Premium growth generated by managing general agents (MGAs) grew at a double-digit rate for a third consecutive year in 2023, spurred by rising collaborations with insurers to write specialty business, according to a new AM Best report.

In 2023, direct premiums written (DPW) by MGAs increased 14.9% year-over-year to $81.4 billion. This robust expansion followed growth of 19.5% in 2022 and 17.0% in 2021. MGAs achieved this healthy premium increase despite the year beginning with capacity constraints, especially in the property market.

“While softer pricing on other commercial casualty lines have placed downward pressure on total market premiums, MGAs working with recent start-up specialty commercial carriers have offset that impact and fueled top-line revenue growth for these insurers,” said Greg Williams, senior director, AM Best.

MGA Premium Growth Trends

Several factors are propelling this impressive trajectory, including a rise in collaborations between MGAs and insurers to write specialty business, an influx of new entrants into the market, and an expanding share of direct premium written (DPW) across the broader insurance landscape.

Insurers are increasingly turning to MGAs as strategic partners to source new business, particularly in specialty commercial lines. By leveraging the specialized expertise of MGAs in distribution and underwriting, insurers are able to tap into profitable niche markets and grow their premium market share. Hybrid relationships, which blend the capabilities of insurers and MGAs, are playing a key role in this growth strategy.

As the insurance industry continues to evolve, the MGA market is poised for further expansion. With their agility, innovation, and deep understanding of specific market segments, MGAs are becoming an indispensable link in the insurance value chain, the report observed. Insurers that effectively harness these partnerships are well-positioned to capitalize on emerging opportunities and drive sustainable growth in an increasingly competitive landscape.

Key Characteristics and Responsibilities

The most successful MGAs in the market tend to have several key differentiators. They have cultivated strong customer relationships, implemented robust frameworks for managing account information and monitoring performance, and developed specialized expertise in particular products or lines of business, per AM Best. This specialized knowledge allows top-performing MGAs to provide carriers not just underwriting and pricing acumen, but also risk management and governance infrastructure.

In 2023, the authorities most commonly granted to P&C MGAs were premium collection (73%), underwriting (70.1%), and binding coverage (64.3%). However, MGAs are also taking on additional functions such as claims payments (34.3%), claims adjustment (29.4%), and in some cases even ceding reinsurance (6.8%), the report found.

Balancing Opportunities and Risks

The report also highlights potential risks associated with delegated underwriting authority enterprises (DUAEs), a term that encompasses not only MGAs, but also managing general underwriters, program managers and other entities. Some DUAEs have abused their authority in the past, writing unprofitable business to increase commissions. AM Best’s analysis of the US P&C market from 2000 to 2022 reveals that the third leading cause of P&C insurer impairments, after catastrophe losses and fraud, was due to affiliated programs.

“Insurers must structure their relationships with these DUAEs with appropriate checks and balances,” said Dawn Walker, associate director, AM Best.

The report also notes the growing involvement of private equity firms in MGAs. PE firms see MGAs as lucrative, generating stable cash flows through commissions and fees, often with lower expense structures compared with insurers. However, PE investment in MGAs also entails risks and challenges that both parties must carefully consider and manage throughout the investment lifecycle, the report noted.

AM Best affirmed its positive outlook for the DUAE segment in November 2023, expecting the segment to continue to strengthen due to sustained growth and performance globally and the segment’s ability to address underserved and emerging risks.

“As volatile risks continue to grow, the DUAE model allows insurers to move more quickly and exploit niche markets and target opportunities moving out from the admitted market,” states the AM Best report.

For access the market report, visit AM Best website.

The post P&C Premium Growth from MGAs Surges for Third Straight Year appeared first on Risk & Insurance.

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