MGAs resilient in the face of increased scrutiny and pressure

The UK's £4.7bn MGA market looks set to become an ever more popular feature of the London Market, despite increasing competitive and regulatory pressures. These are the conclusions drawn from a survey of more than 100 insurers and MGAs by global law firm, Clyde & Co. It says some 80% of carriers expect to increase MGA capacity in 2019, though the market is divided on whether this will come from new or existing MGAs (53% of insurers and 51% of MGAs saying there will be more MGAs), largely dismissing fears that an MGA bubble has formed and might burst.

Partner at Clyde & Co, Jennette Newman says MGAs benefit from an entrepreneurial spirit that adds tremendous value to the market. Additionally "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".

However, overall, most MGAs and carriers believe the market has become ever more competitive (69% of MGAs and 67% of insurers) while more still (67% of MGAs and 78% of insurers) agree that setting up an MGA is much harder now than at any time previously.
Head of the law firm's corporate insurance group, Ivor Edwards, adds: “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.”

According to the research, 63% of MGAs believe that the London company market offers the greatest prospects for growth, but interestingly, carriers show greater interest than MGAs in the US market and other geographies.

Newman continues: “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.”

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