Managing general agents (MGAs) should seriously consider the benefits that captive insurance companies can deliver to their business amid renewed pressure from capacity providers, according to Michael Woodroffe, president of Kirkway International.
Speaking at an event hosted by Davies Group and the Managing General Agent Association in London, Woodroffe warned MGAs about capacity providers were increasingly looking for the MGA to take a share of the risk.
He said: “After many years of growth and wide acceptance, MGAs are facing headwinds from insurance carriers and reinsurance markets.”
Woodroffe suggested that the issue for the MGA was the continued “total reliance” on carrier or reinsurer to provide risk transfer due to the absence of capital and licences.
He added that without any involvement in the provision of the risk capital, and with it a tangible and financial involvement in the performance of the risks assumed, there was a suspicion by both carriers and reinsurers that MGAs’ only focus was on premium volume and the ceding commission.
Woodroffe continued: “MGAs also suffer from the inability to easily build capital and surplus from profitable business without diluting ownership by raising outside capital there is also a difficulty when it comes to the ability to differentiate their product from the competition.”
Additionally, he explained that against this background, the use of a captive could deliver real benefits for MGAs.
He said: “A captive is not only a very useful business tool for the management of an MGA but can be a lifeline as capacity starts to disappear and partners insist that the MGA take some form of the risk in the overall book of business.”
Woodroffe concluded that a captive could and does deliver a range of benefits to an MGA in the current market.
“A captive creates an alignment of interest between insurers, reinsurers and the MGA ownership.”
“It also gives the MGA a tactical advantage when negotiating renewals with their insurance carrier and reinsurance panel.”
“It allows the MGA to build up underwriting profits above and beyond those from a profit commission or sliding scale."
