Soft market a good time to launch an MGA

The current soft market creates a window of opportunity for underwriters keen to take control of their own destiny by setting up a managing general agent (MGA). That is the view of John Holm, executive director, MGA Investments for international business process outsourcing and professional services company Capita.

He believes that the MGA arena will grow in years to come and that MGAs set up in a soft market with the correct support and funding will be in an exceptionally strong position for growth when market conditions harden.

“If they can get established, and get the critical mass, then when the market hardens they will be in the ideal position to benefit from rising rates and increased commissions,” he said.

He is in Baden-Baden this year on a mission to spread the word about Capita’s MGA proposition. The company is looking to invest in teams of underwriters with a good track record looking to strike out on their own, and in successful existing MGAs looking for fresh investment.

“We are keen to get the message out that Capita is there for funding of MGAs,” he said. “When MGAs start up, the regulatory capital required is very small. However, the real funding need is working capital: from the point of starting to where you get the business going you’ve got wages, salaries, property, IT, all the usual business expenses, and you’ve got nothing coming through to cover that.”

This is where Capita comes in, providing working capital in return for a minority equity stake and an income from outsourcing.

“We only want minority stakes, so you won’t leave one company only to become an employee in your own company,” he said. “We offer the chance to be your own boss.

“The trade-off is that Capita will want to do the outsourcing for the MGA. It’s an attractive proposition because all the back office functions such as administration processing and IT are taken care of by Capita, allowing the management of the MGA to focus on underwriting and sourcing quality business.”

He added that being backed by Capita provides security and status.

“The other advantage is they get a shareholder that is a FTSE 100 company. It’s a hidden benefit that gives them credibility and should make the regulator comfortable.”