MGAs and their place in the UK insurance Market Manchester Peter J - PowerPoint PPT Presentation

MGAs and their place in the UK insurance Market – Manchester • Peter J Staddon ACII ACMI • 20 th March, 2019 • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 1

AGENDA LEARNING OBJECTIVES • What is a MGA – their unique benefits • What MGAs bring to the market • Where they fit in UK Insurance Market • What is their fiduciary duty • How does FCA view MGAs • Why MGAA formed • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 2

We all need to recognise that change Is coming! 3

• HISTORY OF UNDERWRITING AGENCIES & MANAGING GENERAL AGENTS • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 4

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Distribution Model All MGAs are coverholders but not all coverholders are MGAs! Insurer MGA Broker • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 6

• Where does their authority come from • Binders • Delegated Authority • Permissions • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 7

The Role of an MGA ➢ Performs many of the functions normally undertaken by Insurers, acting as their agent under a contractual “delegation of authority” ➢ Combined Operating Ratios ➢ Generally acts as an intermediary between the Insurer and the retail broker, who are agents of the insured ➢ Rare for MGAs to take a share of individual insurance risks. Risk-bearing stays with the Insurer • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 8

FIDUCIARY DUTY The MGAA has defined an MGA as: “an agency whose primary function and focus is the provision of underwriting services and whose primary fiduciary duty is to its Insurer principal • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 9

What is driving the emergence of MGAs? • “ Brokers interested in alternative distribution opportunities may look to acquire digital MGAs in 2018-2019. MGAs are authorised to perform certain functions ordinarily handled only by Insurers - binding coverage, underwriting and pricing, appointing retail agents within a particular area and settling claims – which are attractive to small-to-medium businesses that don’t want to buy insurance through traditional brick -and-mortar brokers . Acquiring an MGA can be less expensive for a broker to offer these services than develop them in- house” • Deloitte Insurance Outlook 2018 10

Why an MGA? • But only if MGA maintains balance between underwriting profit and their own financial return U NDERWRITING F INANCIAL P ROFIT RETURN • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 11

Regulation and Governance of MGAs • Living in a Regulated environment ➢ Insurers, Brokers and MGAs all now regulated by FCA ➢ Insurers subject to Solvency 11 from the EU ➢ Lloyd’s put in place strict rules for delegated authorities ➢ New Senior Manager Regime phasing in over next 2 years • FCA-Financial Conduct Authority key objectives: ➢ Secure an appropriate degree of protection for consumers ➢ Protect and enhance the integrity of the UK financial system ➢ Promote effective competition in interests of consumers • “ • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 12

Regulation and Governance of MGAs • FCA- “Culture of good conduct” more than good governance and compliance • MGAs need to believe in and demonstrate: ➢ An ethical culture which fits the organisation ➢ Driven by visible commitment from/at the top ➢ Well communicated internally and externally ➢ Supported by compulsory and continuing education ➢ Subject to strong monitoring ➢ Supported by- not subverted by- recognition and reward • The Values + Ethics + Conduct = Culture continuum • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 13

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MGAs in the Market • Most MGAs don’t go direct to Policyholders • MGAs access most of their Insurer business from Retail Brokers Policy Retail Wholesale MGA Holder Broker Broker • Most MGAs underwrite specialty Policy Retail Policy Retail Wholesale commercial business for SME Holder Broker Holder Broker Broker Policyholders Policy Policy Retail Holder Holder Broker ➢ Liability, commercial combined, commercial motor, financial lines, Policy Holder marine • And non-standard and high-hazard personal lines • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 15

Development of the MGA Market MGAs as % of market have dramatically increased (factor of 3) MGA and Wholesale brokers vs Total Broker Market ➢ Since the industry became regulated 8000 200 in 2005, the 180 number of FCA 7000 authorised entities 160 has almost halved 6000 MGA/Wholesale 140 All Brokers 5000 ➢ In the same period, 120 MGAs have 4000 100 increased by over 50% 80 3000 60 ➢ Wholesale broker 2000 numbers have 40 remained static 1000 20 0 0 JAN05 JUN05 NOV05 APR06 SEP06 FEB07 JUL07 DEC07 MAY08 OCT08 MAR09 AUG09 JAN10 JUN10 NOV10 APR11 SEP11 FEB12 JUL12 DEC12 MAY13 OCT13 MAR14 AUG14 JAN15 JUN15 NOV15 APR16 SEP16 FEB17 MGAs Wholesale All brokers With kind permission of IMAS • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 16

M&A ACTIVITY MGA M&A activity has been increasing, but not as fast as for brokers generally. M&A Deals 2011 to 2016 ➢ Broker M&A activity has 35 significantly increased, whilst 30 targets have decreased 25 Number of Deals 20 ➢ MGA negligible increase in M&A 15 activity, whilst numbers 10 increasing 5 ➢ MGA numbers continue to 0 2011 2012 2013 2014 2015 2016 increase? All Brokers MGAs Linear (All Brokers) Linear (MGAs) With kind permission of IMAS • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 17

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Membership of the MGAA 19

The Role of the MGAA and it’s Objectives • Convey the views of its members to UK and European parliaments, government departments, regulators and other relevant insurance organisations • Represent members' interests in negotiations with bodies whose rulings, regulations or controls may impact members • Set best practice guidelines to assist members in ensuring the stability, security and reputation of their MGAs • Assist insurance carriers that support MGAs to maintain the stability, security and reputation of their binding authority arrangements • Work proactively to improve the MGA sector's professionalism, stability and competitiveness • Create a technical centre providing commentary, information and guidance on relevant regulatory developments • Seek opportunities to promote training, education and high standards of products and services • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 20

• Q&A Peter J Staddon Chartered Insurance Practitioner MGAA peter.staddon@mgaa.co.uk 020 7617 4442 • www.mgaa.co.uk • SHAPING THE FUTURE OF DELEGATED UNDERWRITING 21