Direct premiums written through managing general agents (MGAs) in the property/casualty sector in 2014 rose 5.6 percent to $33 billion, a sign that insurance carriers are comfortable with the MGA channel. This is according to a new study by Conning & Co.
Conning also said the $33 billion in MGA-sourced premium represents 11.7 percent of total commercial property/casualty commercial premiums last year.
In 2012, MGAs produced $25.7 billion of direct premium written, or about 9.7 percent of all commercial premium, Conning said.
MGA-sourced premium growth was due in part to rate increases, the expansion of relationships with carriers and new product launches, according to William Broomall, assistant vice president for Conning and author of the company’s recent report titled “Managing General Agents: Superior Growth in Specialty Markets 2015.”
The report also found that 60 percent of the top 100 property/casualty insurers in the U.S. reported an MGA relationship in 2014.
“A wide network of carriers is involved in this and this points to a lot of insurers that find value in this distribution channel as a way to source premium,” Broomall told InsuranceNewsNet.
Another factor contributing to the rise of MGA-source premium, Broomall added, is a long-term shift away from paying MGAs based on premium volume and instead paying MGAs on the basis of the quality of the risk.
“Carriers want volume but they want the premium to perform so you’ve seen that shift,” Broomall said. “There’s a focus on profitability.”
Low-quality risks tend to have higher claims frequency or severity and higher loss ratios. That means carriers pay out more in claims since the carrier holds the premium on its books.
High-quality risks have lower claims frequency and severity, which means carriers pay out less in claims.
MGAs typically earn their living through commissions paid either on a sliding scale or as a flat fee.
Carriers grant MGAs authority to underwrite specialty risks with which carriers are unfamiliar. Carriers also use MGAs to get access to a network of retail and wholesale agent relationships.
Broomall said the data for his report were compiled from three sources: statutory filings, a Conning survey and disclosures from publicly traded insurers.
All three sources indicated the MGA channel was growing faster than the industry as a whole, he also said.
In a soft property/casualty market, where insurance carriers have difficulty raising prices, MGAs offer a source of premium growth.
In a report on the state of the MGA market published last year, Conning found a seller’s market in that many insurance companies were interested in buying MGAs and their books of business.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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