Tighter capacity terms expected to slow future growth
HARTFORD, Conn., Aug. 2, 2023 /PRNewswire/ -- Premiums sourced by Managing General Agents (MGAs), a key distribution channel for U.S. property-casualty (P&C) insurers, grew significantly in 2022, according to a new Conning study. At 24%, growth was well beyond the robust growth achieved in the P&C market as a whole. Conning estimates that the total U.S. MGA market, including business written for the account of Lloyd's syndicates, exceeded $85 billion in direct premiums written in 2022.
Growth was supported by:
By Conning's calculation, fronting companies accounted for more than $12 billion in premium written by MGAs in 2022, a rise of 38% over the previous year. Approximately 15% of total MGA premium is now supported by fronting companies, a share that has more than doubled in the past two years.
As competition has intensified among fronting carriers, the fronting model has come under growing scrutiny, most recently following news that Vesttoo, a provider of ILS (insurance-linked security) capacity to many fronting companies, was investigating issues relating to the collateral afforded by letters of credit for two transactions.
"The terms on which MGAs are able to secure capacity have been tightening significantly, and we expect this to slow future growth," said William Pitt, a director at Conning. "That said, we expect growth to continue because MGAs are, in many cases, winning the war for talent with insurance carriers and brokers, and because they continue to offer attractions to both traditional and alternative capacity providers."
Growth within the Lloyd's market – historically, and still today, the largest single source of capacity for U.S. MGAs – has already slowed significantly. Lloyd's syndicates grew their U.S. binder business by just 2% to $7.3 billion in 2022.
"As long as carriers continue to withdraw from lines of business, adopting a broad-brush underwriting policy that fails to identify profitable niches within broader unprofitable classes, MGAs will continue to find growth opportunities," said Lauryn Kothavale, a vice president for insurance research at Conning.
The Conning study, "Managing General Agents: Proving Their Mettle," details MGA marketplace dynamics, trends, participants, and outlook. It includes analysis of the growing fronting market and findings from Conning's 2022 proprietary survey of MGA executives.
"Managing General Agents: Proving Their Mettle" is available for purchase from Conning by calling (888) 707-1177 or by visiting https://go.conning.com/2023-MGA-Study.html.
Conning (www.conning.com) is a leading investment management firm with a long history of serving the insurance industry. Conning supports institutional investors, including insurers and pension plans, with investment solutions, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America.
Insurance Research Team