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Soft market conditions replace regulation as main factor affecting MGA growth

19 January 2017: Soft market conditions have replaced regulation and compliance as the main factor affecting growth in the MGA (managing general agents) sector in 2017, according to the latest MGAA Matters, the research-based partnership between the Managing General Agents’ Association and MGA start-up specialists Castel Underwriting Agencies Limited (Castel) 1. 

The survey of MGAA members, conducted in December 2016, also looked at the sector’s main strategic priorities and how these have changed over the last three years.

More than 65% of survey respondents placed soft market conditions at the top of the list of factors affecting growth, compared to 46% in 2014. Regulation and compliance, which topped the list in 2014 with 69%, dropped a place with 57% in the latest survey.

Increased competition in the sector was cited by 56% of respondents – seeing it drop to third, having been second in 2014. Other factors including availability of underwriting capacity and the impact of out-of-date technology remained in similar positions in both years.

New factors appearing included mergers and acquisitions (M&A) and consolidation in the sector which was cited by nearly 19%. Just over 17% of respondents said uncertainty about Brexit would impact growth.

Some previously highly-rated factors are now seen to have less impact. The ability to recruit and retain talent was selected by over 30% in 2014, but only 12% said it was a main factor affecting growth now.

Also, the impact resulting from a lack of understanding of the MGA’s role moved from just over 20% in 2014 to 12% in the latest survey. The availability of investment capital, which was identified by over 23% of respondents in 2014, did not feature in the 2017 list.

Respondents were also asked to identify their three main strategic priorities for 2017. The results reveal a change of emphasis in the approach of MGAs. In 2014, close to 60% of respondents placed moving into new lines of business and products as the main priority. While still a factor for just under half of respondents (48%), it has now dropped out of the top three.
The priority is now a focus on increasing business development and marketing activities (65%). MGAs’ appetite to increase or widen their capacity base has also moved from its top three position in 2014 to fifth. Updating technology and increasing business efficiency remain in the top three of MGAs strategic priorities.

Respondents were also asked about their views on likely changes in the number of MGAs over the next 12 months. Nearly 63% said they expected an overall increase and only 12% expected the number to decrease, a similar amount said the number of MGAs would not change during 2017.

Looking further ahead, the survey asked whether the sector could sustain the current levels of growth over the next three years, and expectations on the levels of M&A and consolidation amongst MGAs over that period.

When asked specifically if the UK’s MGA sector will be unable to sustain the current levels of growth and success over the next three years, just over 21% said they agreed. However, 48% disagreed or strongly disagreed, while 31% neither agreed nor disagreed.

In terms of levels of M&A and consolidation, 60% said they expected there to be increased levels of activity opposed to just over 2.5% saying the level would decrease.

MGAA Matters is a research-based partnership between the Managing General Agents’ Association (MGAA) and MGA and club-style MGA formation platform, Castel Underwriting Agencies (Castel). It was launched in 2014 to identify and raise awareness of the issues currently impacting the growth and success of UK MGAs.

Commenting on the MGAA Matters survey results, Mark Birrell, chief executive officer of Castel, said: “The survey reveals that MGAs expect a further period of sustained growth for the sector. The fact that regulation and compliance have now dropped to second in the list of factors affecting growth reflects, in my view, the strong investment that has been made by MGAs to ensure they meet regulatory demands. With soft market conditions now taking top spot, there will clearly be an even greater onus on MGAs to maintain the highest levels of efficiency and profitability to meet the needs of their capacity providers.”

Peter Staddon, managing director of the MGAA concludes: “MGAs remain optimistic about their opportunities to grow and it is no surprise that they are looking to broaden the scope and reach of their distribution partnerships. This strategic priority reflects the sector’s product knowledge and understanding of clients’ needs as well as its innovation and entrepreneurial skills.

“The fact our members are indicating regulation having a lesser impact on growth reflects the Association’s work with the FCA to build a clear and working understanding of the role of the MGA. We will continue to engage with the regulator to ensure that there is this clarity.”