Launching an MGU in Today's Market

[00:00:00] Speaker A: Foreign. [00:00:04] Speaker B: Welcome to Perspective First, a podcast series by A&M's financial services industry group where we speak with experts and thought leaders on the latest trends and hot topics within financial services. I'm your host, David Carey. Today we're diving into a topic that's generating a lot of buzz in the insurance world. What it really takes to build a managing general underwriter or MGU from the ground up. Whether you're an entrepreneur, investor or industry insider, this episode will give you a front row seat to the strategy and structure of launching an MGU in today's market. Joining me today is Dan Grisel, Head of Corporate development and strategy and one of the founders of Ascendix Underwriters, a newly launched independent MGU backed by Altamont Capital. Ascendix is focused on commercial specialty offerings and solutions for small to medium sized enterprises, building scalable programs that strategically expand into broader opportunistic verticals. Dan's background and positions have been primarily serving the specialty in PNC space and has deep expertise in growth strategy, M and A product development and programs across a range of segments. Dan, thanks for joining. Welcome to the podcast. [00:01:09] Speaker A: Great to be here David, thanks for having me. [00:01:11] Speaker B: So Dan, in our previous episode we spoke a little bit about the basics of managing General Agents and MGUs talked about what they are, how they support carriers and some of the key market trends that we've seen. So you know, as someone who's recently launched an mgu, what are the critical factors to consider when designing, building and launching an mgu? [00:01:34] Speaker A: Yeah, so starting from scratch is a double edged sword, right? There's no legacy data, technology or operational issues. While it's nice to not have any of these, you know, problems to solve for that we see across the industry, really the ultimate challenge is the blank slate, right? No programs, operations, revenue, etc, right? Literally nothing. So building a ground up NGU platform is a huge lift with a lot to consider. You talked about three important pieces, right? Designing, building, launching, sometimes used interchangeably, but really very different and each one extremely critical in its own right. However, if you dedicate the necessary time and resources up front, architecting the detailed strategy and business requirements, this enables your ability to not only to get to build and launch effectively, but also pivot when necessary. Because no matter how you design this up front, there's always going to be changes. You need to be flexible and, you know, take action immediately. And this is everything from underwriting, team recruitment programs, development and onboarding, targeting products and segmentation, M and a pipeline, tech stack, market positioning, partnership model, everything right? As part of this, you need to decide where are the lines in the sand, where are you going to stand firm in terms of the strategy you design? Where can we be flexible? Pivot, essentially, and where do we need to spend more time designing and iterating? At the end of the day, startups are a huge risk. But if you can successfully design this strategy blueprint, you can then build and attach tangible items like detailed business plans, requirements, financial models, perspective, timelines and budgets, things along those lines that ultimately create a roadmap for you to stick to. So now we just mentioned a lot of these critical factors quickly, so let's talk about a few of them. You know, maybe more in the vein of those lines in the slide and kind of talk about how we build Ascendix with our vision from the ground up. I think the first one is going to be program strategy. [00:03:48] Speaker C: Right. [00:03:48] Speaker A: And this is absolutely critical. [00:03:51] Speaker C: Right. [00:03:51] Speaker A: And when you're launching an mgu, right, one of the first questions you'll always get what programs are you doing? What's your underwriting strategy? [00:03:59] Speaker C: Right. [00:03:59] Speaker A: And it's a very broad question, especially for someone that, for a, for an MGU that has no programs, currently is in startup phase. So I don't like to say that I'm product agnostic, but it's more about the underwriter, their segmentation, their business plan, where the market's moving and how that fits into the strategy you want to build for your programs overall. I think we can talk about this greater detail in a bit, but these new programs need to fit our strategy. So what I was alluding to, for example, is how we want to build and expand our offering verticals, being flexible in terms of the products and offerings you have within those verticals, margin and operating leverage targets. [00:04:47] Speaker C: Right. [00:04:48] Speaker A: How we look at target, ebitda, our expense base, the underwriters that we bring on board, and then obviously the technology and scale requirements, you know, look out the gate. There's some that we won't do just because of the general challenges associated with being a startup mgu. [00:05:06] Speaker C: Right. [00:05:07] Speaker A: For example, Property Cat, where it may require higher limits. It's a very challenged segment. So to have no historical data there, it would be very challenging to launch a program within that line of business. And that's not to say that we don't like it, but there are just matter of facts where it just makes it very challenging as a startup mgu. So I think the next big critical factor would be people. [00:05:30] Speaker C: Right. [00:05:30] Speaker A: And you know, that sounds very broad. Right. Obviously, you know, the underwriters and the teams and the support functions that you bring on board are critical. But I think we need to dive into that a little bit in terms of what that actually means. You know, obviously deep experience and track record are critical. But most importantly, does this person have the willingness and ability to do something from scratch? [00:05:51] Speaker C: Right. [00:05:51] Speaker A: Kind of like the quote unquote cliche, roll up their sleeves. [00:05:54] Speaker C: Right. [00:05:55] Speaker A: There are going to be people that, especially on the underwriting side where maybe they've spent their entire career at a larger company, insurance company or a larger carrier and they're outstanding underwriters, but they're used to that infrastructure of having a, you know, deep support and functions around actuarial forms, product underwriting operations. Right where they're going to come over here and that's going to be their sole responsibility up front. So are they able to do that? I think. And then the last critical factor I want to mention is technology. We cannot stray from what we want to build in terms of speed to market data analytics, underwriting, intelligence, claims, insights. [00:06:40] Speaker C: Right. [00:06:41] Speaker A: Everything from front to back end to end efficiency. And you know, this means potentially turning down great M and A opportunities and turning away great underwriters that are not of the digital first mindset. So broadly speaking, I actually think this is where MGUs have lost their edge a bit in recent years. The M and A frenzy and subsequent decentralization and complex integrations have hindered operating leverage and evolving their tech enablement. And MGUs need to be at the forefront of this tech because this is how you provide the most value on the front end to your distribution partners and on the back end to your markets. [00:07:19] Speaker B: So great insights there Dan. And you know, I think you talked a lot about the design considerations which are certainly where you start. Let's move into launch. I understand that Ascendix is looking at a launch at some point this calendar year. Hopefully late Q2, early Q3. Talk to us a little bit about what goes into launching new or de novo programs and the respective processes, requirements in approach. [00:07:46] Speaker A: Yeah, definitely. So there's a lot of challenges that come with that. [00:07:51] Speaker C: Right. [00:07:52] Speaker A: Because as we just mentioned launching an MGU platform, there's challenges starting from scratch. Same on the program side. [00:07:58] Speaker C: Right. [00:07:58] Speaker A: When you're launching programs from scratch, you know, there's no historical data. Depending on how segmented they may be, there may not be any market data. So then how do you get comfortable with the underwriter to get the underwriters track record? And then there's the other side when they're on board around configuring it within your technology platform, helping them with all the unique intricacies around underwriting guidelines, product forms, building the rater. So everything that we just talked about at the MGU level, right, from a platform perspective doesn't exist. And that also holds true on the program level. And the way I look at it, when we're recruiting underwriters or underwriting teams and bringing them on board, I always say there's three proverbial checkboxes that we need to look at, right? One, does this fit within Ascendex's strategy? [00:08:53] Speaker C: Right. [00:08:54] Speaker A: Those three pillars we just talked about program strategy, people and technology and something that we want to do and see as sustainable and provides long term value to the market. And the second one would be presenting this as a business case to Altamont, right? Because we want them to get behind every program that we're doing and back it and have the belief in the program and writing team that we have. And then the third one which is going to be the toughest is can we get capacity from the markets? [00:09:32] Speaker C: Right. [00:09:32] Speaker A: Like I said, when you're trying to get, get capacity and risk capital from the markets for this program, it's extremely challenging to do it when you don't have any historical or even sometimes market data to back it, right? So then I think to dive into this, the next level of detail, I think in terms of launching a new program, there's kind of three tranches of a timeline that we look at, right? So the first one would be the business planning process, program development and requirements and then capacity. So in terms of the business planning process, right. It's, I almost look at it in terms of doing mini M and A deals, right? Doing your diligence, right? And it's, it's unique because how do you do your diligence on something that doesn't exist yet, right? It's essentially just an idea in the ether or this idea that this underwriter has brought to you that's on a piece of paper. So it kind of goes back to building those templates and artifacts that we talked about that you need to get comfortable with the strategy that you're building. So you need to build a ground up financial model using production assumptions around submissions, hit ratio, renewal rate rate within the product, how you look at declinations, everything, right? And that gives you your top line basis for your procedure premium so you can get comfortable around what those metrics should look like and then you can build that top down from all of your revenue items, your net revenue items, sorry, everything from acquisition costs Policy fees and then down to your expense base. So there's a heavy financial planning that goes into that and then also the business planning side around strategy, operations, tech requirements, everything. Soup to nuts. [00:11:21] Speaker C: Right. [00:11:21] Speaker A: So it's almost like you're, you're building this, the sim to kind of allude to my M. And a analogy that we're going to have to present to Altamont. It could be the basis for the marketing submission when we go out to market for capacity. So building that end to end is huge. The second one that I mentioned was program development and requirements. So this would be the next phase essentially when the underwriter comes on board and this goes into building your underwriting guidelines, your forms library, building the rater, if there's any filings that are required. How's, what's the claim strategy? Is it going to be done with the markets, is it going to be done with a TPA and then all of your business requirements on the operational and technology side. So that's a huge, huge lift. [00:12:05] Speaker C: Right. [00:12:06] Speaker A: And then in tandem with that is going out and getting capacity. So that's working with your reinsurance broker. [00:12:14] Speaker C: Right. [00:12:15] Speaker A: Developing this program from the business side, presenting it to the market, working through where there's interest. Is this going to be with a carrier that's going to take a net? Is this going to be done with a front end company? You need to get reinsurance on the back end. [00:12:26] Speaker C: Right. [00:12:27] Speaker A: So it's, it's kind of critical once you're in that capacity phase that you also not only have the right partners from a carrier reinsurance perspective, but also a reinsurance broker that is going to help you structure and place this program. [00:12:41] Speaker B: So Dan, great, great insights. Talk about design launch. I want to move to partnerships because I know that's a critical piece, you know, as you, you know, exit, build and try to switch into steady state operations. Partnerships are huge. So talk to us a little bit about the role of partnerships and collaborations in the MGU space. You know, what is the ideal partnership ecosystem look like? [00:13:11] Speaker A: Yeah, I mean, I think it's, it's tough to say what the ideal partnership ecosystem looks like. [00:13:17] Speaker C: Right. [00:13:18] Speaker A: Because every MGU is so different, but we all rely on similar types of partnerships, service providers and players out in the market. So it's going to be different and probably more robust since we're in a startup phase. [00:13:34] Speaker C: Right. [00:13:34] Speaker A: And so as an MGU startup and looking to run as lean as possible, especially out the gate, that translates to a very robust partnership model at all access and support points. Selecting our partners is A thorough process and critical to our success. And this spans the gambit, right? We're talking about our markets. It's carriers and reinsurers, reinsurance brokers, wholesaler and retailer partners, TPAs, actuarial consultants, technology partners, right? And, and you know, this is that, that's the insurance ecosystem, right? But even when you think about launching something as simple as banking, right, when you need to get operating accounts and trust accounts set up, like, are you going to have the right banking partner that understands you're a super small company and they're going to give you the dedicated attention that you need? Where, I mean, you know, there's going to be large banks out there where this is just not their sweet spot or where their focus is. So even choosing partners in spaces like that are absolutely critical for speed to market and ensuring you get the services that you need. Point being, they need to understand your unique market positioning, business profile requirements and growth trajectory, right? Because these are also partners that we want to have for the long haul. Like, we're not necessarily looking to have service providers in year one and then have different ones in year three. Like, we want true partners throughout the journey, especially when you're starting from scratch. And this is really the ultimate question when you're going through this, right? Are they going to be true partners versus just service providers? I think I'll give you some good examples, right? Everyone talks about how important their distribution partners are, right? And these are underwriter for the programs that we're doing, we're having underwriters that have deep track records and relationships, right? So this comes with strong ties to their broker partners, key ties to producers and specific offices based on their product offerings and their segments, right? And so what that comes down to is given where we're at, are they gonna be true partners with us even before this program launches? [00:15:51] Speaker C: Right. [00:15:51] Speaker A: So what do we mean by that? So, for example, so one of the first programs we're launching, one of our key wholesale relationships that our lead underwriter has, they've been sending us test submissions to test out our technology, our rates, pricing model, right? So that gives us an understanding of where we're at versus what they're seeing in the market and helping us tweak anything that we may need to, right? And so that's gonna make us more competitive out the gate, right? So when you talk about who's a true partner on the broker side, it's not just producers that are giving you the most business, giving you the best business, but they're gonna be there to help you tweak your programs and help you improve your offering. So we need brokers like that that are gonna work with us throughout our journey as we launch more programs and expand our verticals. And the second example is choosing the right reinsurance broker. [00:16:48] Speaker C: Right. [00:16:48] Speaker A: And these are absolutely critical to helping us structure programs. And it's not just going to be who are the biggest and strongest names in the reinsurance space, but who are those that truly understand the MGU and program space, who have strong placement relationships and marketing lists, and then also other key areas like actuarial services. [00:17:10] Speaker C: Right. [00:17:10] Speaker A: This goes back to where, if we have a program that's heavily segmented and you're not able to get annual statement data or market data, are they going to have creative actuaries that can help you with a loss pick and putting together a quantitative analysis that your markets and reinsurers are going to get comfortable with. Yeah. [00:17:29] Speaker B: Great insights. It really underscores kind of the. The importance of partnerships and making sure that, you know, your ecosystem is fit for purpose and not necessarily something that's more standardized across the industry. So I think we have time for one more question. [00:17:44] Speaker C: Okay, great. [00:17:45] Speaker B: And I want to talk a little bit about competitive differentiation. There's been a lot of buzz around MGAs and MGUs in the insurance ecosystem. You're facing an uphill battle, to say the least. So talk to us a little bit about how Ascendix is thinking about differentiating in the competitive landscape for the foreseeable future. [00:18:09] Speaker A: Definitely. It's a great question. I mean, I think, like you said, there's more MGUs entering the space than ever before. So competitive differentiation is paramount for how we position ourselves in the market and our success. And I think lots of times competitive differentiation, rightfully so, is focused on your technology, your product, your offerings, your speed to market. But a huge part to even get to those points is attracting talent. [00:18:44] Speaker C: Right. [00:18:44] Speaker A: So in my mind, there's more underwriters and underwriting teams that want to work at MGUs than ever before. [00:18:52] Speaker C: Right. [00:18:53] Speaker A: Because we wouldn't be seeing an influx of MGUs and launches if this wasn't the case Pace. So for us, that's an important competitive differentiation. So how do we attract that talent? I think one is providing them with strong. A strong tech stack, a leading tech stack, the best underwriting tools. I cannot tell you how many times underwriters have told me that this is something that's super important to them because where they're currently at, you know, it's either. It's hurting their bottom line from a Lack of investment perspective from a heavier expense base speed to market that they want and just don't want to be using old tools and underwriting technology anymore. So when they can go to a place where there's no legacy data, no legacy tech, no legacy operations, and we provide them with the best tech stack out there and they can configure it to how they want, it's a huge sell. And then, you know, there, there also has been a huge positive reaction out there to kind of our approach around building de novo programs. [00:20:04] Speaker C: Right. [00:20:04] Speaker A: It gives them the comfort that when we hire these underwriting leads that they are going to be the underwriting leads for the long term. [00:20:10] Speaker C: Right. [00:20:10] Speaker A: There's not going to be an influx of a ton of M and A deals where it could throw off their team structure they're offering and things that they didn't necessarily sign up for that wasn't part of their initial strategy. And then the other piece is your capital. [00:20:27] Speaker C: Right. [00:20:27] Speaker A: So we've got Ultimatum Capital as our backers. They're known as seasoned investors in the insurance space. They've got multiple portfolio insurance portfolio companies and are well respected in the space. So when they hear that we're an Altamont company and they see the success of Altamont's other portfolio companies, that's also a huge selling point. Coming to a place where they know the capital understands insurance is going to give them the time and resources that they need to build this out. And then the other part of attracting talent is coming up with unique and attractive compensation structures. [00:21:02] Speaker C: Right. [00:21:03] Speaker A: The legacy. A lot of the legacy players, you know, they do the standard kind of, you know, salary plus bonus and, you know, there's nothing wrong with that. And some of them are even altering their compensation structures. But a lot of the underwriters want to come to a place where there may be a more tailored or differentiated offering in terms of how you look at equity and profit sharing and unique mechanisms that really incentivize not just the business that they're writing, but how they're also performing for their carriers and reinsurance partners. So those are some critical areas with attracting talent that I think, you know, we've been thinking about critically and I think a lot of NGOs have as well. And I think it's also kind of shows in the market why there's been such, not an influx of NGOs but talent migrating to this area. I think the next key component would be, I guess, what I would call coming up with creative risk solutions. [00:22:04] Speaker C: Right. [00:22:04] Speaker A: And this is where MGUs have always played in the space. [00:22:08] Speaker C: Right. [00:22:08] Speaker A: This is, we're known as being nimble, helping solve complex issues and developing and penetrating new markets. So it requires creative underwriters and partners willing to take a chance on something new, whether that's a product segmentation or structure. So I think continuing to kind of be in the forefront of that is absolutely critical for conversation. Competitive differentiation as well, especially when you're talking about market positioning. I think the other component is something, something I would call be having value accretive foresight. [00:22:42] Speaker C: Right. [00:22:42] Speaker A: We're not just risk off carriers. [00:22:45] Speaker C: Right. [00:22:45] Speaker A: A lot of, a lot of the. Some MGUs, I would say just kind of doing the same type of offerings that maybe their markets or carrier partners have. And again. [00:22:53] Speaker C: Right. [00:22:54] Speaker A: Nothing wrong with that approach. But it's being niche focused, very segmented, providing value where markets aren't necessarily playing right and being able to do that for the long term. [00:23:06] Speaker C: Right. [00:23:06] Speaker A: Can you survive and thrive in a down, down and or soft cycle? Not just having success in the hard market, which we've seen over the past five plus years, but also building programs that are defensive and sustainable long term? Kind of going back to the theme I mentioned before around pivoting, like can you pivot to meet the market dynamics, market conditions, work with your carrier partners to deliver value where they see it happening in the market as well, and being at the forefront of identifying that dislocation and new markets, emerging risks and well said. [00:23:44] Speaker B: So that brings us to the end of today's episode. A huge thank you to Dan Grazel, head of Corporate Development and Strategy at Ascendex Underwriters, for joining me and sharing such valuable insights in the MGUs. If you enjoyed the conversation, be sure to subscribe and follow to the podcast for more discussions with industry leaders shaping the future of financial services. I'm David Carey from Alvarez and Marsal. Thanks for listening and we'll see you next time.