The split: MGAs ditched by Lloyd’s have long memories
“It’s more difficult to do business at Lloyd’s and I think there’s been more of a drift among managing general agents (MGAs) to the company market because it’s easier to do business there.”
This was the view of Charles Manchester (pictured), chairman of the Managing General Agents’ Association (MGAA) and chief executive officer of Manchester Underwriting Management (MUM), as he discussed the ongoing fallout from Lloyd’s Decile 10 and the UK’s departure from the EU with Intelligentinsurer.com ahead of the MGAA’s annual conference in London on June 29.
However, the allure of Lloyd’s, and a certain fondness for the 300-year-old market, cannot be dismissed and Manchester suggested that some MGAs may be tempted back in the future.
“If you’re not adding value then it’s difficult to blame insurers for pulling away.” Charles Manchester, MGAA
For some MGAs, the fallout from the Decile 10 underwriting remediation plan, launched in 2018, remains raw. As a Lloyd’s policy it put pressure on Lloyd’s underwriters to cut ties with underperforming lines. This was especially true for cat-exposed lines, and as a result MGAs built new capacity along varied fronts.
But is this shift in capacity sourcing permanent? Or will Lloyd’s and the MGAs who found themselves out in the cold rekindle those relationships?
Manchester commented: “I don’t think Decile 10 impacted the company market in London in quite the same way as it did the Lloyd’s syndicates.”
This is because one of the “peculiarities” about Lloyd’s businesses is the annual business plan, he explained. This means that they are much more managed by Lloyd’s in terms of the premium income that they can write in various areas. “That’s less the case in the company market,” said Manchester.
Brexit problems
Rebuilding relationships will be “particularly difficult” in Europe, he added, because at the same time as Decile 10 was happening “we had the problem of Brexit and Lloyd’s Brussels setting up”.
Syndicates began to look very carefully at the cost of doing the business and a lot of European MGAs found themselves losing paper (licensing), even if they had never lost money, because it was too much effort to carry on doing it, he said.
As a result, Manchester believes, some of these relationships will be very difficult to restore.
But he offered a glimmer of hope, saying: “I’ve been in the UK market for over 40 years, I cut my teeth in the London and the Lloyd’s market and most of us who have done that have a real fondness for doing business in Lloyd’s.
“It became quite difficult for a while to do that in the delegated authority market and rightly so in some ways. If you’re an MGA and you haven’t made money over a long period of time for insurers, then you have to question what value you are adding, and if you’re not adding value then it’s difficult to blame insurers for pulling away.”
Decile 10 represented “a fairly broad brush” approach to everything, he said, highlighting that certain classes such as marine cargo, professional indemnity, or cat wind-exposed business, were examined very carefully and a lot of Lloyd’s syndicates pulled back from them.
“Some of them were overweight in that area, for others it made them more volatile. Other syndicates didn’t manage the relationships well enough in my view and others weren’t getting the return,” Manchester said.
“If you’re an international MGA it’s almost something special to have a Lloyd’s facility.”
However, with the arrival of a harder market, MGAs found their way to the company market, which was attractive for other reasons too. “In the company market, guess what—you can get three or five-year binders that are genuine three or five-year binders.
“At Lloyd’s you can now get longer-term binders but they still require annual re-signing and if a syndicate goes into run-off you’re still high and dry. So it’s more difficult to do business at Lloyd’s.”
Manchester added that there had been “more of a drift” among MGAs to the company market because “it’s easier to do business there”.
“What’s left at Lloyd’s is going to be the more volatile business, ironically, or the business that really needs the international licensing that Lloyd’s is so famous for,” he said.
As well as purely commercial reasons, the ditching of certain lines created “a lot of angst”, he said, and particularly in Europe. This makes rebuilding some of these relationships even harder.
“Our colleagues at the Wholesale Specialty Insurance Association visited the MGAA a month or two back and some of the stuff coming out of the US does suggest it’s going to be difficult for Lloyd’s to rebuild some relationships.
“But I go back to the fact that a lot of MGAs have historically been very Lloyd’s focused and it is a people market. And if you’re an international MGA it’s almost something special to have a Lloyd’s facility as distinct from all of the programme underwriters operating in the states or wherever.”
He said that where a Lloyd’s facility gives an advantage, rebuilding relationships will be easier for Lloyd’s in the longer term.
“There are however some people who have been very upset by it. Some of those will have been losing Lloyd’s money, so Lloyd’s, frankly, probably doesn’t care, but the others will have lost some business they would have liked to keep and it’s not going to be an instant thing to rebuild those relationships,” he concluded.
To hear more on the current MGA market, inflation and more watch the full video interview.
