Managing general underwriter
An intermediary with delegated underwriting authority that selects, prices and manages risks on behalf of the carriers.
In July 2023 it came out that the letter of credit backing Vesttoo's reinsurance, presented as issued by China Construction Bank, was a forgery. The Israeli platform filed for Chapter 11 in August, and several US fronting carriers that hosted MGA programs were left holding reinsurance with nothing behind it. The managing general underwriter, or MGA, holds delegated underwriting authority. It selects and rates risks, issues policies and often settles claims, but does not carry the risk, which stays on the carrier's balance sheet. The carrier lends its balance sheet and its rating; the MGA brings niche underwriting the generalist lacks, as Huntington T. Block, an Aon unit, does in fine art. The misalignment is well known. The MGA lives on commission, sometimes topped up with profit commission, while the carrier pays the losses. And when the carrier is a fronter ceding almost everything, the quality of its reinsurance is the only control left. Hence tight delegated authority agreements, per-risk limits and regular portfolio audits.
Textbook case: a generalist insurer wants to grow in fine art insurance without hiring art historians. It gives underwriting authority to a specialist managing general underwriter, which selects and prices collections within agreed limits in return for a commission.
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