Relationship between MGA, Reinsurer, and captive fronting carrier?

InsurtechFTW

New Member
1
Hi All,

Great to meet everyone - long time lurker here. I'm trying to better understand the relationship between an MGA, its reinsurance partner, and the reinsurer's captive fronting company (and how fees are split).

Take, for example (hypothetical), MunichRe and Great Lakes, it's wholly-owned fronting Company. Say that today, I'm an MGA who has developed a new product. The policies that I write are 100% reinsured by MunichRe, who effectively gets its capacity from Great Lakes (it's fronting company). Let's say that for each policy I sell, I get $100 in earned premium. Of this, I retrocede 65% to MunichRe (which is effectively split 55% for MunichRe and 10% for Great Lakes). Then I take my 35% and retrocede some of it to my distribution partners, pay for admin /claims costs, etc, and ideally am left with some form of profit.

My first question is does the above relationship make sense? Why would MunichRe own a fronting Company, rather than just be a 'full-stack' carrier that clips the full 65%?

My second question has to do with what I, as an MGA, could do to capture more margin from the reinsurer in the future (as I expand my business). Below is my understanding of a few ways - could you guys let me know if they make sense / what I might be missing?

One option is to get my own reinsurance license, and go more direct (say from Lloyd's, where I wouldn't have to pay the fronting fee). How would that work? Could I effectively reinsure 100% of my risk out (so I'd be paying ~55% instead of 65%)? Another option would be for me to try to get my carrier license, and hold my most profitable lines on my balance sheet directly while reinsuring my less profitable products - in this situation, ideally I wouldn't have to pay any form of administration cost to my partner, but rather just a reinsurance management cost.

Many thanks in advance to all :)
 

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