Expanding use of third-party capital, reinsurance sidecars and partnerships with insurance-linked securities (ILS) investors is opening up additional sources of capital for managing general agents (MGA’s), which broker Gallagher Re says helped replace capacity from major reinsurers that have reduced their participation in the MGA marketplace.In terms of the reinsurance capital supporting the MGA market, “As the reinsurance market has become more competitive, some traditional balance sheet reinsurers have been replaced by lower-rated reinsurers and non-traditional capacity such as captives, ILS (insurance linked securities), and collateralized reinsurance,” Gallagher Re explained in a recent report.The reinsurance broker added that, “This trend has accelerated due to historically large balance sheet reinsurers like Munich Re and Swiss Re reducing their participation in the MGA marketplace by over 50% in 2024.” Gallagher Re notes that there has been a “significant shift” in the top reinsurers backing MGA program business.In a list of the top program underwriter reinsurance counterparties there are now prominent names that are likely fully or partially collateralized, many backed by third-party investors such as ILS funds and direct institutional capital.

Names that stand out are (the well-known ILS and risk transfer facilitation specialist), Trouvaille Re Ltd.(the E&S property sidecar vehicle of Amrisc), Markel (some of which may flow to Nephila strategies), (the Bermuda reinsurer operated by asset manager Stone Ridge), Northern Re (which is backed by third-party capital), (the casualty ILS specialist), and Ferian Re Ltd.(cyber specialist Coalition’s third-party capitalised structure).

That’s just a selection of the names we know have third-party capital relevance that are highlighted by Gallagher Re as significant providers of reinsurance to support MGA program business in 2024.On the development of the MGA market, Gallagher Re explained, “In 2024, the MGA market premium reached nearly USD100 billion (including those not reported under National Association of Insurance Commissioners (NAIC) Note 19), accounting for almost 10% of the U.S.sector.

While premium growth slowed from the +50% seen in 2021-2022, it remained strong at +26%, signaling a shift from early expansion to a more mature phase of development.” “Within the fronting insurance market, reinsurance and third-party capital remain a critical component in the path towards sustainable growth,” Gallagher Re said.“While all carriers rely on third-party reinsurance, some have begun to also establish sidecars and ILS partnerships, which opens up additional sources of capital.” The broker also noted that, “If the capital is available, captives and affiliated reinsurance vehicles are excellent ways to retain otherwise ceded margin, especially for high-quality MGAs on low-volatility lines.” Access to efficient reinsurance capital is a key driver for MGA market growth and the use of sophisticated ILS structures to enable investors to support portfolios of program business has been expanding with the MGA market.It’s a trend expected to continue, with the best underwriters likely to continue gaining access to incremental capital and becoming increasingly attractive to investors seeking to partner and access sources of reinsurance linked returns.

For MGA’s, establishing sidecars and ILS structures, or partnerships with ILS specialists and investors, can be a valuable way to gain more control over sources of reinsurance capital through aligned approaches that can deliver upside in terms of the ability to retain more of the economics of the underwriting business through fees and profit shares..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.