Soft Market Is Main Factor Limiting Growth of UK MGAs: Survey

January 20, 2017

Soft market conditions have replaced regulation and compliance as the main factor affecting growth for UK managing general agents (MGA) in 2017, said a survey of members of the London-based Managing General Agents’ Association (MGAA).

The soft market was cited by more than 65 percent of respondents, with regulation and compliance coming in second place for 57 percent of respondents, according to MGAA Matters, research supported by the MGAA and MGA start-up specialists Castel Underwriting Agencies Ltd.

In a 2014 survey, regulation and compliance topped the list of factors affecting growth for 69 percent of respondents, while the soft market came in third for 46 percent of respondents.

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

Increased competition in the sector was cited by 56 percent 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 Other factors including availability of underwriting capacity and the impact of out-of-date technology remained in similar positions in both years. (The availability of underwriting capacity came in fourth place in both 2016 and 2014, while the impact of out-of-date technology came in seventh place during both years).

New factors appearing included mergers and acquisitions (M&A) and consolidation in the sector which was cited by nearly 19 percent of respondents in the 2016 survey. Just over 17 percent 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 percent in 2014, but only 12 percent said it was a main factor affecting growth now, the survey revealed.

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

Strategic Priorities

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 percent 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 percent), it has now dropped out of the top three.

The main priority is now a focus on increasing business development and marketing activities (65 percent). 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.

The full list of strategic priorities for 2017, ranked by respondents were: increasing business development/marketing (65 percent); updating technology (53 percent); increasing business efficiency (52 percent); moving into new line of business/products (48 percent); increasing or widening capacity base (41 percent); staff training and development (25 percent); securing external investment (nearly 7 percent).

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 among 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 percent said they agreed. However, 48 percent disagreed or strongly disagreed, while 31 percent neither agreed nor disagreed.

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

Growth Expected

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, noted: “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.

MGAA Matters Survey

The seventh MGAA Matters survey took place during December 2016 with 75 respondents participating. MGAA Matters was launched in 2014 to identify and raise awareness of the issues currently impacting the growth and success of UK MGAs.

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