Leveraging a golden age for MGAs and carriers
To ensure carriers get their golden ticket for big MGA market opportunities, adopting certain tactics and mindsets certainly helps, says Jeff Lamb of Markel.
A power trio of market conditions are driving a golden era for managing general agents (MGAs), creating exciting opportunities, according to Jeff Lamb, head of Programs and Alliances at Markel. And as an experienced leader at a company that has been partnering with MGAs for more than 90 years, he should know.
Lamb has always been involved in programmes and in April 2020 he dedicated himself to the MGA space. “I had some reservations. I thought the programme business meant cheap insurance. I was pleasantly surprised when I saw the P&C industry is outperformed by the programmes and MGA space—not only on the top line, but the bottom line underwriting profitability.”
For Lamb, there is a trio of drivers behind the MGA gold rush: private equity capital entering the marketplace; merger and acquisition (M&A) activity; and the migration of a lot of underwriting teams from carriers to MGAs, both existing and new startups.
“It’s very exciting,” he said. “When you couple that with the outperformance of the P&C industry, it’s a good time to be an MGA in this golden era.”
But, he added, it’s not all rosy. “The sad truth about the insurance industry is that 95 percent of our career is spent in a soft market. Right now we’re experiencing a hard market and MGAs are hearing from their carrier partners: ‘We love the rate you’re getting, but we can’t let you grow, we don’t have the capacity to let you grow’.”
Markel sees this as an opportunity because the insurer does have the capacity to help MGAs grow profitably in all markets, Lamb explained.
Added to this, M&A activity in the market has highlighted the importance of cultural fit and the availability of more buyers than sellers. MGAs are attracting various investors: retail brokers, wholesale brokers, other MGAs, and carriers, which indicates a healthy and dynamic market, he explained. On top of this, the influx of new front-end carriers shows competition and the need for capacity in the market, presenting opportunities for companies such as Markel to focus on quality programmes.
A smart animal in the water
No era lasts forever, least of all a golden one, but Lamb was bullish, saying “there are no signs of its slowing down right now, the deal flow is robust.”
For MGAs to make the most of such fruitful conditions they need to set themselves apart from the competition. For Lamb, that means showcasing underwriting expertise, operational excellence, distribution, and relationships that enable an MGA to bring that business to the table. “Those four things will serve the MGA well, whether it’s in the golden area or beyond that.”
Differentiation means being best inclass in the way an MGA collects and analyses data to round out those characteristics fully, he added.
Carriers too, such as Markel, must ensure they differentiate themselves in the market. Lamb said his company attracts MGAs looking for carrier partners and capacity with three key things: its MGA toolbox; speed; and high performing teams (HPTs).
“We like to call our MGA toolbox our ‘octopus’. There are lots of tentacles and it’s a smart animal in the water. Our octopus is very important to us.”
This toolbox was vital when Markel launched Verita, an MGA owned by WTW that provides end-to-end solutions for the real estate, hospitality financial institution and professions industries.
“They have partnered with us after about a year of putting the deal together. What’s exciting is that Markel programmes are taking the third party lines on a reinsurance basis. State National, our sister company, is fronting the entire programme; Markel Re is the lead reinsurer on the workers’ comp; and our specialty professional liability team is offering quotes on a submit basis for the financial lines.“
It shows off the power of the Markel platform—all those octopus tentacles, and how they could work. We feel this is unmatched in the industry and launching it was groundbreaking.”
Guard against deal fatigue
Speed is essential, particularly if you want to guard against deal fatigue, Lamb said.
“In 2020, we had one deal with a strategic partner that we launched in 60 days. It was admitted, it was packaged, we felt good about it and they did as well.”
The same partner then sent Markel a larger programme of around $80 million. Lamb said the team worked on it for two months and was ready to send out a letter of intent when the economics came back from their shared actuarial team.
“It was a 104 combined ratio. It was like a sharp stick in the eye, and very disappointing because I love the class of business, I love the partner we were with—they were definitely a best-in-class MGA. But it was too large and a bridge too far to get them back to profitability. We had to say no to them, and it really hurt.”
This experience was transformational because as a result the actuary that worked on it was transferred into the programmes team. And by bringing the actuary into the team, Lamb is now able to get the economics of a deal in just two weeks.
HPTs are another crucial element in leveraging this golden era of MGAs. When they’re hiring, Lamb’s programme team looks for intellectual capital, work ethic, and relationships. Individuals on HPTs bring in higher-level relationships that come with distinguished programmes, he explained. With this recruitment strategy, he said, he couldn’t be happier with how the team is performing.
The Verita deal showcased the diversity and tools Markel can bring to the marketplace to craft a solution to fit customers needs.
“Nothing is off the table, as our chairman Bryan Sanders likes to say. If you want to be an innovative organisation, you have to open your mind and be creative on things.
“This deal showcases that. It says to the marketplace: ‘Bring your opportunities to Markel and we can craft a similar solution for you’,” he concludes.
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