“Once you hit the big 6-0, there comes a point when you realise that what you’ve created, what you’ve built, needs a future for the team, the people within the business. And you do have to look very carefully at what your succession planning looks like in totality, including ownership.”
This was Catherine Bell, managing general agent (MGA) representative on the board of the Managing General Agents’ Association (MGAA) and chair of Magenta Insurance, speaking to Intelligent Insurer about mergers and acquisitions (M&A) in the MGA market. It’s something she has experienced fairly recently herself.
In March 2021, Magenta Insurance was acquired by Aston Lark and is now owned by Howden. “We’re delighted to be part of a brand new landscape for the business. It’s exciting for our team, and times are very interesting and positive at the moment,” she said.
Commenting on the acquisition of her firm, she said: “Having been involved with the business for some 25 years it was a very big step for us and other MGAs are facing this.
“When you look across the MGA market, a lot of us who started businesses 20 or 25 years ago are coming to this stage. That has brought on a lot of this activity.”
Bell said that M&A activity will continue but that buyers who are already discerning will become even more so because money will cost more and investment interest will have higher expectations of due diligence.
“The quality of the business will be very important and quality of underwriting performance and profitability will be number one on the due diligence agenda from an acquisition point of view,” she said.
With a renewed focus on quality, Bell said now is the right time for a chartered status for MGAs. This will help businesses benchmark themselves against the best and ensure they are the right calibre to take their place in the sector.
“The quality of the business will be very important and quality of underwriting performance and profitability will be number one on the due diligence agenda from an acquisition point of view,” she said.
Bell added that companies which have been hit by poor performance issues will struggle more in the current economic climate than they might have done a year ago.
“As for startups, it’s more difficult to do it now as I think where you are taking on investment, that investment is more discerning. Therefore fewer startups will pass the first hurdles to get their investment in place. The quantum of startups may diminish somewhat.”
“Quality of underwriting performance and profitability will be number one on the due diligence agenda.”
Catherine Bell, Magenta Insurance
Underwriters should lead technology
Businesses in the tech space—insurtechs—will need to make sure they have quality, knowledgeable underwriters “who are leading and supervising whatever the tech angle is”, Bell said.
“Technology has to come hand in glove with quality underwriting performance and secure investment because I don’t think it’s going to be quite as easy for startups.
“I see the hybrid model of insurtechs, young entrants to the market, combining with experienced underwriters who get on board, who understand the pitfalls. You need non-executive directors and experienced directors on the boards of these businesses to help them navigate the times ahead.”
Bell should know—she has been there and done that in 2008 and before. She added: “There’s little to be happy about ageing but one thing is that you have seen these cyclical things happen before,” she said.
“You need non-executive directors and experienced directors on the boards of these businesses.”
Sharply rising inflation was a big news topic when Bell spoke with Intelligent Insurer. Commenting with her Magenta Insurance hat on she said she expected to see a direct impact on claims inflation as this will come together with where the UK sits as an economy now. Magenta’s market is niche, non-standard residential property, so it’s no surprise that Bell is watching inflation carefully.
“While the rates are holding quite well in home and household insurance, the knock-on effect, the concertina effect of the cost of labour and materials, lead times for restitution of property damage, and finding specialist repairers, means costs will continue to go up. At some point some of the insurers will move their rates somewhat to reflect that.
“We haven’t been impacted much with rising premiums; we’ve managed to hold ours quite effectively. But I think that will start to take effect over the next six months to a year,” she concluded.
To view the full interview click here
Image: Shutterstock / Portb
