US fronter Hadron set to onboard first UK MGA in Q2

The US business entered the UK market in February with the acquisition of Folgate Insurance and is now building out a team that includes a head of risk and compliance and an underwriting director with further ‘big hires’ promised.

APC Underwriting bought Folgate for £1.9m in 2014 from Towergate, with the insurer having been in run-off since 2002.

It subsequently received authorisation from the Prudential Regulation Authority in 2019 to write business direct with brokers as well as support APC’s managing general agent activities.

Folgate

Hadron CEO Sam Reeder told Insurance Age: “Folgate brings a lot to Hadron and [the APC management team] Ian and Brian Russell have built a great business and we are looking to maintain that – and those relationships they have built with those brokers.

Make no mistake: Some of the business that is floating around, is floating around for a reason. It is chasing-the-night capacity, it exists and it continues to exist and that is one of the reasons that a lack of trust has been built with that hybrid fronting model

Sam Reeder, Hadron

“They have also got some MGA business which is great, so we are not looking to disrupt the current model, but add to it with the tilt largely towards [building out] the MGA/MGU side, replicating a lot of what we have done in the US.

“It is win-win for everyone involved as they get to focus on what they want to do [as APC], and we get an entity [Folgate] that supports our growth and plans.

“They also get our A minus group rating from an AM Best standpoint which should help drive more direct business for Ian and the team as well as attracting [MGA interest] for us.”

Active pipeline

EVP and chief underwriting officer Pete Buccola added Hadron has three MGAs live on its platform in the USA, with 15 presently onboarding and an active pipeline.

In terms of the UK, he expected to onboard Hadron’s first programmes by the end of Q2, continuing: “Here in the UK we have been approached by brokers with MGA facilities that could be interesting because they have scale and we can look at them as portfolio businesses.

“But [what we are doing] also speaks to the reinsurers because they need a fronter they can trust as a partner, and fronting up to now has not had the best reputation.”

Reeder interjected: “We are seeing a lot of demand without spending a dollar on marketing, and if anything, Pete and I are pushing more away because we don’t want fall into the classic trap of poor service and not being able to handle [the volume]. We are being cautious in our launch year of getting our platform in place before the floodgates open.

“Make no mistake: Some of the business that is floating around, is floating around for a reason. It is chasing-the-night capacity, it exists and it continues to exist and that is one of the reasons that a lack of trust has been built with that hybrid fronting model.

“We are cognisant of that, and so we are looking for partners versus racing for scale. We feel fortunate we have patient capital and don’t have a gun to our head demanding we do that. We will be patient and pick the right [MGAs/MGUs] for the right reason.”

Demand

Reeder added: “Some of the feedback we have got is: Why now? Especially in the US where there are 25 others filling this space. But I actually think we are lucky to have the backing that we do; and 1) we know the challenges and 2) the demand is certainly there. It is obvious in the US and having been over in the UK a handful of times over the last few months, that is true here too.”

Both Reeder (Talbot Underwriting and Validus), and Buccola (Coterie Insurance, Assurely and Travelers) have worked for a variety of different insurance businesses and are aware of the issues that the traditional incumbents face versus MGAs.

Buccola continued: “If you think about the responsiveness, speed and use of technology, the carriers are frankly not equipped to respond with the same level of urgency with a [fit-for-purpose] tech stack.

“But some of the results in the UK MGA space have been quite mixed, and players have burned Lloyd’s syndicates and other markets, and the key to this not happening to us is making sure that we have some good operators with sound underwriting practices.

“And it is incumbent on us as the fronting carrier to understand what risks are being transacted and if they are consistent with our expectations.

“It goes to the fundamentals of understanding the risks and monitoring them, so that we don’t have to wait for an audit or the claims to come in to gauge the temperature. To get as close to the business that is transacted as possible to monitor the data as real time as possible, whether it is property, liability, professional liability or even short tail lines like motor.”

No surprises

Reeder added: “Historically, programme business has been managed on a annual basis, where [an MGA] might fly from the US to Lloyd’s and then surprise them with their underwriting results.

“And at that point, the carrier only has so many options, which are to either get out; renew yet again and take on that extra risk, only to have the annual audit again; or for the MGAs to get to a scale and profitability that it can leverage the carrier for additional commission.

“But having new tools and capabilities means we have the opportunity sit down and go through the analytics with an MGA and not be surprised. To flag up issues earlier which builds trust with reinsurance partners too, and at the end of day, facilitate the growth of a speciality MGA distribution market with partners that have aligned interests.

“Not racing to scale, but building for the long term where [MGAs] don’t have to switch capacity every year.”

Future

Looking ahead, Buccola admitted Hadron was looking at the EU to potentially enhance and support the UK operation but was still undecided about whether to seek the acquisition route to do this, including looking at existing shell companies.

“That is based on the momentum we have seen,” concluded Reeder. 

“Hearing from brokers and MGAs that it was great we are in the UK, but their business had clients that spanned both here and Europe.”   

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