MGAA boss Charles Manchester says the soft market could be encouraging more MGAs to get involved in treaty reinsurance

The soft market has been posited by MGAA chairman Charles Manchester as a factor in more MGAs getting involved in treaty reinsurance.

Historically, MGAs have operated mostly in facultative reinsurance. But this could be changing, as Manchester says he has seen more MGAs getting involved with treaty.

He said: “There has in the last several years been an increasing trend for high quality underwriters to want to start their own MGAs so that they can profit from their own skillset, so there have been some that have started up in treaty.

“I don’t know if that’s a reflection of the softness of the market, or a reflection of the increased penetration of entrepreneurialism into high quality underwriting teams, but now MGAs are writing treaty.”

Adding value in treaty reinsurance has typically been achieved through adding distribution or expertise. Manchester says most reinsurers will not need an MGA purely for distribution, but in adding expertise he said there were opportunities to add value.

He added: “If you are a high performing underwriter the probability is you will get yourself off the ground and find someone to back you to write treaty reinsurance.

“But treaty reinsurers have been having a tough time lately. It’s not in the last year or two been the most profitable way to make a living. If you’re going to appoint an MGA to do it they’ve got to earn their crust.”

Soft prices may encourage more MGAs to get involved with treaty reinsurance, but Manchester complains it has prevented his own MGA, Manchester Underwriting, from growing as fast as he would have hoped.

“One of our problems is that since we started in 2010 we have been totally focussed on the bottom line,” he said. “As a consequence we’re probably not as large as we’d like to be because as the market has constantly softened year after year our appetite has had to be honed in.”

However, he is hopeful that the market is reaching a tipping point. “There are some signs, particularly with what Lloyd’s is doing, that we are heading towards a tipping point and the market may allow us to charge more. But thankfully because of this approach our underwriting results have been good.”