Captives can align interests of MGAs and re/insurers, says Lloyd’s panel


A managing general agency (MGA) can leverage a captive insurance company to enhance its performance and give it a competitive edge over other MGAs, and ultimately build a better relationship with the reinsurance market.

This is according to a panel, "Can Captive Insurers add value to MGAs?", hosted by Davies Group at Lloyd’s of London on February 11. Speakers included: Peter Staddon, managing director at the Managing General Agents' Association (MGAA), Michael Woodroffe, president at Kirkway International, and Sam O’Shaughnessy, vice president at Quest Management Services.

The panel noted that MGAs in the US are often very large and have sophisticated buying patterns; they aren’t just an agent with the ability to quote and buy.

In the UK, Staddon added that MGAs are “here to stay”, and will be “setting the UK alight” over the next two to three years. Woodroffe predicts the MGA space will double in size in the UK in the next five years.

More than 300 MGAs currently underwrite over 10 percent of the UK's £47 billion general insurance market premiums, according to the MGAA.

Woodroffe suggested the growth in captives for MGAs is being driven by reinsurers who wish for - as the ultimate risk takers - greater alignment.

“It gives the MGA a tactical advantage. If you don't have a captive you don't really have an alternative. You’re at the mercy of insurance partners or your reinsurance panel,” he said.

Woodroofe gave a number of captive structure examples that can help add value to the MGA, for example with captive acting as a simple quota share reinsurer of an issuing company; a buffer layer reinsurer of the issuing carrier; or the captive providing a corridor reinsurance agreement for the benefit of the reinsurer panel, with the captive becoming he retrocessionaire.

Furthermore, he explained that a captive can give an MGA a tactical advantage when negotiating renewals with their insurance carrier and reinsurance panel. It can also allow the MGA to build up underwriting profits above and beyond those from a profit commission or sliding scale, Woodroffe noted.

Citadel Risk Services is one company that has developed a structure whereby the carrier holding the risk sourced by the MGA completes a quota share agreement with a protected cell in a Bermuda captive owned by the owners of the MGA. This means they have the ability directly to profit—or lose out—based on the performance of their portfolio.

Woodroffe also suggested that without owning a captive, an MGA may find it more challenging to access the reinsurance markets globally, which is especially an issue with consolidation in the marketplace.

When questioned on the prevalence of MGAs having captives, Woodroffe said “it’s early days” in the UK, however in the US where MGAs tend to be much bigger they are certainly familiar with them. He added that smallers MGAs might not have the scale to form a captive.

Davies Insurance Services, MGAs, Captive, Reinsurance, Kirkway International, Quest Management Services, MGAA, UK

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