此为英文文档Insurance MGAs Opportunities and considerations for investors 2022 -mckinsey

InsurancePracticeManaginggeneralagents(MGAs)rolesinchain.ThemoreareaboutMGAsfunction,bettercanopportunities.byGrierDienstag,AndrewReich,MatthewScally,andLedaZaharievaAugust2022

©Dmitrii_Guzhanin/GettyImagesAftermorethanadecadeinwhichprivateequityhasmadestrongreturnsbyfocusingonintermediariesintheinsurancesector—notablyretailbrokerages—attentionintheUnitedStatesandEuropehasturnedtoanothercompellingnicheplay:managinggeneralagents(MGAs).Private-equityinvestmentinMGAshasacceleratedinthepasttwoyears,increasingthecompetitivenessofeachdealandpushingvaluationshigher.InvestorshavebeenlookingtounderstandhowMGAsfitwithintheinsuranceecosystem,howtheydifferfromotherinsuranceintermediariessuchasretailbrokersandwholesalers,andhowMGAscomparewithotherpartsoftheecosystemasaninvestmentopportunity.Inthisarticle,weprovideanintroductiontoMGAsandanoverviewofthemajortrendsaffectingtheircompetitivedynamics.WeconcludewithaperspectiveonMGAsasaninvestmentopportunityforprivate-equityinvestors.WhatisanMGA?MGAsareinsuranceintermediaries,butunlikeretailandwholesalebrokers,theyareoftengrantedbindingauthorityfrominsurancepartners.Thismeanstheycanquoteandbindpoliciesthatfitwithintheagreed-uponriskparametersoftheirinsurerrelationships.ThisfeaturedistinguishesMGAsfromotherinsuranceintermediaries.MGAsoftenfurtherdifferentiatethemselveseitherbyhavingexpertiseinnonstandard,niche,orspecialtylinesofinsuranceorbyhavingprivilegedaccesstospecificcustomersegments.RolewithinthevaluechainMGAscanplayanintegralroleintheinsurancedistributionvaluechain,oftensittingbetweenotherintermediaries,suchasretailorwholesalebrokersandinsurancecompanies,providingauniquevaluepropositionforallparties.MGAstypicallyhaverelationshipswithinsurancecarriersthatfocusonmorespecializedbusinessesandrisks.Thus,retailbrokerscanexpandthe

numberofinsurancecarriersthroughwhichthefinalclientcanobtaininsurance.MGAs’expertiseintheirspecialistnichesalsohelpsbrokersstructureriskappropriatelyforinsureds.MGAscanalsomakethevaluechainmoreefficient,giventhattheyoperatewithoutthetypeoflegacyplacementplatformsseenelsewhereinthesector.MGAsalsotendtohaveleanoperationsbecausetheyareoftensmaller,younger,andunencumberedbytheoperationalcomplexitiesfoundatinsurancecarriers.Theymayalsoofferenhancedtechnologyforpolicymanagement,quotation,orclaimsmanagement,makingbindingandpolicymanagementprocessesmoreseamless.Forinsurancecarriers,MGAsprovideexpertiseandunderwritingsophisticationforspecificlinesofbusiness,suchascyberrisk.TheyalsomakemarketentryeasierbecauseinsurancecarrierscanleverageMGAstoenternewmarketswithouthavingtobuildtheirowninfrastructure,whichtypicallyinvolveshiringanunderwritingteam,buildingnewpricingmodels,sourcingexternaldatarelevanttospecificrisks,andincurringthenewdevelopmentcostsassociatedwithanin-housebuild.SomeMGAsalsohandleloss-mitigationstrategiesforinsuredsandprocessclaims.Amongthetop100USpropertyandcasualty(P&C)insurers,43percent—includingsevenofthetopten—haveatleastoneMGArelationshipthoughwhichosoucenwpemiums.1He,theamountofpremiumssourcedthroughMGAsvariessignificantly.SomemayleverageMGAstosourcenewbusinessaroundthemargins—typicallyrepresentinglessthan5percentoftheiroverallpremiums.Othersmaintainahybridmodel,withcertainprogramsmaintainedbyin-houseunderwritersandothersbyMGAs(typically25to75percentoftheoverallpremiums).Also,someinsurancecarriersrelyonMGAsformost,ifnotall,oftheirdistributionandunderwriting.Inthiscase,theinsurancecarrieractspurelyasacapacityprovideror,asinthecaseofsomefrontinginsurers,asintermediariesbetweenreinsurersandMGAs.1“2021:Managinggeneralagents-risingtothechallenge,”Conning,2021.2 InsuranceMGAs:OpportunitiesandconsiderationsforinvestorsAssessingmarketsizeTheUnitedStatesandUnitedKingdomarethetwomostdevelopedMGAmarkets.SeveralMGAsoperateinboth,whichmayinvolveplacingUS-originatedrisksintheLondonmarket,maintainingLondonoutpostsforUSMGAs,orexpandingLondon-basedMGAsintotheUnitedStates.IntheUnitedStates,thereareabout600MGAs,whichcollectivelyplace$47billioninpremiums—equivalenttoroughly7percentoftheoverallcommercialandpersonalinsurancemarkets.2TherearethreetypesofMGAsintheUnitedStates:AffiliatedMGAs($26billionindirectpremiumwritten,orDPW)generatepremiumswhilebeingwhollyownedormajority-ownedbyaninsurer.TheDPWattheseMGAshasbeengrowingataneragefamost7pecetannualysnce2012.3NonaffiliatedMGAs($16billioninDPW)arethirdpartiesandcanestablishrelationshipswithmultipleinsurers.TheDPWattheseMGAshasbeengwngyabout3pecetsnce2012.4CropMGAs($5billioninDPW)arenicheMGAsthatparticipateintheMulti-PerilCropInsuranceProgram(MPIC),whichistiedtotheagriculturalsector.TheDPWhasfallensince2012.

IntheUnitedKingdom,therearemorethan300MGAsplacingmorethan10percentoftheUnitedKingdom’s£47billioningeneralinsurancepremiums.5Lloyd’sisthelargestglobalmarketforMGAs;in2020,Lloyd’shad76syndicatesmanagedby50generalagencies.6FinancialprofileLikeotherpartsoftheinsurancedistributionvaluechain,MGAsmaintainattractivefinancialprofiles,withEBITDAmarginsinthehigh20stolow30s,lowcapitalintensity,andhighfree-cash-flowconversion.MGAsgeneraterevenuethroughthreesources:Commissionspaidbyinsurers,whichtypicallyconstitute60to80percentofanMGA’srevenue.Theseareoftencalled“overrides”todistinguishthemfromretailagents’commissions.Profitabilitycontingents,whichareareperformance-basedcommissionspaidbyinsurersbasedontheunderlyingperformanceoftheriskthattheMGAplaced.Theytypicallyaccountfor20to30percentofanMGA’srevenue.Additionalservices(forexample,claimsadministrationandinspection),whichcangeneratethefinal5to10percentofanMGA’srevenue.100and2Ibid.3ThisisestimatedbasedonNationalAssociationofInsuranceCommissioners(NAIC)reportingregulations.GrowthcouldbestrongerifMGAs’DWPhasgrownininsurancecarrierswithlessthan5percentshareoftheiroverallDWP.4Ibid.5ManagingGeneralAgents’Associationhomepage,accessedJuly25,2022.6“Howthemarketworks,”Lloyd’s,accessedJuly25,2022.InsuranceMGAs:Opportunitiesandconsiderationsforinvestors 3TrackingindustrytrendsInvestorsmustbeawareoftoday’sindustrytrendswhenevaluatingMGAs.EmergingrisksOneofthecorevaluepropositionsofMGAsistheirabilitytobringtheirspecializedunderwritingskillsandmarketexpertisetonew,emergingrisks.ExamplesofthesenewrisksincludecasinosonNativeAmericanreservations,cannabis,transactionalliabilityinsuranceforsmallerdeals,andcyberrisk.Theincreasedfrequency,severity,andongoingthreatsofcyberattackshavegivenrisetothefast-growingcyber-insurancemarket.Accordingtoourestimates,thecyber-insurancemarketissettogrowfromabout$6billioninpremiumstomorethan$20billionwithinthenextfiveyears.Asaresult,severalcyber-focusedMGAshaveemerged,toutingsuperiorriskidentificationandprevention.AnotherareainwhichMGAsareincreasinglyactiveisspecialtycoverageinpersonallines.Thisisdrivingbetterunderwritingquality,customerexperience,andaccesstospecializedrisksforMGAs’capacitybackers.Oneexampleofthisispetinsurance,withleadingbrandsinthissectorintheUnitedKingdomandtheUnitedStatesbothemployingtheMGAmodel.DigitalMGAsThepastseveralyearshaveseentherise—andsignificantventurefunding—ofdigitalMGAs.Theseoftentargetspecificendcustomers(forexample,smallbusinessesandhomeowners)andprovidecertainlinesofinsurance,includingpet,auto,homeowners,andsmall-commercialinsurance.WhileseveraldigitalMGAsinitiallystartedasMGAsbackedbyinsurancecarriersandreinsurers,

wehaveseenmultipleinstancesofdigitalMGAsretainingaportionoftheriskontheirownbalancesheets,oftenthroughtheacquisitionofapartnerinsurer,enablingthemtocontrolsomeofthecapacitytheyplace.Still,manycontinuetopartnerwithotherinsurancecarrierstoretainflexibility,especiallyinadmittedlines.MergersandacquisitionsTheMGAM&Amarketisincreasinglyactive.Whilethelevelofacquisitionspalesincomparisontothemorethan1,000completedin2021intheUSretailbrokeragemarket,therewere39acquisitionsin2020—thelatestyearforwhichdataareavailable.Thiswasanaltmehighatthatpot.7Asaesultoffiercecompetition,valuationshavegrownsignificantly,withrecentacquisitionsvaluedinthemidtohighteensintermsofEBITDAmultiples.Threetypesofbuyershaveemerged:Insurancecarriers,whichareacquiringhigh-performingMGAsthatoperateindesirablemarketsandhaveexhibitedenhancedunderwritingexpertiseormaintaineduniquecustomeraccess.Retailandwholesalebrokers,whicharelookingtoexpandthevolumeofbusinesstheycansourcethroughtheaddedrelationshipsandexpertiseofacquiredMGAs.MGAaggregators,oftenbackedbyprivate-equityinvestors,whichareseekingdiversificationacrossmultiplelinesofbusinessandcreatingmultilinepropositionstocapacityproviders,therebyminimizingrisksassociatedwiththecyclicalityofcertaintypesofbusiness.andriseinsurance7“2021:Managinggeneralagents,”2021.4 InsuranceMGAs:OpportunitiesandconsiderationsforinvestorsInthesignificantclaimslinesinsurancecarriersstartedbalancehasinturntheVerticalizationandassumptionofbalancesheetriskInthecurrentclimateofsignificantclaimsinflationacrossmultiplelinesofbusiness,someinsurancecarriershavestartedtorestrictbalancesheetcapacity,whichhasinturndividedthefortunesofMGAs.SomeMGAshavebeenforcedtoexitorreducetheirpresenceincertainassetclasses,suchascatastrophe-exposedpropertyorcyber.Othershavestartedtoexploreraisingtheirowncapitaltoassumesomeofthebalancesheetthattypicallyhadbeenprovidedbyinsurers,effectivelybuilding“verticals”intotheirbusinessmodels.Theymayalsotapintoalternativesourcesofcapital,suchaspensionfundsorLloyd’ssyndicateswithdiversecapitalbackers.Thisstep,however,hassignificantimplicationsforriskmanagementandinvestmentcapabilities,aswellasfortheoveralloperatingmodelofMGAs.Nevertheless,this“verticalization”hasboostedtheresilienceandcapacityofMGAs.Theprivate-equityinvestmentopportunityPrivate-equityinvestorsareattractedtoMGAsforatleastthreereasons.First,MGAshavefinancialcharacteristicsthattypicallyattractinvestors:highEBITDAmargins,lowcapitalexpenditure,highfree-

cash-flowconversion,andrelativelyhighrecurringrevenue.Second,private-equityinvestorsthatownotherinsuranceintermediariesfindvalueinacquiringMGAstocompressthedistributionvaluechainandcapturemoreoftheeconomics.Third,theopportunityforsignificantvaluecreationthroughdata,analytics,andtechnologicalstreamliningismeaningful,includingdigitalizingdistributionvia“legacy-free”placementplatforms,moreefficientquote-to-bindprocesses,andunderwritingprocessesthatleveragesemiautomatedpricingmodels.therearecriticaldistinctionsbetweenMGAsandotherinsuranceintermediaries.First,whilemanagementofanyportfoliocompanyisimportant,investorsmustpayparticularattentiontomanagement’sunderwritinghistoryandexpertiseinthelinesbeingwritten.Second,investorsmustevaluatetheMGA’srelationshipswithinsurancecarriers.Whileretailbrokersmayleveragehundredsofinsurerrelationshipstosourcecapacity,MGAstypicallyhavetwoorthreerelationshipsperprogram.ThesinglebiggestriskforanMGAremainstheloss,orreduction,ofaninsurerrelationshipduetoperformanceorinsurersscalingbackcapacity.Last,MGAsrelyonindependentagentstosourcepremiums.ContinuedconcentrationinthenumberofagentscouldincreasecompetitionamongMGAs.InsuranceMGAs:Opportunitiesandconsiderationsforinvestors 5Perhapsthelargestdistinction,however,liesinthevaluecreationthesis.Withabout36,000retailbrokeragesintheUnitedStates,privateequity–backedconsolidatorshavenumerousacquisitiontargetswithwhichtheyhavebeencapturinga“multiplearbitrage”opportunity.Bycontrast,therearearound600MGAsintheUnitedStates,meaningthattheprimaryinvestmentthesisneedstobedifferent.Whileretailbrokersmayhavesimilarcustomersorriskneeds,thesewillvarysignificantlyamongMGAs.Thismeansthatmultiplearbitrage-fueledM&Aisunlikelytobeeffective.Instead,investors’valuecreationthesismuststemfromtheexpertise,distribution,insurerrelationships,diversityof

earnings,andoperationalsynergiesofferedbyeachMGA.MGAsprovideprivate-equityinvestorswithaccesstoanindustrywith