Managing general agents (MGAs) are reshaping the insurance landscape by offering specialist underwriting and filling capacity gaps in niche markets. Caroline Coulson, chief underwriting officer at Pernix Specialty Limited, discusses the rise of MGAs, their ability to provide bespoke risk solutions, and Pernix’s role in navigating the political and credit risk sectors.

 

What is an MGA?

A managing general agent (MGA) is a specialised type of insurance company that, unlike traditional agents or brokers, is given underwriting authority from an insurer. This includes the authority to issue policies, arrange for reinsurance and provide other support, such as claims management.

 

The growth of MGAs

According to a Global Insurance Law Connect (GILC) report providing insights from 18 countries into the proliferation of MGAs in the global insurance market, there is a global consensus that MGAs offer insurers a route to both new business and product innovation. The US remains the largest market for MGAs, while the UK is also experiencing significant growth. The picture across Europe is more variable, with most European markets hosting some type of MGA ecosystem.

The drivers for MGAs vary, and in different markets, they are used for different purposes, whether it’s to introduce specialist or bespoke underwriting, meet insurance capacity shortages, or enable insurers to expand their reach.

Filling insurance capacity gaps is a key role for an MGA, whose specialist underwriting capabilities enable them to respond to market dislocation and demand more quickly and effectively than a traditional underwriting company. Their independence allows MGAs to offer a unique and bespoke level of service provision to clients and brokers, often setting them aside from their peers and giving them the ability to provide new risk solutions.

 

Pernix: Latin for nimble, agile

Pernix is an MGA under the Pine Walk platform and a provider of global non-payment and political risk insurance, supporting banking, multilateral institutions, export credit agencies, traders and equity investor clients with risk distribution solutions across a broad spectrum of assets.

Pernix is backed by Fidelis Insurance Group with a rolling 10-year binding authority, a specialty insurance and reinsurance partner rated A (Excellent) by AM Best and A- (Positive) by S&P, writing on behalf of Fidelis Insurance Ireland DAC for our European clients and Fidelis Underwriting Limited for our rest of world clients.

As of 2024, Pernix also has binding authority to write on behalf of The Fidelis Partnership Syndicate 3123 (Main) and 5422 (Europe), Apollo Syndicate 1969 (Main) and 5341 (Europe), and Flux Syndicate 1985 (Main) and 5411 (Europe).

 

Meeting increased demand

The most significant trend in the credit and political risk market is the increased use of non-payment insurance as a form of unfunded credit protection following the adoption of Basel regulations. This has allowed banks to expand lending globally and improve their return on capital. Non-payment insurance is now recognised as the second most important market tool for banks in credit risk mitigation, after true loan sales, with usage growing by 35% over the last four years, according to a recent industry survey.

Pernix has been able to respond to the increased demand by supporting our clients across their portfolios, from derivatives to fund finance, leveraged finance, export finance, commercial real estate, sovereign bonds and project finance. As an MGA specialising in this class of business, we focus on delivering the most efficient and experienced underwriting solutions.

 

New structures

Repacks have been another trend in the market. Since Solvency II enabled insurance companies to gain capital relief from the non-payment insurance product, certain life insurance companies have become material users of the product in their investments, frequently funding sovereign lending via a repack structure, benefiting from insurance while a commercial bank remains as the lender of record. This has helped banks with funding solutions on transactions, while also offering adequate margins to cover investor and insurance needs and maintaining the relevance of insurance to banks in their lending and credit risk mitigation activities.

Pernix’s underwriting capabilities and capacity mean it is well-placed to use its expertise to support various existing and new clients on these structures.

 

Filling capacity gaps

Pernix began underwriting in June 2022, following the Covid-19 pandemic and during a period of increased geopolitical tensions across the world, including war in Ukraine and now the Middle East.

As an MGA with support from our cornerstone capacity provider, Fidelis Insurance Group, Pernix has been able to take advantage of market dislocations given the improved rating environment, utilising underwriter experience, efficiency and high service levels. This is evidenced by our ability to reach our three-year business plan within the first year, meeting client demand across a wide range of asset classes. We stepped in to build our own targeted portfolio when other underwriters weren’t available, were too slow or lacked the appetite.

With the benefit of our bespoke, real-time underwriting platform – which tracks over 150 data points for each risk, from amortised exposure, credit ratings and ESG scores to premiums and probability of default and loss given default data –

we were able to build a highly diversified portfolio. We have also launched our stochastic model that allows us to model loss scenarios at different return periods and complements the existing expected loss and realistic disaster scenario portfolio loss modelling tools.

 

Innovative approach

Pernix is dedicated to insuring political and non-payment risks, and we are continually innovating our product set. Our experienced team is focused on underwriting individual risks on a case-by-case basis.

Complementing the team’s in-depth industry experience, Pernix incorporates a wide range of data and research into in-house and externally calibrated and validated models. These models enable Pernix to generate quantifiable risk-adjusted return metrics and support the portfolio’s construction and ongoing management.

Working within the Pine Walk model is unique, enabling us to spend 90% of our time underwriting and supporting our clients, without being distracted by legal, compliance, operational or IT issues. The opportunity to design our own underwriting platform, specific to the cover we are providing, has also been invaluable. It is now a market-leading data capture, modelling and reporting tool that runs real-time analysis of our portfolio and shows core and extensive underwriting metrics.

 

The Fidelis Partnership

In January 2023, Fidelis Insurance split its underwriting from its balance sheet and formed one of the largest managing general underwriters (MGU) globally. The Fidelis Partnership (TFP) is a leading specialty, bespoke and (re)insurance business, building on a 40-year track record of outperformance. TFP and its operations also include outwards reinsurance, claims handling, exposure management and portfolio analytics.

In addition, The Fidelis Partnership sponsors and incubates specialist MGAs through its Pine Walk platform.

 

Pine Walk

Pine Walk is a best-in-class MGA platform and a subsidiary of The Fidelis Partnership, the largest independent MGU and a top 5 Global MGA. Pine Walk provides capacity from a variety of carriers with global licenses and strong ratings, including its flagship partner, Fidelis Insurance Group (including EEA). Bringing together capacity, funding capital, the underwriter and a suite of back-office services, Pine Walk is focused on helping underwriting teams create, build and run successful businesses.

Pine Walk consolidates the requirements an MGA will need to satisfy across regulators, carriers and other stakeholders, allowing the underwriting team to focus on developing their portfolio. The platform delivers a market-leading insurance technology solution and leverages new technologies to provide clean, informative data sets and reports to all parties from day one.