MGA review 2020 – A Leader’s perspective – Guy Fraser, Century Underwriting
I have recently interviewed the CEO’s and leaders of several MGA’s to discuss their views on various topics impacting the MGA market during 2020 and assessing the MGA market moving into 2021.
Today’s interview is with: Guy Fraser, CEO at Century Underwriting
Guy is Owner and CEO of Century Underwriting, Owner of a fintech IT company and Director of an MGA broker.
He gained his underwriting expertise in various senior underwriting and management positions spanning 20 years, including with AIG, Newline and Amlin.
He has also been a Director of a successful MGA Investment & Incubator platform and so understands the MGA business model from every stakeholder perspective.
Guy is a strong advocate of the MGA market and is passionate about long term partnerships based on underwriting discipline, robust corporate governance and high calibre people.
Q1. What has been the greatest impact of COVID-19 on your business and the MGA market?
The most easily identifiable effect was that renewal retention increased dramatically from our usual level but that new business production fell. That meant that overall we did not feel a significant impact from Covid in terms of revenue, but I guess we have not yet seen the full effect on the economy and the long-term impact on the insurance buying behaviour of the business community, our clients. Our focus is and has been to maintain our high level of service standards and keep our clients as the focus of everything we do.
Operationally speaking, it was the change in working environment from the team being office based to home working. I’m not really referring to the practical issues i.e., IT and phones etc. that was very straightforward, but more the human element. Keeping the team working as a team, individuals who are now isolated at home maintaining that team spirit and crucially getting any support that they require. From personal experience I know that problems often feel larger when you are working alone, but those same problems become much more manageable when you are immersed within a team. That was the biggest challenge as I saw it.
From the wider MGA market view, I expect it will accelerate the already hardening market and carriers will become more inwardly looking maybe concentrating upon existing relations rather than new business and growth. Whilst this is rationale behaviour to a degree it may mean carriers miss out on the opportunity to maximise the market conditions.
Q2. What is the greatest challenge facing the MGA market?
I think the challenge was already there, but it has been magnified by recent events. An MGA must offer underwriting value to their carrier partners, not just distribution. In my mind brokers provide distribution and they do that really well, an MGA must be skilled in delivering underwriting profit over and above an in-house underwriting platform or delivering profits in an area that the carrier has no expertise.
To do this the MGA must become a virtual insurer with all the investment that entails including technology, actuarial resource and a long term aligned view of success. The MGA model is moving from a capital light model to a capital medium model and I think that over the long-term MGAs may well have to carry risk themselves in order to have a place in the market.
Q3. How has the MGA market changed in the last 12 months?
• Consolidation: Increased activity in the MGA space. Particularly given the Covid-19 crisis and the expected tax regime changes that are expected.
• Capacity: Loss of or scarcity. New deals are very hard to get across the line and a proposition has to be pretty special to get traction.
• Commission: Pressure on acquisition costs has been a theme over the last few years. This expense line is not independent of loss ratio and so goes back to the topic of adding value. However within reasonable parameters, commission levels are not a problem if customers are being treated fairly and all stakeholders are making suitable returns.
Q4. What impact has Brexit had on your business and the MGA market?
None directly on my business although there may be some effect in the claims handling environment surrounding the supply of parts.
Q5. How do you see the MGA landscape changing in the future?
MGAs will be distributed around a U curve. A number of small, specialised, skilled MGAs targeting a niche and then at the other end a number of larger generalist MGAs. Probably not much in between as the specialists are limited by definition and the rest get consolidated into the large generalists. I do see the potential for MGAs to morph into risk carrying vehicles to have long term relevance in the market.
Q6. What part will data and technology play in the future success and development of MGAs?
A huge part I would say. But the technology has to change the ‘business as usual’ process for the MGA/Carrier operation by way of significantly cutting future costs or by way of solving an insurance or risk problem for the client. Digital distribution for instance may, on the face of it, sound attractive, but it has to effectively replicate the existing network and at a much lower cost – not the same cost.
Q7. Have you seen any significant changes in MGA M&A activity during 2020?
Yes, a great deal of activity and the market seems very buoyant, a well-run MGA is a very attractive target.
Q8. What makes an MGA attractive to a potential investor/buyer?
It depends upon the size of the MGA and the profile of buyer (a PE House will be looking for things that say a consolidator would not be necessarily looking for), but in the main:
• Specialism, like carriers, investors rely on their own strategy to diversify risk, you don’t need you to do this for them.
• Track record in terms of Insurer COR;
• Security of earnings (capacity live and secure);
• A high quality and stable management team that is proven to run a complex business well.
• High quality technology platform.
• Growth plans. Can the business scale?
Q9. What is the greatest opportunity moving into 2021?
I haven’t seen it yet. What I mean by that is there is so much opportunity out there that I believe the best one is yet to come. I’d like to leave on this positive note, because it has been a hard year for everyone and some of the things, I have talked about may be seen as negative, but overall, I feel very positive about the MGA market and its ability to deliver for customers, carriers, staff and investors.
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All the best,
Gary Pike
Founder & MD Right International
