MGAs feel capacity squeeze but set to continue UK growth, says AM Best

Managing general agents (MGAs) are likely to continue their trajectory of UK growth delivered during the past ten years despite lower levels of available capacity, according to AM Best.

MGAs will become “of increasing importance” in the insurance distribution chain, AM Best says in a new report on MGAs in the UK. But those with a strong track record of profits and access to niche business are best placed in the current capacity squeeze, it adds.

The ratings agency notes, however, that higher rates have impacted capacity.

“While the more successful MGAs typically have strong relationships with their insurance partners, and also their distribution partners, the long-term availability of capacity is not guaranteed. MGAs are not immune from (re)insurance market cycles,” AM Best says.

Carriers are more likely to align with MGAs with a strong technology and data focus, which can differentiate their services and “take the lead” with more innovative solutions, AM Best adds.

MGAs have also seen a shift in the products and exposures that risk carriers are willing to take on, alongside changes in terms and conditions as underwriters focus more on profitability, it continues.

Startup MGAs without a track record will find it difficult to enter the current environment, the report says. However, those that have invested in real-time monitoring of data and risks will have an edge.

AM Best says the model behind MGA platforms makes them “vulnerable” to the capacity squeeze. “Those with poor underwriting records or those dependent on a small number of short-term capacity providers are particularly at risk,” it warns.

“MGAs need to focus on profitability, be adaptable to changing market conditions, and align their interests with those of risk carriers, distribution partners and other important intermediaries,” AM Best states.