Carrier Affiliated MGAs are Going Independent

Video Transcription

Hello, my name is George Bucur. I’m a managing director and co-head of MarshBerry’s specialty practice. Serving MGA’s (managing general agent), MGU’s (managing general underwriter), wholesale brokers, and program managers, we’re here to bring you another dynamic change that is influencing the face of how delegated authority gets done. Specifically, independent delegated authority firms, wholesale brokers, program managers– they are tasked with one primary objective, and that is to grow. Whether inorganic acquisitions, or organic. One of the major forces that we have seen on the organic side, and this can be debated how you classify it, is the recruiting of underwriters from that of carriers who have captive MGA business. This has been a major focus of how a lot of the business from a growth perspective is accomplished by specialty firms. And why does this happen? It happens because underwriters have a unique capability. Specifically, MGA’s and program managers are oftentimes assigned by carriers because, they have unique underwriting expertise, they have distribution access that the carrier may not otherwise have, they might have technology that is unique to that individual or entity, and all of these are valued meaningfully in the marketplace.

So, what have we seen? We have seen this uncoupling of MGA’s that are partnered with risk-taking entities departing and going into independent sector. Now this is perpetuated not only by buyers that are attracting those underwriters and offering incentive packages, equity incentives, compensation, et cetera. But also, by the hybrid fronting model, which is allowing for independents to set up and get access to markets that, otherwise, were not available let’s say three or four years ago. But is it inevitable that what is driving this movement is the premium valuations being placed on delegated authority and other specialty firms that are independent from risk takers. To point to this, Conning recently released a report that showed roughly 55 percent of premiums on a historical basis that ran through the delegated authority segments, MGA’s in other words, were tied to carriers. What we have seen is this amount has gone down to roughly 45 percent and is now on par in the P&C (property and casualty) marketplace with that of independent MGA’s. This organic growth strategy that independent MGA’s have been driving are having a meaningful way of how business is getting done and is really separating that of risk takers to that of service entities. We will continue to see and measure the influence of these changes on the overall marketplace. Because if nothing else, it begs the question, with carriers taking on risk and service entities servicing the individuals and creating high cash flows, the market has spoken very clearly that the cash flow nature of the business is valued at a premium.

If you have questions about the changes that we’re seeing in this dynamic marketplace or how others are growing organically to enable to obtain their overall growth goals, please do not hesitate to reach out.