Over the past decade, mergers and acquisitions (M&A) have seen considerable momentum in the insurance distribution sector, particularly among retail brokers. However, attention has turned in Europe toward another promising niche: delegated authority firms and wholesale brokers (collectively referred to as “specialty” for purposes of this article). This shift has been driven by a rapid increase in private equity (PE) investments into insurance distribution at large with a focus on specialty firms given their niche market characteristics and superior growth capabilities. This interest is heightening competition for specialty firms, leading to historically high deal activity and valuations that will likely continue over the next year.
A firm with delegated underwriting authorities from their carrier partner(s) may be generically referenced in the marketplace as a coverholder, managing general underwriter, program manager/administrator, etc. However, these firms are often referred to as managing general agents (MGAs), which is how they are referenced for this article. Across different countries, a variety of MGAs are found, ranging from tech-enabled start-ups to large, established businesses.
MGAs provide key value-add services for carrier partners
While the utilization of MGAs by carrier partners is not a new phenomenon, their function and share of wallet has evolved significantly over the last several years. At the core, MGAs are an extension of their carrier partners, implying the MGAs add value by offering the carrier something they do not otherwise possess or by enabling services at a more affordable cost. While services are often centered around underwriting, it may also extend to distribution, product manufacturing, claims handling, technology, administration and/or other capabilities. The differences between the various value-add services by MGAs is especially amplified in the European marketplace as the delegated authority marketplace continues to develop and grow.
Premiums placed through MGAs see superior growth
There isn’t much data available on the global scale of the MGA market; however, the existing figures indicate that premiums placed through MGAs have seen annual growth rates exceeding 20% over the past 5 years. This growth significantly outpaces the annual growth rate of the world’s insurance broking sector, which is estimated to have increased by an average rate of 11% per year over the same period. Furthermore, it suggests that MGAs globally are estimated to have underwritten over USD 200 billion in premiums across all classes in 2023.1
Traditionally, the U.S. and the UK have been the two most developed markets for MGAs. In the U.S., in 2023, around 1,000 MGAs collectively handled $100 billion in premiums, constituting about 12% of the total U.S. Property & Casualty (P&C) insurance market. In the UK, over 350 MGAs place more than 10% of the country’s £47 billion in general insurance premiums.1
With such a wide range of nations, and their respective regulatory, cultural and distribution systems, the landscape for MGAs in continental Europe is quite varied and diverse. Germany has had a robust MGA market for many years, with a wide range of MGAs operating across niche segments and a concentration in marine. France, Italy, and Spain are all experiencing a growing MGA sector, particularly in niche insurance products for both commercial and personal lines. The broker landscape in the Netherlands is distinctive, with many large retail broker firms operating their own MGAs. Finally, The Nordic countries, including Sweden, Denmark, Norway and Finland, have a strong presence of MGAs that focus on marine, renewable energy, and other specialized insurance sectors.
The total number of sizable MGAs in continental Europe is estimated to be approximately 500 companies, however this is an approximation as most European countries do not capture MGA counts or activity. The sector remains relatively fragmented across Europe, presenting investment opportunities for broker platforms, strategic buyers, and private investors.
Evolution of the MGA market in Europe
The development of MGAs in Europe can be seen more as an evolution than a revolution. MGAs have a history spanning decades in Europe, evolving alongside shifts in the insurance industry. Initially, MGAs concentrated on providing access to specialized insurance coverage that risk carriers were reluctant to handle due to risk complexity or market size.
As time progressed, MGAs expanded their focus beyond conventional underwriting to specialize in niche markets and provide customized insurance solutions. The past decade of technological innovation, data analytics and overall professionalization has resulted in progress in the value proposition of MGAs, including advanced analytical underwriting and rapid price quoting. In general MGAs have tended to adopt new technologies faster than their risk carrier partners because MGAs are relatively less burdened by legacy systems. By definition, MGAs tend to be very focused and therefore tend to avoid “doing everything” and instead specialize in specific verticals or market domains. This has been supported by the ability of MGAs to attract top underwriting talent from carriers, due to their more entrepreneurial mindset and flexibility in rewarding success.
The increasing market share of MGAs can be attributed to several factors, with key drivers being the value they deliver and the evolving attitude of carriers. Rather than seeing MGAs as threats to their market dominance, carriers tend to embrace the opportunity to collaborate with forward-thinking MGAs for mutual benefit. This trend is evident across Europe, where carriers (and reinsurers) are shifting towards adopting a partnership model with MGAs, leveraging strengths instead of engaging in direct competition.
Furthermore, retail brokers have played a crucial role in facilitating the evolutionary shift by supporting MGAs and reinforcing their value proposition from a distribution perspective.
The increase in M&A transactions involving MGAs is likely to continue
Despite heightened macroeconomic challenges and increased capital costs, the number of M&A transactions involving MGAs reached all-time highs in 2023. With 181 specialty transactions last year, accounting for 22% of total insurance broker and agent transactions, the U.S. clearly leads the pack when it comes to transaction activity. In the UK, there were 23 specialty transactions in 2023, representing another record high of 16% of the total 148 all-sector deals registered.
For continental Europe as a whole, reliable data on the total number of transactions is not readily available, as many deals go unannounced. However, when looking at recent deal activity, the strong interest in MGAs is clearly evident in continental Europe. For example, Howden has been successfully expanding its underwriting arm DUAL International Limited, and acquisitive brokers such as GGW Group in Germany and Sakra in Sweden expanded their footprint in MGAs.
In sum, there is a growing appetite among strategic acquirers and private capital investors to add MGA capabilities to their investment portfolios. There will likely continue to be elevated deal activity in the space, given the strong demand trends.
Source:
1 MarshBerry estimated by leveraging the Conning Report study on MGAs and other sources, including inquiry of market professionals, and A.M. Best.
