MGA evolution can support broker independence, says Pro Global’s Danny Maleary

The managing general agent sector is “at the cusp” of being something very different with access to insurance risk capital and products perhaps “defining what the regional UK broker actually is all about”, according to Danny Maleary, CEO of Pro MGA Global Solutions.

The business incubates MGAs from design through to regulation and trading and ultimately exit.

It has 35 MGAs in total, 80% of which are UK domiciled with in turn a significant percentage writing UK business in addition to international business.

Across the group it has $650m (£477.1m) of gross written premium under management with MGAs working in 24 classes spanning personal lines, traditional property and casualty and reinsurance.

Maleary accepted that for some brokers, depending on factors such as their client base and career aspirations, selling to consolidators is a natural step.

“The only nervousness is we ensure that the UK broker doesn’t diminish to the extent that it only becomes the choice of a dozen,” he said. “The UK broker sector is very important to the consumer.”

Hunger

The level of consolidation has been labelled as an M&A “frenzy” by IMAS. Maleary predicted it would “ramp up” even more in 2022 with smaller players buying among themselves and mid-tier consolidators trying to push towards the size of the known names in the industry.

“We have a year of change,” he said. “Coming out of the pandemic there is a renewed hunger for growth.”

However, he declared that the evolution in the MGA market could support other firms and deliver more choice around their futures.

“I’m passionate about supporting the UK regional broker marketplace,” said Maleary who sits on the British Insurance Brokers’ Association’s networks and MGA advisory board.

“What we are seeing is the non-traditional brokers, looking at their own conceptual MGA type of proposition.”

Educated

He stated he is trying to encourage brokers to be more educated about what the future could look like.

“There needs to be some acceptance and realisation that there needs to be change because there is a lot moving going on,” Maleary suggested.

Adding: “My desire is that the UK regional marketplace realises there is an element of change but what they provide and do for us as insurers – and MGAs represent the insurer – is valuable.”

Calling on brokers to “think slightly outside of the box” Maleary argued UK regional brokers need to consider how they possibly transition to a slightly different model.

This, he made clear was not about downing tools and would still involve holding the hands of clients.

Hybrid

Advisory work based on understanding the market and what a customer’s risk looks like will be maintained but with a hybrid proposition.

According to Maleary, MGAs are already “enabling their regional broker partners to access a portal they are managing on behalf of a suite of insurers” making them managing general underwriters as much as MGAs.

It results in: “Allowing that risk capital to be channelled to the right quality of regional broker that delivers to their client what their client is looking for,” he suggested.

Maleary also believes the likes of pension funds have appetite to get involved with insurance risks.

“The opportunity of what I see day to day from risk capital investors is immense,” he stated.

Continuing: “There is an opportunity for the MGA to shape something with its UK regional partners as to what insurance risk capital looks and feels like,” he stated.

Pension funds

The likes of Ardonagh Portfolio Solutions has previously stated its belief that pension and sovereign wealth funds could be brought into backing insurance products.

The process needs a fronting insurer to carry the risk and has naturally been seen as reserved for larger players with the size and scale to make it worthwhile.

Maleary recounted that MGAs can bring together groupings of independent brokers to create this size and scale needed for other players to be involved. It opens it up to relatively speaking smaller brokers.

The effect positions the UK broker slightly differently to where they are traditionally.

“There is absolute choice to what sits behind an MGA to offer its UK regional brokers the risk capital to support their clients,” Maleary insisted.

Factors

Key factors are management and oversight and Maleary acknowledged that brokers and their clients would want transparency to know who is fronting the risk.

“The ultimate risk carrier might be a double A rated entity that just happens to be supported from a risk capital investment,” he underlined.

Maleary revealed that he had already seen “one or two” come to fruition and countered that it was not something that would lead to a deluge of unrated capacity entering the market.

“I don’t believe this is the onset of a splurge of unrated entities,” he stressed. “It is [about] who supports the risk carrier that supports the MGA that ultimately supports the client.”

In his view the Financial Conduct Authority is not stifling such innovation but is keeping a watch on the MGA market including its capacity providers. This, he set out, benefits everyone and should provide reassurance with the quality of the new breed being recognised.

“The FCA in terms of what they are looking to do at the moment and focusing on the consumer is healthy. It is challenging,” he said.

“What it will do is refine those that are capable versus those that are not. That is only a good thing for the UK broker market and their clients.”

Advocate

Brokers looking at accessing insurance risk capital via different routes is something Maleary said he was “seeing more and more of”.

However, understandably an advocate of what MGAs already deliver for brokers, he also listed innovation in technology, engagement with brokers enabling them to uplift their proposition to clients and variety of products among the current strengths of the sector.

“Despite the perception that an MGA in between them [the broker] and the risk carrier actually means it is more pricey in some areas it doesn’t actually work. In fact it is cheaper,” he argued.

According to the Pro Global boss, because the expertise lies in the MGA they and the insurers behind them can build competitive propositions.

“The nimbleness and fluidness of being able to shape a proposition that suits a client is where the MGA generally speaking adds value,” he said.

Brands

In the past there have been examples of providers pulling back from supporting MGAs but Maleary countered that currently “brands” are embracing MGAs.

MGAs can turn more quickly than those insurers that are more like oil tankers, he observed adding such businesses “know their best route to market is actually via different vehicle”.

This he said meant MGAs were getting increasing exposures and the market could “sustain where it is and grow”.

It is a sector, like broking, which has previously been perceived as having many large players and plenty of smaller offerings, but lacking presence in the middle.

“There needs to be a balance of shape,” Maleary acknowledged.

“The MGA sector is being shaped accordingly and will become fighting fit during 2022,” he forecast saying it was “continuously evolving and growing”.

Motor

For instance, providers that had supported MGAs in other territories are moving into the UK bringing their learnings with them, he said of the expansion.

“We have two of those in the motor market,” he revealed saying they were MGAs that were previously supported abroad by UK domiciled insurers.

“There is an opportunity that will see the motor market as we move forward into 2023 and beyond feeling slightly different,” he said.

However, he does not have an arbitrary figure for how big he wants Pro MGA Global Solutions to get in the same time frame.

The current $650m could become $1bn or it could shrink at the business which has a headcount of 12 but can draw upon the 630 staff in the wider group: “I’m more fussed about the quality of the MGAs we are looking after, the quality to brokers and customers.”

Incubation

During his career spanning over 30 years he has been involved in a number of attempts at creating the concept of incubation of MGAs with a number of parents.

Vibe – bought by Pro Global in September 2019 – was launched in 2017.

Maleary had joined the George Soros-backed incubator in 2016. “[It] was probably the first time that we had sat down with a parent that also had a risk capital partner that was a sister company,” he said of the launch highlighting the importance of having a parent that was very interested in MGAs from an investment perspective.

Over the course of his career he has overseen 15 businesses from start-up to exit.

One that was created in 2016 and had grown to $250m across 18 classes of business with 75 people left last year.

“Incubation in its truest sense is we take them through a journey and at some point they become mature enough to move on,” he said.

And accordingly just as the premium figure could rise or fall so the 35 entities could become 40 or reduce.

“It is about value add, that is the key thing for me,” he concluded.

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