Posted in News on 23 Feb 2021

Following another turbulent year in the delegated authority (DA) market, the January 1 renewal period was a very busy time for the sector, with many MGAs shaping their capacity for 2021 - which could well prove to be a pivotal year for the delegated market sector.

In late 2020, the DA market - on top of the many issues it had faced in prior years - saw further carriers depart, while those that remained shifted more of their capacity to single risk business. Who could blame them? Rate increases for single risks had been significant, and dislocation in international markets meant that London was seeing an increased share of new business. The Direct & Facultative (D&F) sector was performing strongly and attracting plenty of capacity, being the primary focus for many of the start and ramp ups noted in the media.

The D&F market typically tracks 12 months ahead of the delegated market as regards pricing movement, and it is the pricing in that space which also sees sharper swings. Whilst delegated business had also attracted rate increases, it was doing so in much smaller increments. More on that point later.

All of this activity in the single risk market was, in reality, just a temporary (yet welcomed) distraction from the significant underlying challenges being experienced by the DA market. It had been telegraphed from several years previous, so it did not come as a surprise (albeit inevitably) that some MGAs were better prepared than others. The impact at January 1 was significant, and some products and territories saw particular challenges, notably where open market pricing in London had become significantly out of kilter with local delegated pricing for similar risks. We noted some key areas where this occurred, and as delegated facilities renewed, their pricing saw a snap correction. Florida & Western Canada sat firmly in this bracket.

To varying degrees, all products and territories came under heightened scrutiny at Jan 1. All saw pricing change up through the gears as carriers mandated it and performance demanded it. This inevitably led to further focus on distribution expenses and the question of the percentage value of commission versus its ‘real’ value in pounds shillings and pence. Ultimately, the latter will increase as rate change takes hold over the course of 2021, but in the heat of negotiation that point is easily missed.

Willingness from MGAs to support carriers’ plans into 2021 has been a major factor in the outcome of the renewal season - those with strong partnerships plan ahead and discuss such things regularly and have therefore (not surprisingly) fared better in the last renewal round. Results in both Lloyd’s and company markets have been under pressure for a long period of time, and underwriters have to make the best of current market conditions - they need their partners to work with them to achieve that. Mutual goals can still be met, but they require a great deal of openness and communication.

However, whilst single risk business may be the preferred use of capital today, the DA market still represents a large proportion of the market’s income. That brings us back to pricing, and why 2021 could well be a pivotal year for the delegated market. Essentially, with less MGAs competing, pricing adequacy is able to improve at a greater pace; those who are well-poised will be able to make a step change in their market share, by attracting greater volumes of risk at far better rates.

We anticipate that the incremental increase of rate in the DA market will become more pronounced by the second half of 2021, and it is therefore very important to make clear projections to show what the most likely outcomes are as rate accumulates. The work undertaken by all sides over a three year period to improve the delegated sector will start to show some positive underlying results, and we expect that to prompt some more carriers to deploy capacity. However, it will remain targeted, disciplined and cautious.

Market results for 2020 will still be hindered by the effect of COVID-19 and other claims, but the underlying trends in some sectors are very positive. While some players are spotting this early and taking positions now, others will wait to see how it develops. There are also new participants entering the market who will seek to benefit from the greatly improved metrics in the space, who are unencumbered by historical results.

For any MGA, 2021 could well be a pivotal year, likely setting the tone for 2022 and into 2023. The ability to plan ahead and cement relationships for the next part of the cycle will - more than ever - be the key to harnessing the opportunity which that brings..

For more information, please contact:

Chris Hardcastle - Managing Director

Alesco Delegated Authority 

+44 (0) 7584609374


This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. It reflects our understanding as at [16.09.2020], but you will recognise that matters concerning COVID-19 are fast changing across the world. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Alesco.