MGA super cycle to continue with little sign of investor interest abating

The MGA market has been in a growth “super cycle” for the past decade, and with investor interest in the space and related markets like the fronting carrier sector still high, there is little to suggest its expansion will soon end.

That was one of the views shared by executives during a recent roundtable hosted by sister title The Insurer in partnership with Lloyds Bank at the Rendez-Vous de Septembre in Monte Carlo.

Referring to the MGA market, Acrisure Re CEO Simon Hedley said “we’ve been in a decade of a ‘super cycle’ in terms of the segment”.

“It’s been driven by availability of capital, rise of the fronts, (re)insurer appetite for 'specialty' and growth, technology and then of course talent movement, and I do see the continued growth of the MGA sector.

“It probably won’t be at the same rate and gain, with macroeconomic factors and other issues probably changing the trajectory a bit,” Hedley said.

And the Acrisure Re executive forecast that private equity (PE), along with other capital providers, will support the continued expansion of the MGA market.

SiriusPoint CEO Scott Egan agreed with Hedley, and noted how alongside the continued growth and emergence of new MGAs, he expects that the trend of consolidation among existing MGA platforms that arose during the hard market will remain.

Like Hedley, Egan said PE will continue to make its presence felt in the MGA space.

“A lot of their investments over the last five to seven years have been in the distribution space, which is more capital light and less volatile.

“At SiriusPoint, while we see MGAs as an important part of our group strategy, we've been overt publicly about selling minority stakes and rationalizing our MGA footprint. And usually there is a lot of PE interest in these assets,” Egan added.

Another area of the market where PE is making its presence felt is in the fronting carrier space.

There are now well over 30 fronting firms, spurring speculation that market consolidation is on the cards, although to date there has been little activity.

Michael Smyth, relationship director at Lloyds Bank, said the fronting carrier market has seen differences in opinions over how to value such entities.

“There have been start-ups and lots of growth, but the approach to valuation has been somewhat in flux,” Smyth said.

Mitsui Sumitomo Insurance in early 2023 completed its acquisition of Transverse Insurance Group from Virgo Investment Group in a deal reported at the time as initially valuing the hybrid fronting carrier at around $400mn.

However, since then, the expected uptick in M&A activity involving fronting carriers has failed to materialize.

Smyth noted that there has been a "disconnect” between vendors and bidders and management teams around how fronting carriers should be valued.

“There has been a debate over to what extent these businesses can be viewed as purely fee-generating businesses or need to be viewed as a hybrid insurer given the balance sheets they are having to build up and the increased retentions they are being required to hold at times,” he said.