Changing MGA Market, Specialization and the Future: Hanover Excess & Surplus’s Letson

Matthew Letson, incoming president of the American Association of Managing General Agents (AAMGA), found the insurance industry like most do – by accident.

After college, he landed a job at Markel doing marketing research in 1991. From there he moved into Markel’s wholesale brokerage unit. Then in 1994, Letson moved to Wilmington, N.C., to join Hanover Excess & Surplus Inc., a 30-plus year old managing general agency. Today, Letson is part owner of the firm where he now serves as president as of Jan. 1, 2014.

Prior to AAMGA’s annual meeting in May, Letson answered a few questions on the MGA market today, changes in the AAMGA’s membership bylaws, and why being a specialist is the only way to operate.

Insurance Journal: The AAMGA changed its membership structure in 2013 to allow for broader wholesale industry participants to become eligible members. How has that change played out?

Matthew Letson: It’s gone very well. The change was part of our strategic plan. A couple of years ago we worked toward educating the membership to let them know why the bylaw change was necessary.

The reason for that change was that there was increased specialization in the MGA/wholesale space. There have also been quite a few mergers and acquisitions in the MGA space. What we are trying to do is create better depth of membership and represent a wider class of wholesale and underwriting entities. So we changed the bylaws, and really it’s not been quite a year. …

In the past year we’ve really worked toward understanding some of the needs of the new types of members. … We’ve had several new members in the program space join. But this is slow growth; we are not looking to disrupt the current membership of AAMGA. We are trying to slowly grow membership into what we think is a better reflection of the wholesale market right now.

Over time the hope is that we will bring in more members so that we can learn from each other. … Our goal now is to really understand what these new types of members need. … The ultimate goal in this area during my term will be to hold a specific meeting for the non-MGA new members of the AAMGA.

IJ: You mentioned M&A activity in the MGA space. How has that activity changed the MGA market in recent years?

Letson: It’s very similar to the retail agency space. MGAs in the last three to four years have gone through a significant merger and acquisition cycle. I think the numbers are upwards of 160 or 170 in each of the last two years alone. We are seeing fewer and fewer independently owned MGAs and some are certainly larger MGAs. This trend is very impactful on the MGA space right now.

But this particular business by its nature is very entrepreneurial. So I do think this M&A cycle is just that – it’s a cycle. It will change. I don’t know what it will change to – it will either speed up or slow down – but it won’t stay the same. Either way, I think there will be plenty of opportunities for those in this business.

IJ: How would you describe the MGA market today? Certainly the recession and soft market brought tougher times for MGAs. Are MGAs seeing upward growth trends?

Letson: We certainly saw a firming of the market over the last few years and as a result of that we have seen growth in the MGA space at least for the AAMGA membership. Growth with surplus lines carriers, growth with specialty carriers and growth in the Lloyd’s marketplace has been considerable over the last few years, and at least in the London market we have returned to numbers that we were seeing prior to 2008.

IJ: MGAs are specialists by nature but are you seeing even more specialization today?

Letson: We’ve seen some of our MGAs get into the program space. We see a lot of professional liability lines being written. I think a lot of times coverage gets pushed into the professional form as we see more and more things get excluded off the general liability form. That’s not unusual. There are a lot of different examples we could provide of MGAs moving to specialized products.

At Hanover Excess & Surplus we are specialized in what we offer in the coastal territories. Specialization – that’s typically just a reflection of the marketplace. … Standard carriers taking on more Main Street business. We have to create specialized products and take advantage of those opportunities. … We’ve always got to keep our eyes open and be diligent about developing products and looking for opportunities and taking advantage of those opportunities. Right now it is specialization. I think in the future, if you are a generalist MGA you might find it hard to compete. There’s a lot of very tough competition out there for general lines. Finding a specialty, being an expert in it, and being a resource to retail agents is the way to go.

Topics Trends Excess Surplus Insurance Wholesale