Tough times ahead for MGAs

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Mergers between large European insurers are more likely than ever and consolidation in the aggregato...

Mergers between large European insurers are more likely than ever and consolidation in the aggregator market is inevitable.

These were the key messages of Mike Butler, head of commercial marketing at Axa, when he addressed delegates on future trends in the insurance market.

"The barriers that have traditionally been put in place to prevent large mergers are no longer as strict - think about some of the recent overnight deals in the banking sector. There will be less regulatory concern in terms of potential mergers and acquisitions for insurers; if one of the major consolidators did get into trouble and the price is right, that would certainly be attractive to some insurers," he said.

But he added that, by mapping out the premium control that has been consolidated in the commercial market since the first quarter of 2007, a marked slow-down is apparent. Mr Butler also predicted the Financial Services Authority will become more interested in the capital structures of businesses, particularly the large consolidators. "Is the availability of capital going to be there to fund acquisitions given the current economic outlook? In terms of these large consolidating models, is there any doubt of their ability to repay the debts, which have allowed them to consolidate?"

He also reviewed the managing general agent market, suggesting it could be worth £2bn by 2012. However, he argued that, although there are still drivers for more MGAs to merge, their strength is weakening. "Insurers are tackling service levels, and there is a greater focus on looking at the real benefits of delegated authority or work transfer," he stated. "Insurers will pay more interest to the underwriting controls of MGAs; they will be tougher on commission; and there will be much greater emphasis on which MGAs are actually adding significant value in terms of expertise.

"As the market hardens, MGAs may become less attractive as capital becomes scarcer and insurers may choose to put their money in those distributors where they have more control of the value chain," he concluded.

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