Global MGA market tops $110bn as US market exceeds $90bn

Excerpt from the October 2023 Conning Commentary.

An investigation by Conning Insurance Research into the portion of the U.S. MGA market that is not recorded in statutory insurer filings has led us to raise our estimate of the size of the market to more than $90 billion and the size of the global market to well above $110 billion.

Conning’s latest research builds on our analysis of reported U.S. MGA dataset in our annual U.S. MGA study published in July. That report identified $71.2 billion in premium recorded in the Note 19 filings of insurers that backed MGAs in the U.S. market in 2022. A further $7.3 billion of premium was written for the account of Lloyd’s syndicates, currently the largest providers of capacity for U.S. MGAs.

Note 19 Is Incomplete Conning has long recognized that Note 19 filings fail to capture the full size of the MGA market because insurers are required to report only MGA-sourced premium that exceeds 5% of their policyholders’ surplus.

In the case of large insurers with surplus in excess of $1 billion apiece, 14 of which recorded Note 19 premium in 2022, only large MGA relationships bringing the insurer at least $50 million in premium would therefore normally be recorded. Smaller relationships would normally go unreported.

The recent rapid rise of hybrid fronting companies, which do business exclusively with MGAs, presented an opportunity to better quantify the portion of MGA business that is unreported in Note 19 filings. In the case of fronting companies, this unreported MGA premium would normally equal the gap between total premiums written and premiums recorded in the companies’ Note 19 filings. For the 16 fronting companies analysed, this gap averaged 15.1% of Note 19 reported premium for 2022.

The Note 19 reporting rules are complex, and analysis of the fronting company data was complicated by varying interpretations of the reporting requirements from company to company. For example, State National, the largest of the fronting companies, reported all of its 2022 premiums in Note 19, but included a catch-all category of “others” for MGAs that did not hit the 5% of surplus threshold. In contrast, Obsidian, a younger and smaller fronting company, did not record any MGA premium in Note 19 of its operating company filings. In between were fronting companies that recorded a gap of 10% (Everspan), 38% (Concert), and 59% (Clear Blue). In the case of Sutton National, more than half of total premium was unrecorded in Note 19.

Fronts Are Growing Rapidly Fronting companies are a rapidly growing force in the U.S. MGA market, providing in Conning’s estimation the paper for more than $13 billion in premium written by MGAs in 2022. (This includes a small number of companies that wrote business in 2022 on both a fronting and a non-fronting basis and were not therefore included in Conning’s analysis of unreported fronting premium.) Premium growth in 2022 alone was an impressive 38%, and fronted premium has more than tripled since 2018.

In extrapolating from the fronting market to the broader market of traditional program insurers that wrote MGA business in 2022, Conning analysed the relative surplus levels of fronting and non-fronting insurers. In the main, surplus levels were far larger for non-fronting than for fronting companies. For example, the fronting company with the largest surplus was State National Insurance Company at $556 million (equivalent to an AM Best Financial Size Category of X, or ten).

However, no fewer than 31 insurers with surplus larger than State National’s reported MGA premium in 2022. The average surplus for these carriers was three times that recorded by State National. And State National is an outlier among fronting companies.

Taking a broader view, more than 88% of the aggregate surplus of carriers that wrote MGA business in 2022 was held by companies larger than the average front.

It is therefore reasonable to expect that, all else being equal, more MGA premium would go unreported in the Note 19 filings of non-fronting companies than in the filings of fronting companies. On this basis, the 15.1% of total MGA premium omitted, on average, from the Note 19 filings of fronting companies would serve as a floor for the total volume of unreported premium.

What Changed?

Conning had previously estimated the size of the unreported U.S. MGA market conservatively at approximately 10% of the premium reported in Note 19 filings. Adding in the MGA-sourced premium written at Lloyd’s thus gave an approximate total market value in 2022 of $85.5 billion. However, increasing by half the estimated size of the unreported market, which seems warranted in light of the above analysis, pushes the size of the total market up to approximately $90 billion. Because non-fronting companies have far higher surplus levels on average than fronting companies, enabling more MGA premium to be hidden from view, we believe the total U.S. MGA market is likely to be materially larger than this.

Global Market

Turning to the global market, it becomes clear that, notwithstanding the limitations of Note 19 in capturing U.S. market data, Note 19 still provides a far more effective data collection mechanism than exists elsewhere. In most of the countries of continental Europe, for example, MGAs have no clearly defined legal status and data on their activities are not captured.

In four markets, however, MGA market associations exist. They all have quantified, albeit often imprecisely, the scale of their local MGA markets. Translating these estimates into dollars at current exchange rates, MGAs in the U.K. are reported to generate at least $5.7 billion in premium annually, MGAs in Australia at least $3.8 billion, and MGAs in Canada at least $3 billion. A more precise figure of $4.62 billion (€4.37 billion) is supplied by the Dutch MGA association for premium written in 2022, equating to around a fourth of total Dutch non-life premiums in that year.

Together these figures sum to $17.13 billion. Adding this to our revised estimate for the size of the U.S. market generates a global market of $106.6 billion.

This is both a spuriously accurate figure and certain to be a significant underestimate of the true global picture, ignoring as it does MGA activity in most of continental Europe, Asia/Pacific, and Latin America.

We estimate the global market to be well in excess of $110 billion. Anecdotally, MGA premium is reported to be growing strongly in many non-U.S. markets, but the U.S. market continues to lead the world in the formation of asset-light insurance vehicles such as MGAs and fronting companies. Note 19 premium grew by 27% last year, and it is likely that unreported premium from the smaller MGAs that represent the seedbed of this market grew at least as fast.