurance market – and managing general agents (MGAs) must also take advantage of this, Grahame Chilton, CEO of Gallagher UK, told delegates at the MGAA 2018 conference in London today (July 12).

Chilton predicted that the efficiencies of bringing capital risk are only going to increase, pointing to the developments in the reinsurance ILS market which is getting closer to the risk.

As the ILS market seeks to access non-correlating risk for their investors, players in the field will look to support MGAs, Chilton said. “We’ve already seen it in the property cat, we are going to see it in many more areas.”

Chilton believes that these ILS players will be successful because they have a significantly lower expense basis than the current suppliers of capital to the industry.

“At the end of the day, for the customers, the cheaper the cost of capital will allow them to write and survive,” Chilton said. “It is a threat to the classical way of looking at these things.”

But he stressed that it is also an opportunity for the MGA sector, as pairing up with the ILS capital will give MGAs a competitive advantage and allow them to grow the business.

However, he also warned that this must all be achieved while ensuring profitability to all involved in the chain, including the carriers, the ILS funds, reinsurers or insurers, the MGAs themselves and the brokers.

“Without that profitability, the business doesn’t survive,” Chilton explained.

He expressed concerns with regards to loss ratios and underwriting standards that can be observed currently in the market.

While there may be signs of a firming market, rates are unlikely to get back to pre-9/11 levels, Chilton said. There is too much capital supply chasing too little business, taking down the price, he added.

“ILS now has more capacity to write property cat than you could ever imagine,” Chilton noted.

While admitting that the ILS segment is struggling with some of the casualty classes, he expects the segment to start cracking those soon.

“Only those MGAs that really deliver great technology at a low-cost base with professional underwriting services will survive the transition,” Chilton said.

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