Which is both good and bad news for MGAs.
If you have secure capacity, then great! Your rates will be going up and the likelihood of achieving your binder targets will increase dramatically.
If you're searching for capacity, then it's hard. The terms in your binder agreement will depend on the underlying performance of your book and its future outlook.
So what's important?
In our recent survey of MGAs, we got some interesting feedback I'd like to share with you:
At the top is level of delegation which more than 40% of respondents believe is most important. This surprised me, but I suppose an MGA is always looking for increased delegation to impact the portfolio and take more control of its future.
Most surprising for me was that only 10% of respondents currently consider commission terms as key.
These results are subject to the class of business, existing terms and how much margin there is in the book. The market is pushing back on commission, but if the structures and controls are in place, you may be able to increase delegation as a trade off.
In second place with over 25% of the vote, is the length of the binder agreement.
Lloyd's issues 1 year agreements, requiring MGAs to re-broke each year to secure another 12 months. This is both time consuming and restricts an MGA's future secure planning.
Company markets allow for multi-year deals, and some lucky MGAs even have 'evergreen' rolling agreements. A longer deal becomes a true partnership, with fluctuating loss ratios ironed out over the longer term. Plus, it allows for a more strategic view in building a profitable portfolio.
All things considered, the rating of capacity is important. And I would imagine sits at the top of the agenda for many MGAs. Some would not be able to operate without at least an A- rating from their carrier.
My advice for MGAs entering into negotiations for renewing or replacing capacity is to look at what's important, where you can compromise and where you simply cannot.
The author, David Hughes, is the founder and CEO of the Insurance Data & Analytics consulting business www.mulberryrisk.com