The Impact of the Pandemic on MGAs – featuring Stephen Stewart

Canadian Underwriter caught up with Stephen Stewart, president and CEO of Stewart Specialty Risk Underwriting Ltd., who shared his thoughts on the impact of the pandemic on MGAs

cu | How has the pandemic affected MGAs?

I guess the fundamental difference between MGAs and brokerages is that, for MGAs, we have in-house authority and we don’t have to approach carriers on a one-off basis. We have the authority to write the business that we know is good. Nothing has changed that way because of the pandemic. In fact, from our perspective, and I know this isn’t true for all MGAs, but for our MGA, we have been riding into the pandemic on a bit of a tailwind.

cu | Can you explain what you mean about riding into the pandemic with a ‘tailwind’?

We were set up as an ‘anywhere, anytime’ operation right from the get-go, so we haven’t missed our stride while working remotely during the pandemic. In fact, our business model has been a bit of a tailwind for us because some of our competitors, which would include some of the larger insurance companies, weren’t ready for it. They weren’t set up to work from home and we always have been. It’s given us a bit of a competitive advantage.

cu | What accounted for your MGA’s state of preparedness for working remotely?

When our MGA started up in 2016, one of the things I needed to do was attract people, attract talent. One of the strategies for attracting them was to say, ‘You can work anywhere, anytime you like, as long as you get the work done.’ We had a sophisticated IT structure, so we were able to do that right from the beginning. That was attractive to our staff because we employ people who have children, and we employ people who live as far away from Toronto as Cobourg, about a two-hour drive away. Coming in to work every day from Cobourg wouldn’t make a lot of sense. So, we said to people, ‘We’ll pay for the equipment; it’s required for you to work remotely. Come in maybe two or three days a week, or on an as-needed basis.’ So that’s how we were set up. We were already running that way from the beginning. And when the pandemic hit, we said, ‘Just don’t come in, because you don’t have to.’ We were very fortunate because as a start-up in 2016, we were able to design the whole business model around remote work, whereas a lot of companies were coming at it from a different end. They have these huge systems that were not necessarily friendly to remote working, and they had to adapt when the pandemic hit. We didn’t have to adapt, and that gave us a competitive advantage.

cu | Another aspect of the ‘tailwind’ in your favour has to do with the pandemic loss trends. Can you explain that?

Some MGAs might be writing lines that have been more affected by COVID, such as surety, entertainment, event cancellation, or trade credit. Plus, some may be writing business in the field of long-term care, where there might be a disease endorsement product. Those MGAs may experience some headwinds, I think. In an event such as this, the insurance company or the carrier would have the right to withdraw from the business, and I know that’s happened. But for us, we don’t write long-term care business, we don’t write trade credit, and we don’t write event cancellation or surety.

cu | What else separates you from other MGAs during the pandemic?

For the most part, our capacity is derived from the reinsurance market. We’ve set up treaties that are bespoke to the lines of business that we write, and we renegotiate these treaties on an annual basis. We go to a primary carrier and, to put it in a nutshell, we say, ‘We have this treaty, are you interested in any of these lines?’ And we’ve had success that way. So, much like an insurance company, within the [parameters] of that treaty, we can write business as we see fit. So, we haven’t really been affected by COVID. It’s business as usual for us.

cu | How do you think the pandemic will affect the hardening commercial market over the long term?

Insurance premiums are in many ways a tax on economic activity, and with a reduction in economic activity, there is less business to go around. Does that create competition that moves the market into a softer position? It’s hard to say.

I suspect it will perpetuate the hard market simply because of the psychological impact of the pandemic. Remember the hard market that happened after 9/11? Well, we had a soft market for 15 years before that. It’s not as though the financial losses resulting from the World Trade Centre destroyed the insurance industry. What contributed to the hard market at the time is the fact that an unanticipated event had happened for which the industry wasn’t ready. That’s a psychological thing. If you are looking for lower rates, the last thing you want is an uncertain underwriter. The pandemic has created a great deal of uncertainty in the business, and that in turn drives decisions that really retract capacity and cause underwriters to make what I think are wiser and more careful decision about how they deploy that capacity. The limits of supply to capacity is what drives the hard market. I think this uncertainty alone will tack on at least six months to the hard market. Plus, when you think about it, reinsurance drives these things. If we have a second wave of COVID-19 infections, those January 2021 renewals will be negotiated in October, when everyone predicts the second wave is going to hit, so there’s even more uncertainty. Reinsurers will probably try hard to get good terms and conditions on those January renewals, so potentially the hard market will continue for another year.

cu | How do you see COVID-19 affecting MGAs over the long term?

There are two ways of looking at it. One is that the MGAs’ specialized underwriting will be viewed as more beneficial during and after this pandemic. MGAs take a granular approach, a more specialized approach, to writing business. I think carriers will be looking for that kind of depth in their own staff for certain classes; if it is not there, it may be too expensive to create in-house so they will seek MGAs for the expertise.

Second, carriers may wish to retract capacity in general and keep it all in-house because of their own uncertainty about the market. Trusted MGAs that have proven expertise will be less affected and may even benefit. But those that do not have a solid track record, stable relationships and real expertise to offer will probably have a hard time finding capacity.


Title: President, CEO, Stewart Specialty Risk Underwriting Ltd.

Industry Experience: More than 25 years in the P&C insurance industry. Founded SSRU, an international specialty insurer, in 2016 with the backing of specialist private equity firm BP Marsh and Partners. Previously a producer at Hearn Jones Stewart Hunt; a senior underwriter at Royal & Sun Alliance Insurance Company of Canada; commercial underwriting manager at Lombard Insurance; and a Director at Ironshore in Canada.

Education: CAIB designation from Insurance Brokers Association of Canada; FCIP, Management, from the Insurance Institute of Canada.

Volunteer Work: Volunteer in Kindergarten Reading Programme at Balmy Beach Community School in Toronto.