‘There is far too much supply of MGAs and front companies’ – Vantage CEO Greg Hendrick

Vantage CEO Greg Hendrick believes there is not enough good business to support the scale of managing general agents and fronting companies battling it out in the current market.

Speaking on the Voice of Insurance podcast, Hendrick said his business supports nine MGA programmes.

Vantage is a Bermuda-headquartered (re)insurer operating in 25 US states, led by Hendrick who has 35+ years underwriting experience in the field.

Hendrick’s expertise in US (re)insurance means he is well-placed to survey and opine on the MGA and fronting landscape.

He said: “I don’t think MGAs are going away. They’ve ebbed and flowed. They’ve survived.

“And I think there are a lot of very good ones out there that deserve support and backing from carriers.”

Vantage retains most of the risk with its roster of nine MGAs.

Hendrick told host Mark Geoghegan his blueprint for a successful MGA.

Successful MGA-carrier partnerships require three things: first, truly unique distribution or analytical capabilities, not generic market reach. Second, both sides must operate as modern, transparent organisations with robust data sharing, despite inevitable operational hiccups. And thirdly, and most importantly after strong underwriting talent, there must be a clear mechanism for sharing profits with the MGA when the business performs well.

Stressing the importance of profits, Hendrick said: “And if no profit is made, they’re not going hungry, they’re not starving, but they’re not making a lot of money either.

“And that’s a very hard thing to do. There are a lot of situations in this day and age where the MGAs are going to make money whether the underwriting is successful or not. I don’t think that’s a healthy recipe.”

Data impact 

Geoghegan reflected on his days as a broker, when MGAs needed to be specialists. He wondered whether technology has opened the door to the MGA explosion.

Reflecting on the advances in technology, Hendrick said: “The better flow of data through the better use of technology has definitely enabled the growth of MGAs. It’s also enabled the growth of broker facilities as well.

“Gone are the days where you’re getting quarterly information in 90 days. Those days are gone. I mean, you can get some relationships that are real time. 

“Most of what we do does not change day-to-day today. It changes on the first or the 15th or the 30th of the month when insurance for big businesses renew.”

Market conditions

The discussion covered conditions in the US market. Hendrick noted the rate erosion in cyber, D&O and some professional lines. Cyber frequency is up, but severity down.

This had resulted in a ‘raging debate’ about whether there is enough margin there, with Hendrick noting that caution was appropriate.

Property was cooling on rates from a high, but there was still enough margin for Vantage to grow.

Pinpointing the current sweet spot in US markets, Hendrick said: “Where we see both the growth for us, and I think the best levels of profitability for the industry, is in the longer tail lines and excess casualty, in health care and construction and political risk and a few of those areas where we think prices are at levels that are yielding good margins and rates continue to stay at or ahead of our estimated loss trend.”

Hendrick told the podcast that Vantage’s reinsurance strategy is sound: the portfolio is diversified across true specialty lines, intentionally lower-volatility, and performing well. 

Market conditions vary – some segments are hardening, some flat, some softening – but overall Hendrick stated he sees strong opportunities and feels confident in the reinsurance book’s positioning.

There was no mathematical formula at Vantage on pinpointing rates of growth in premium at Vantage, but he said insurance was about 70% of the book, and reinsurance at 30%.

IPO

The conversation then turned onto a possible flotation for Vantage. Geoghegan probed as to whether it was a possibility.

Hendrick said Vantage had been on a multi-year journey with investors, and the business was ripening: “We said it’s a five-to-seven, five-to-eight-year window of when you might think about monetising or recognising the value that’s been created by everybody here. So we’re just entering that window.”

He said an initial public offering was a path that they might think about in the next few years, while also saying Vantage might make a significant strategic movement.

The conversation ended on an upbeat note, with Geoghegan offering warm support: “Keep growing. Keep a smile on your face, which is firmly, firmly there right now, and then book in a time to speak at some point in the future.”