13 September 2017 Insurance

The insurance market ‘is not optimistic’

The insurance market is increasingly looking towards managing general agents (MGAs) as it copes with a set of difficult trading conditions, according to two leading executives at Asta Managing Agency.

“We’re not seeing any great optimistic outlook in the market,” said Julian Tighe, chief executive, Asta. “But we are seeing more interest in MGAs and growth in that area, rather than market-changing events, or rates changing in any of the traditional lines of business.”

According to Simon Norton, Asta’s director of underwriting, the market is in a pessimistic mood. He said that there aren’t any real signs of change, although some attitudes are beginning to change—at least in some classes.

“There are entities probably saying ‘these are the loss ratios we have to live with, but do we have to live with the acquisition costs and the commission ratios being what they are, especially as they’ve been ticking up over the past two or three years, if not longer?’,” said Norton.

“There’s a lot of focus on that aspect, underlined by Lloyd’s focusing on the combined ratio more for this planning season than they have in previous seasons, but generally market sentiment is quite pessimistic,” he added.

According to Norton, the ‘rise of the MGA’ can be viewed in the context of rising combined ratios and difficult trading conditions. Organisations have been looking more at MGAs recently because if they have an existing operating entity, and are looking for growth, they can do that organically.

He explained that they can look at existing classes of business and target growth of 5 percent here, 10 percent there, but that is difficult in terms of current market conditions, where it would be an uphill struggle to achieve those levels of growth.

Norton pointed out that as an alternative it was possible to employ a new team, but even if that team looks good, given the squeeze on combined ratios, with startup costs and execution risk this presents difficulties in the current market.

“The MGA model provides for production source (ie, growth) and if it does deliver then you and they benefit without having all the attendant costs on your balance sheet,” said Norton.

“The MGA model provides some way of exploring growth while reducing the execution risk.”

Looking at the year so far, Tighe said 2017 has been pretty good for Asta. One thing that is different for Asta is that it’s managing a client base that’s growing, largely because a number of its clients are young businesses. He forecast satisfactory results for 2017.

“The longer-term outlook is somewhat different,” he added. “In the current market it is becoming more difficult to develop major growth plans, to find the opportunities, and to have those plans approved at Lloyd’s.

“It’s pretty well documented that the Lloyd’s messages are to shrink the market overall, so there are tough times ahead for the entire market.

“One of the great benefits for Asta, in having set up an MGA platform in the last two years, is that we have some options. We can look to some of those opportunities Simon referred to and by having that diversity we can help underwriters to execute their plans even in a difficult trading environment,” he concluded.

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