{"id":4007,"date":"2025-12-29T05:57:34","date_gmt":"2025-12-29T05:57:34","guid":{"rendered":"https:\/\/dev.opendesignsin.com\/insillion\/?p=4007"},"modified":"2026-01-08T11:22:54","modified_gmt":"2026-01-08T11:22:54","slug":"insurance-mga-capacity-contracts-explained","status":"publish","type":"post","link":"https:\/\/dev.opendesignsin.com\/insillion\/blog\/insurance-mga-capacity-contracts-explained","title":{"rendered":"MGA101: Essential Aspects of MGA Risk Capacity Contracts"},"content":{"rendered":"<div class=\"fusion-fullwidth fullwidth-box fusion-builder-row-1 fusion-flex-container has-pattern-background has-mask-background nonhundred-percent-fullwidth non-hundred-percent-height-scrolling\" style=\"--awb-border-radius-top-left:0px;--awb-border-radius-top-right:0px;--awb-border-radius-bottom-right:0px;--awb-border-radius-bottom-left:0px;--awb-flex-wrap:wrap;\" ><div class=\"fusion-builder-row fusion-row fusion-flex-align-items-flex-start fusion-flex-content-wrap\" style=\"max-width:1339.52px;margin-left: calc(-4% \/ 2 );margin-right: calc(-4% \/ 2 );\"><div class=\"fusion-layout-column fusion_builder_column fusion-builder-column-0 fusion_builder_column_1_1 1_1 fusion-flex-column\" style=\"--awb-bg-size:cover;--awb-width-large:100%;--awb-margin-top-large:0px;--awb-spacing-right-large:1.92%;--awb-margin-bottom-large:0px;--awb-spacing-left-large:1.92%;--awb-width-medium:100%;--awb-order-medium:0;--awb-spacing-right-medium:1.92%;--awb-spacing-left-medium:1.92%;--awb-width-small:100%;--awb-order-small:0;--awb-spacing-right-small:1.92%;--awb-spacing-left-small:1.92%;\" data-scroll-devices=\"small-visibility,medium-visibility,large-visibility\"><div class=\"fusion-column-wrapper fusion-column-has-shadow fusion-flex-justify-content-flex-start fusion-content-layout-column\"><div class=\"fusion-text fusion-text-1\" style=\"--awb-line-height:1.5;\"><p><span data-contrast=\"none\">MGA101 is an expert-led discussion series designed to demystify common\u00a0queries surrounding\u00a0MGAs\u00a0&amp;\u00a0Risk Capacity\u00a0for\u00a0product innovators,\u00a0underwriters\u00a0and anyone else looking to simply understand this insurance model.<\/span><span data-ccp-props=\"{\">\u00a0<\/span><\/p>\n<p><a href=\"https:\/\/www.linkedin.com\/in\/christopher-lowell\/\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">Chris Lowell<\/span><\/a><span data-contrast=\"none\">\u00a0(Managing Director,\u00a0<\/span><a href=\"https:\/\/innsure.org\/\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">InnSure<\/span><\/a><span data-contrast=\"none\">) and\u00a0<\/span><a href=\"https:\/\/www.linkedin.com\/in\/somiljainconsulting\/\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">Somil Jain<\/span><\/a><span data-contrast=\"none\">\u00a0(Principal &amp; Senior Consulting Actuary,\u00a0<\/span><a href=\"https:\/\/lewisellis.com\/\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">Lewis &amp; Ellis<\/span><\/a><span data-contrast=\"none\">)\u00a0highlight <strong>important\u00a0MGA\u00a0capacity contract terms<\/strong> to pay attention to in the video below.\u00a0Here\u2019s\u00a0the breakdown on\u00a0what those terms mean, and why they make a difference:<\/span><span data-ccp-props=\"{\">\u00a0<\/span><\/p>\n<p><iframe title=\"YouTube video player\" src=\"https:\/\/www.youtube.com\/embed\/Rylnber3oLg?si=EvMVDYds2elCNtdt\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<h2>What\u00a0are\u00a0Ceding\u00a0Commission and Fronting\u00a0fees?<span data-ccp-props=\"{\">\u00a0<\/span><\/h2>\n<p><span data-contrast=\"none\">Ceding\u00a0Commission\u00a0is\u00a0a sum\u00a0paid\u00a0by the\u00a0reinsurer\u00a0to\u00a0the MGA (or the insurer the MGA\u00a0is partnered with) to cover\u00a0acquisition\u00a0costs like underwriting, marketing, and admin.\u00a0<\/span><br \/>\n<span data-contrast=\"none\">It is\u00a0a source of income for the MGA and is\u00a0calculated as a percentage of the ceded premium,\u00a0often structured to increase\u00a0with\u00a0improvement\u00a0in\u00a0underwriting performance (e.g., lower loss ratios).\u00a0<\/span><span data-ccp-props=\"{\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Ceding commission is an umbrella term\u00a0for\u00a0Known ceding commission and Contingency commission:<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" data-list-defn-props=\"{\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"none\">Known commission is the standard ceding commission guaranteed\u00a0upfront,\u00a0usually a fixed percentage of premiums.<\/span><span data-ccp-props=\"{\">\u00a0<\/span><\/li>\n<li aria-setsize=\"-1\" data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" data-list-defn-props=\"{\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"none\">Contingency\u00a0Commission is the\u00a0additional\u00a0compensation tied to underwriting performance, paid only if certain conditions\u00a0are met or if profit\u00a0is\u00a0generated. Simply put,\u00a0this commission i<\/span><span data-contrast=\"auto\">s contingent upon the insurer making\u00a0a\u00a0profit.\u00a0\u00a0<\/span><span data-contrast=\"none\">\u00a0<\/span> <span data-ccp-props=\"{\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"none\">A Fronting fee is\u00a0the fee an\u00a0MGA,\u00a0or\u00a0in most cases,\u00a0their reinsurer\u00a0pays\u00a0to\u00a0the fronting\u00a0insurer\u00a0to use their license\/paper to issue policies.\u00a0It is usually set as a percentage of GWP and is paid periodically based on\u00a0the MGA\u2019s\u00a0premium reports.<\/span><span data-ccp-props=\"{\">\u00a0<\/span><\/p>\n<h2>Why does this matter?<\/h2>\n<p><span data-contrast=\"none\">A high ceding commission boosts the MGA\u2019s revenue, while a low fronting fee keeps operational costs down. All else staying the same; MGAs\u00a0benefit\u00a0from having a\u00a0higher\u00a0ceding commission and\u00a0a\u00a0lower fronting fee, explains Somil.<\/span><span data-ccp-props=\"{\"><br \/>\n<\/span><\/p>\n<h2>What\u00a0does\u00a0Loss\u00a0Count\u00a0signify?<\/h2>\n<p><span data-contrast=\"none\">When an MGA enters a\u00a0capacity\u00a0agreement with a fronting carrier or reinsurer,\u00a0they&#8217;re\u00a0trusted to underwrite policies responsibly.<\/span><span data-ccp-props=\"{\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Loss count refers to the number of claims, or open losses the MGA is allowed to have at any given time. It is\u00a0essentially a\u00a0performance metric which signals that the MGA\u2019s underwriting may be off track\u00a0if\u00a0too many claims occur.<\/span><span data-ccp-props=\"{\">\u00a0<\/span><\/p>\n<h2>Why does this matter?<\/h2>\n<p><span data-contrast=\"none\">As a way to\u00a0keep underwriting quality in check, the\u00a0capacity\u00a0provider might increase oversight, pause new policy issuance, renegotiate terms, or even pull back\u00a0capacity\u00a0If an MGA exceeds the agreed\u00a0upon\u00a0loss count.<\/span><span data-ccp-props=\"{\"><br \/>\n<\/span><\/p>\n<h2>What is\u00a0Loss\u00a0Corridor?<\/h2>\n<p><span data-contrast=\"none\">A loss corridor is a clause in the agreement that says, \u201cIf losses\u00a0exceed\u00a0a\u00a0certain\u00a0threshold,\u00a0they\u00a0don\u2019t\u00a0all\u00a0need to be covered\u00a0by the\u00a0reinsurer. Instead, the\u00a0insurer\u00a0take\u00a0on\u00a0portion\u00a0of these losses\u00a0in a specified proportion.\u201d<\/span><span data-ccp-props=\"{\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Example:<\/span><span data-ccp-props=\"{\">\u00a0<\/span><\/p>\n<ul>\n<li><span data-contrast=\"none\">Loss corridor is defined between 85% and 120% loss ratio<\/span><\/li>\n<li><span data-contrast=\"none\">Corridor sharing\u00a0is defined as\u00a05<\/span><span data-contrast=\"auto\">0% insurer \/ 50% reinsurer<\/span><\/li>\n<li><span data-contrast=\"auto\">If actual loss ratio is 110%, the 25% above the\u00a085% threshold is shared equally\u00a0with\u00a0each party absorbing\u00a010%.<\/span><span data-ccp-props=\"{\">\u00a0<\/span><\/li>\n<\/ul>\n<h2>Why does this matter?<\/h2>\n<p><span data-contrast=\"none\">This clause curbs any recklessness on the MGA\u2019s part\u00a0by\u00a0making them financially responsible for some losses if the underwriting is below satisfactory.<\/span><span data-ccp-props=\"{\"><br \/>\n<\/span><\/p>\n<h2><b><span data-contrast=\"none\">Projecting Accurate Premium figures<\/span><\/b><span data-ccp-props=\"{\">\u00a0<\/span><\/h2>\n<p><span data-contrast=\"auto\">As a final takeaway,\u00a0Chris and Somil\u00a0advise\u00a0projecting and committing to realistic business volumes during capacity discussions.\u00a0Many carriers set minimum premium expectations, often in the $50\u2013100 million range. This naturally limits the pool of\u00a0partners willing to consider\u00a0financing\u00a0an early-stage MGA.\u00a0<\/span><span data-ccp-props=\"{\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Being transparent and\u00a0accurate\u00a0about premium projections helps ensure alignment with the right capacity partners and supports more constructive contract discussions. The intent of these\u00a0contracts\u00a0isn&#8217;t\u00a0to\u00a0penalize\u00a0underperforming\u00a0 MGAs,  but to\u00a0ensure\u00a0that\u00a0the economics of the partnership make sense for both parties,\u00a0laying\u00a0the foundation for a sustainable, long-term partnership.<\/span><\/p>\n<\/div><div class=\"fusion-content-boxes content-boxes columns row fusion-columns-1 fusion-columns-total-1 fusion-content-boxes-1 content-boxes-icon-with-title content-left\" style=\"--awb-border-radius-top-left:12px;--awb-border-radius-top-right:12px;--awb-border-radius-bottom-right:12px;--awb-border-radius-bottom-left:12px;--awb-title-color:var(--awb-color8);--awb-margin-top:16px;--awb-hover-accent-color:var(--awb-color4);--awb-circle-hover-accent-color:var(--awb-color4);--awb-item-margin-bottom:40px;\" data-animationOffset=\"top-into-view\"><div style=\"--awb-backgroundcolor:#f1f6fc;\" class=\"fusion-column content-box-column content-box-column content-box-column-1 col-lg-12 col-md-12 col-sm-12 fusion-content-box-hover content-box-column-last content-box-column-last-in-row\"><div class=\"col content-box-wrapper content-wrapper-background link-area-link-icon link-type-button content-icon-wrapper-yes icon-hover-animation-fade\" data-animationOffset=\"top-into-view\"><div class=\"heading icon-left\"><a class=\"heading-link\" style=\"float:left;\" href=\"https:\/\/youtube.com\/playlist?list=PLTnXUxRSolkTm6yV4oQ9jVtwN6jrDVtnX&amp;si=o809VNc-ADBJwU9l\" target=\"_blank\" rel=\"noopener noreferrer\"><h2 class=\"content-box-heading\" style=\"--h2_typography-font-size:24px;line-height:29px;\">Securing Risk Capacity? Get Insider Insight.<\/h2><\/a><\/div><div class=\"fusion-clearfix\"><\/div><div class=\"content-container\">\n<p><span data-teams=\"true\">Let the experts break down all the MGA know-how surrounding risk and risk capacity. Navigate capacity conversations and expectations with confidence with our 3-part series.<\/span><\/p>\n<\/div><div class=\"fusion-clearfix\"><\/div><a class=\"fusion-read-more-button fusion-content-box-button fusion-button button-default fusion-button-default-size button- button-flat\" style=\"float:left;\" href=\"https:\/\/youtube.com\/playlist?list=PLTnXUxRSolkTm6yV4oQ9jVtwN6jrDVtnX&amp;si=o809VNc-ADBJwU9l\" target=\"_blank\" rel=\"noopener noreferrer\"><span class=\"fusion-button-text\">Watch now<\/span><\/a><div class=\"fusion-clearfix\"><\/div><\/div><\/div><div class=\"fusion-clearfix\"><\/div><\/div><\/div><\/div><\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Entering an MGA\u2013capacity partnership involves more than just financial discussions. Here are several key aspects that Chris and Somil advise MGAs to clarify early on:<\/p>\n","protected":false},"author":1,"featured_media":776,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[17],"tags":[25],"class_list":["post-4007","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-debitis"],"acf":{"event_date":null,"author_name":"Insillion Team","author_image":{"ID":3134,"id":3134,"title":"","filename":"Favicon-2.png","filesize":7655,"url":"https:\/\/dev.opendesignsin.com\/insillion\/wp-content\/uploads\/2025\/07\/Favicon-2.png","link":"https:\/\/dev.opendesignsin.com\/insillion\/blog\/digital-insurance-mga\/attachment\/favicon-2-2","alt":"Insillion Favicon","author":"1","description":"","caption":"","name":"favicon-2-2","status":"inherit","uploaded_to":3170,"date":"2025-07-31 10:29:21","modified":"2025-10-24 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