FIG - Insurance Question
For those familiar with the insurance industry, more specifically the managing general agency (MGA) market, would you say that an MGA deriving 70%+ of its revenue from 2-3 carriers is extremely risky? Would that somewhat be mitigated by the fact that carriers often rely on MGAs for specialized underwriting and/or access to less densely populated areas? Just trying to understand the dynamics between those players and any insight would be greatly appreciated.
Very risky, you should see much much higher carrier diversification. Unless there is some unique reliance on this specific MGA...
Makes sense, thanks!
Disagree, not unusual in my experience. It depends what the MGA is writing but if it's good/profitable business it wouldn't be hard to find capital from another carrier if one dropped. This is sort of analogous to asking if it's risky if a business only has 3 investors. Well, it could be if the business needs to raise capital and one of the investors cannot contribute pro rata. But if the business is good, they could likely find capital elsewhere, perhaps even at a more favorable valuation.
Do you see the carrier as an undifferentiated / easy to replace capital provider here or a customer? If the former why not just add 10 other carriers given should be easy to eliminate this “risk?”
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