The MGA model is broken – Antares CEO

Antares’ CEO Mike Van der Straaten is the latest executive to feature on the Voice of Insurance podcast, produced in association with AdvantageGo.

Chief executive of the Lloyd’s and Bermuda market re/insurer Mike Van der Straaten has delivered a sobering view on the managing general agent (MGA) market.

Speaking on the Voice of Insurance podcast, he said the MGA model was broken, and that part of the rationale for Antares setting up its own MGA business was to filter out the good from the bad among coverholders, to distinguish which add value, versus others that eat up any advantage through the fees they collect.

Van der Straaten has been working in the (re)insurance industry for 40 years, since the age of 16. He brings a unique viewpoint of the market from which to apply accumulated knowledge and understanding. His current role sees him lead Qatari-owned Antares.

Like many of its peers, Antares has undergone a rebuild in the past few years and is now stepping out to seek measured profitable growth once more. The firm has slimmed its structure from six down to three structures – its Lloyd’s market, UK, and Bermuda entities – effectively splitting the business into retail and commercial focused arms.

The insurance side of the business is retail-orientated with a $400m book, while the Bermuda reinsurance element leads the $800m commercial book. “What this allowed us to do is to offer the product globally to the same clients with one real plan and strategy,” he adds.

Kicking the tyres of MGAs

As part of its rejig, the group is also founding its own MGA, called Scorpius, via its UK insurance arm, which he says is already writing much of its business via MGAs. The second strand to the logic concerns reinsurance business, creating a retrocessional MGA called Asteri Re to reinsure reinsurance business, which is open to third party capital partners to “sit alongside”.

Part of the logic of launching its own MGA is about better filtration of such business, he reveals, to “kick the tyres” and “weed out those not fit for purpose or not within appetite”, adding: “If they pass the test with our MGA, then they get to talk to the insurance company.”

Growth in the MGA space has been “absolutely phenomenal” in the past decade. Is that going to continue, host Mark Geoghegan asks, or is the sector headed for consolidation?

“I think the consolidation would have happened if the market hadn’t gone soft or it’s getting softer this year,” Van der Straaten says. “Carriers will probably fall into the old trap of ‘I’m losing my market share; how do I get it; and maybe MGAs become that alternative,” he considers.

“That’s something I hope doesn’t happen,” he continues. “But we found that the MGA model was broken. The commissions payable and the deductions were far too much for how much profitability was left in the business. So, we decided on our own new model for an MGA and how we would expect it to work. We have good partners that see the same vision as us.”

Insurers seeking growth

Mark suggests that MGAs can do better in a soft market as carriers look for growth and decide they’re the best place to underwrite to find it.

“People still want to purchase MGAs for multiples, and until that stops, I don’t see it changing,” Van der Straaten says. “Lloyd’s helped when they looked at how much original commission was being paid away, that had a knock on effect in the business, but I still think some of those commissions are far too high in the MGA world.”

MGAs typically highlight their advantages in being technology-led, focused on niche business, combining better data, efficiency, expertise and distribution. However, Van der Straaten warns that these things – while attractive for carriers – can be eaten up in commissions, offsetting some or all of the value of MGAs for their backers.

“The digitalisation of the MGA does help, and it does reduce the original commission of getting the business, but then the MGA wants that commission as its own commission,” he adds.