Bringing unique value to capital partners throughout the industry
Managing general agents (MGAs) bring specialized risk selection, underwriting expertise, distribution capabilities and innovative technology, helping these capital partners efficiently access niche market segments. In this episode of Fo[RE]sight, Guy Carpenter’s David Duffy, President, Global Clients, and Charles Williamson, CEO of Victor, a Marsh subsidiary and leading global managing general underwriter, discuss how activity in the MGA sector helps drive sustainable growth in today's reinsurance landscape. Collaboration between MGAs, insurers, reinsurers and capital partners helps fill portfolio gaps, enabling reinsurers to access new market opportunities, and fostering innovation in product development and capital deployment.
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Transcript
Eric Stenson: I'm Eric Stenson with Guy Carpenter. Welcome to this episode of Fo[RE]sight, a podcast series from Guy Carpenter, a Marsh Business, bringing you unmatched leadership insights on trending challenges, as well as innovations and solutions delivered by experts in the reinsurance industry.
For today's episode, Innovative Capital Strategies for MGAs and Carriers, I am pleased to be joined by Guy Carpenter's David Duffy, President, Global Clients, and Charles Williamson, CEO of Victor, a Marsh subsidiary and the leading global managing general underwriter, helping customers define and address risk. They will be discussing how MGAs bring value to capital partners, as well as how activity in the MGA sector helps drive sustainable growth in today's reinsurance landscape.
Thank you very much for joining us today, gentlemen.
Charles Williamson: Pleased to be with you, Eric
David Duffy: Thanks Eric – I’m happy I could join you today.
Eric Stenson: Thank you. I have several questions I'd like to ask both of you. I will start with David. How do MGAs bring value to capital partners? How do MGAs align with the work of Guy Carpenter and Victor?
David Duffy: Thanks, Eric. Well, clearly MGAs have unique risk selection and underwriting expertise, and that's incredibly valuable in this moment in the market. So, you know MGAs can distinguish themselves in a number of ways, whether it's through their underwriting, through its distribution capabilities, sometimes that's about market access, sometimes that's relating to the technology that they have that allows them to efficiently access parts of the market.
For us here at Guy Carpenter, we’re positioned at the intersection of risk and capital. We currently work on over 220 MGA programs here in North America. That's $7 billion of gross written premium annually. Victor is a great example of a best-in-class MGA, MGU, that we work with. The things that we do for our carrier partners here at Guy Carpenter translate very well to the services we provide MGAs.
We work with MGAs on third-party capital strategy, how they can evolve their own capital structures, and we look to bring our risk insight and analytical tools to the table to help MGAs be better at their core business and whether that could be sharpening their risk selection or their pricing focus, or just being more vigorous competitors in the global marketplace.
Eric Stenson: Thank you very much. Charles, anything to add to those points?
Charles Williamson: I think Dave's list was very comprehensive, but I guess I would offer just an emphasis on a couple of things. First of all, MGAs generally are super specific, like very niche-oriented underwriters and product development experts that service some segment of a market that carriers might not or won't invest in on their own.
David mentioned distribution, but I would say that among the things we do, that's paramount. Carriers struggle. There's over 35,000 retail agents and brokers in the United States, and most carriers don't have the sales force and the team to get to all of them. So, firms like Victor are able to do that. We trade with over 20,000 agents at Victor and help our carriers access them, that otherwise they wouldn't.
And the third point I would emphasize is just product development. MGAs have a culture and history generally of being voracious creators of product, and they have the systems and kind of the speed-to-market attributes that help carriers get into a segment faster and often cheaper than they could with their own resources. So, I think those are the major value props for an MGA and how they serve carriers.
Eric Stenson: Thank you, and you kind of led into this a little bit, but I’d also like to address innovation. Can you tell us how Victor and Guy Carpenter have encouraged innovation in the MGA space? In this instance, could we start with Charles?
Charles Williamson: Sure. I guess Victor is certainly a senior citizen in the world of MGAs. Our oldest business is 70 years old and actually is traded with the same carrier during those entire 70 years. And that formation, actually, the company launched 70 years ago, was innovation on its own. It was the first creator of architects and engineers product, which obviously has enabled enormous construction capabilities and design capabilities throughout the US economy.
More recently, and something I've been super excited about, we've created a wholesale brokerage inside of Victor, and subsequently acquired a second wholesale brokerage dedicated to cyber. So, we're now able to give agents a solution through one of our underwriting programs, or if failing that, if one of our solutions doesn't work on the underwriting side, we can offer a brokerage solution.
And then, again, something we're all very proud of that we worked on alongside Guy Carpenter under the banner of capital, we formed an insurance company called Victor Reciprocal Exchange, specifically called Victor Insurance Exchange, which was set up to allow us to take risk alongside our carrier partners and to bring more capital to the market. That was an innovation that Guy Carpenter played a very, very key role in helping to form and raise the capital for. And it's been hugely successful. We started it for our property cat business, and we've begun the diversification process in earnest, and really bringing value to clients and to our business.
Eric Stenson: Thank you very much. David – anything else to add in the world of innovation?
David Duffy: Thanks, Eric. I mean, clearly, MGAs have become massively more sophisticated in recent years, and I think, just listening to Charles speak there, Victor's a best-in-class MGA and MGU, and I think their journey's exemplary of the journey that the best MGAs have been on. So, we're trying to help our MGA clients innovate in the current market. Charles mentioned the example of the insurance exchange that we set up with Victor.
Evolution of capital strategies has been absolutely first and foremost, where a lot of the innovation's happening. And I think we're going to talk a bit more about that in a moment here. But I would also sort of highlight from a risk management perspective, our focus has been bringing risk management tools and risk insights to MGAs to help them deal with portfolio management and kind of evolving their views of risk, risk selection, aggregate management, really bringing more actuarial insight and rigor to their pricing and their portfolio tools, and also increasingly, we're helping MGAs research new market opportunities and adjacencies in the marketplace to their current areas of expertise.
So, again, as MGAs are evolving to become more like full-stack underwriting entities, the suite of services and the innovations that we're bringing to those MGAs is really, I think, following in suit and looks very similar.
Eric Stenson: Thank you. And you did allude a little about capital, and that leads into my next question. How should MGAs, insurers, and reinsurers adapt capital strategies to meet marketplace challenges? David, you kind of led into this, if you could maybe pick it up?
David Duffy: Sure, Eric, happy to. I think if you talk to MGAs, first and foremost, they would say there's never enough counterparties for them to deal with to basically allow them to pursue every opportunity that they see in the market. So, as we think about capital strategies, first and foremost, we're thinking about accessing a broader range of counterparties for our MGA clients, and historically, it was kind of insurers with the right profile of paper, but increasingly, that involves rated balance-sheet reinsurers, and insurance linked securities investors.
Sometimes through a front, sometimes through their own capabilities, but we've really seen that capital ecosystem evolve and expand over time. Secondarily, we've worked a lot with MGAs recently to evolve their own capital and risk-sharing structures internally, so we see MGAs increasingly deploy quite sophisticated risk-sharing architecture, where they have a captive, or they have their own balance sheet. In the case of Victor, they have the insurance exchange. So, we’re working with them to make sure that they're taking risk in an aligned way with their partners, while also managing that risk that they're retaining at the end of the day.
Another area where we've been evolving our capital strategies for MGAs has been on the M&A side. So, we mentioned the Victor Insurance Exchange capital raise. We've also been very involved in a number of buy-and-sell side transactions recently, where we have a full-fledged M&A practice that's giving buy-and-sell side advice to MGAs, to those interested in acquiring MGAs, to allow them to kind of move on to the next stage of their evolution.
And last but not least, we've seen a move recently toward what I'll call portfolio solutions for MGAs, where we have capital partners that are interested in coming in and enjoying the full diversification of an MGA's portfolio, and taking kind of a whole-account, quota-share approach to providing capital across each of the strategies that the MGA is active in. So that's been certainly a recent development over the past 18 months in a place where we've had success bringing insurance, reinsurance and investor capital to the table to give more resiliency to MGAs in their capital structure.
Eric Stenson: Thank you. I can certainly see the strategic advantages in that. Charles, anything else you'd like to add about how MGAs, insurers and reinsurers, and other capital strategies they might be able to adapt to help address marketplace challenges?
Charles Williamson: Sure, Eric. I think Dave, you know, probably rattled off the whole litany of tools. And it's clear, it's unequivocal that, the capital opportunities available, the sources of capital available to MGAs are certainly at the high-water mark in my career. And I think, one of our industry trade publications referred to referred to right now as the golden age of MGAs, and if that's true, I think one of the big reasons for it is the plethora of capital sources that are available that allow MGAs to have creative panels of insurers and reinsurers and capital providers, and to really bring solutions at their pace and at their wishes.
I think, though, from an MGA point of view, the key things you need to do to access that capital are just the good housekeeping of running an MGA. So, good underwriting, great data, great reporting. Integrity with your carriers on rating and pricing, and claims reserves and the reporting protocols, and that you're a good partner with the carriers with regard to governance. If you can be good at those things, as well as, you know, innovate and distribute product, you truly have endless capital sources to help you grow and maintain your business. So, it's really good, but you still have to be a good operator.
Eric Stenson: I can certainly understand that. And you both kind of lighted on this before, but I just wanted to see if you could kind of give me some quick ideas examples of ways Guy Carpenter and Victor work together. If we could start with David?
David Duffy: Sure, Eric. I think it's really everything we've talked about in the discussion so far, but we've worked closely with Victor to find them paper to kind of expand their partnerships with capital. We've worked with the team there to partner on evolving Victor's view of risk in different areas, and bring some additional technical perspectives to the way they price aspects of the portfolio.
We worked on a very unique capital raise for the Victor Insurance Exchange, and we've also researched new market opportunities for Victor and parts of the market that are immediately adjacent and relevant to their expertise.
Eric Stenson: Thank you. And Charles – anything you’d like to add?
Charles Williamson: In addition to David's thoughts, I think what I enjoy with Guy Carpenter and something Victor benefits greatly by being a sister company is just kind of being in the loop on things that Guy Carpenter is seeing and doing and touching in the marketplace. Maybe that's a carrier that wants to exit a line of business that would be perfect for an MGA to take over. Maybe that's a carrier looking to expand into a market that they don't know how to access themselves.
Where we can bring value to that, or carriers that are looking to put capital to work in different unique ways. In addition to our formal relationship, as David described, the kind of informal symbiosis that happens between us is quite powerful and very valuable. And I'm sure Guy Carpenter does that for all their clients, but we kind of sit in the building, so we get to do that on the regular.
Eric Stenson: Those are great insights, and it's really nice to hear how the entities can work together. I do have a couple of individual questions. For David, how can activity in the MGA sector help drive sustainable growth in today's reinsurance landscape?
David Duffy: Great question, Eric. You know, at the end of the day, reinsurers are portfolio underwriters and MGAs are expert underwriters and distributors of bespoke portfolios of risk. There's a natural fit there, and I think we're seeing more and more activity between the reinsurance market and MGAs as a result, and certainly in the current phase of the cycle that we're in, where it's becoming increasingly difficult for reinsurers to find growth in some aspects of their business. I think increasingly you're seeing reinsurers look to partnerships with MGAs to kind of fill in specific aspects of their portfolio, where they're light on premium and exposure, or even to bring their expertise into the reinsurer's portfolio to fill in some white spaces where it doesn't make sense for the reinsurer to invest in a full-stack underwriting team. So, I think we're seeing lots of activity there, and we expect more to come.
Eric Stenson: OK, with the steadily evolving reinsurance market, I can certainly see why that would come into play. For Charles, could you tell us a little bit about the evolution of the Victor business model and its value proposition for carrier partners and MGAs?
Charles Williamson: Of course, Eric, love to talk about us. Anytime you give me a chance. We've covered some of this, but, you know, as I said, Victor's a 70-year-old business. We started in a very niche-y element of professional liability insurance. Over the decades, we've grown into property cat, flood, truckers, environmental, kidnap and ransom, a multitude of liability kind of covers, and that's just been part of the Victor product innovation over time, and along the journey, we've added distribution, both wholesale and retail, to kind of build that out and continue bringing distribution value to our carrier partners.
I mentioned our foray now into wholesale brokerage, which gives us, I think, a tremendous advantage with regard to product creation. You know, we're at the pointy end of the retail broker's needs. We see that, we see what the markets are doing and where product development capabilities and opportunities exist, so there's a great symbiosis between programs and wholesale brokerage, and we're really building that out right now. You know, we exist to be a great product manufacturer and to bring capital to our distribution partners, and so we're looking every day to innovate in those areas and proud of what we've accomplished, and much more to do.
Eric Stenson: Very good. Thank you very much, David and Charles, for sharing your insights with us today. It has been very interesting to see MGAs play a major role in the reinsurance landscape and how activity in the MGA sector helps encourage profitable, sustainable growth, as well as how Guy Carpenter and Victor can join forces to help clients address challenges.
Anyone wanting to learn more, or who would like to engage with a Guy Carpenter expert directly should visit guycarp.com and click on Explore Solutions.
Please look for the next episodes in our series as we address additional themes connected with the reinsurance environment. And thank you to our audience for joining us on Foresight, a podcast series from Guy Carpenter, a Marsh Business.