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Tighter MGA regulation forecast: Clyde & Co

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Rising regulatory scrutiny is diverting interest away from Lloyd’s of London and toward the London company or foreign markets for the formation of managing general agents, U.K.-based law firm Clyde and Co said in a report Monday.

Some 91% of insurers expect more regulatory and legal scrutiny over managing general agents in Lloyd’s in 2019, while 75% said they will look at competitors to Lloyd’s due to the compliance burden, according to the survey of more than 100 insurers and MGAs conducted by Clyde & Co.

The research demonstrates that Lloyd’s is no longer viewed as the best location to develop MGA business, Clyde & Co said in a statement.

Fewer than one-third of respondents selected Lloyd’s as their top choice, citing the rising regulatory and compliance burden as a primary factor behind the decision to look elsewhere, Clyde & Co said in the survey.

Some 63% of MGAs believe that the London company market offers the greatest prospects for growth, “but interestingly, carriers show greater interest than MGAs in the United States and other geographies,” Clyde & Co said in the report titled Which Way Now? Is the UK MGA Market at a Crossroads?

“A change of location does not mean that the challenge of regulation is going to be any easier. It is becoming progressively tougher for MGAs to get established – wherever they choose to set up – due to the rising regulatory and compliance burden,” Ivor Edwards, Partner at Clyde & Co and European head of its corporate insurance group, said in the statement.

The UK's £4.7 billion ($5.94 billion) MGA market looks set to become an ever more popular feature of the London market, even as competitive and regulatory pressures increase, Clyde & Co said.

Despite widespread speculation that an MGA “bubble” has formed that is ready to burst, only 21% of insurers expect their MGA capacity to reduce in the coming year, while the vast majority expect it to hold steady or increase, Clyde & Co said in the report.

However, market conditions have become much tougher for MGAs in the past 12 months, with the sector increasingly under scrutiny, according to the law firm.

Some 80% of insurers expect to increase MGA capacity in 2019, but the market is divided on whether this will come from new or existing MGAs (53% of insurers and 51% of MGAs saying there will be more MGAs), largely dismissing fears that an MGA bubble has formed and might burst, Clyde & Co said in the statement.

Overall, some 69% of MGAs and 67% of insurers believe the market has become ever more competitive, while more still (67% of MGAs and 78% of insurers) agree that setting up an MGA is much harder now than at any time previously, the statement said.

 

 

 

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