As managing general agents continue to flourish, John Holm, head of MGA Investments, Asta, explains to Monte Carlo Today what it takes for an MGA to succeed in this market.
Managing general agents (MGAs) in the London Market are thriving and the climate remains perfect for talented underwriters who can differentiate themselves and have a good business plan to prosper, said John Holm, head of MGA Investments at Lloyd’s managing agent Asta.
A study of the results of the top 60 MGAs in London, carried out by Intelligent Insurer magazine in conjunction with Asta earlier this year, showed that once the data was cleaned to remove some major anomalies, the overall turnover of the top 60 MGAs increased by almost 5 percent year-on-year, while the market’s overall profitability increased by almost 18 percent.
Holm said that the conditions remain ripe for MGAs to form and prosper at the moment—but only if the entity can tick certain key boxes that will help ensure success.
“The right relationship can also mean the perfect exit plan for the MGA owner.”
He said the main thing is that an MGA must differentiate itself and be able to sell the concept—to investors, brokers, carriers and customers. This requires both the right idea at the right time and the right team to execute it.
“MGAs that score well on all those points will do well. And it is true that you need the right people—often a blend of experience and young innovators can work best. It is very important to differentiate yourself in what is a very competitive market now.”
The best form of differentiation is around the type of risks an MGA is looking to insure. Asta, which works with MGAs as both an investor and a partner on back office services, particularly likes working with MGAs targeting niche, non-traditional or emerging lines of business—as opposed to mainstream lines which are also very competitive on price.
Holm said the emergence of the ‘Internet of Things’ is creating all sorts of new demands for coverage. While cyber business is part of this world, so too is insuring new technologies and innovations of all descriptions, while a revolution in the energy sector is also creating demand for new products.
“Technology is moving so fast it is staggering,” Holm said. “On the back of that, new risks are emerging which need insurance.”
Other areas he cites as having big potential but also being non-traditional include the insurance of brownfield sites, a growing area in the context of a UK housing shortage, decommissioning oil platforms or nuclear power stations and also many areas of renewable energy, from wave energy and solar farms to wind farms, both onshore and offshore.
“Despite these being new sectors, you need to demonstrate some sort of track record that you know what you are talking about,” he said. “It is worth having the experience in the team that has the links to a network of brokers and other contacts. You also need to convince carriers to give you their balance sheet; a track record of underwriting success is essential in that context.”
The appetite of carriers to work with MGAs remains very healthy. A lack of growth opportunities elsewhere means that MGAs can offer much-needed new business and growth to these carriers via useful distribution platforms that they would otherwise not have access to.
“It is a good time to talk to carriers. They want growth and new sources of distribution. The right relationship can also mean the perfect exit plan for the MGA owner. If the business is good and profitable, the carrier might eventually look at it and decide they are better off acquiring the MGA to bring the expertise and business in-house,” Holm said.
Although it seems surprising that MGAs are thriving while the market as a whole is struggling, Holm stresses what sets MGAs apart. “They tend to operate in more niche lines where there is less competition. They also have lower overheads and no legacy of systems or historic business,” he said.
Asta, he added, represents a natural partner for new MGAs as it offers both the potential of investment and the ability to handle the back office for an MGA. It offers funding, operational support and help managing the increasingly onerous regulatory and compliance side of things.
Asta now offers all three of these services with Holm, who joined the business late in 2015, adding the funding element to the company’s offering with his arrival. Because it also manages eight Lloyd’s syndicates, Holm said, it has the capacity and quality in its staff to handle new MGAs.
John Holm is head of MGA Investments at Lloyd’s managing agent Asta. He can be contacted at: firstname.lastname@example.org
Monte Carlo Rendez-Vous 2016, Asta, John Holm, Insurance, Lloyd's, London, UK