There are two key financial considerations for any MGA: financial strength and income.
Assessing an MGA’s own financial strength must take account of staff
and premises costs - as well as professional and regulatory fees. This
requires having a robust strategic plan linked to the business budget.
Projections of future income should always be realistic and make due allowance for potential external pressures.
The financial health of a capacity provider depends both on solvency
(its ability to meet long-term financial commitments) and liquidity (its
ability to fund short-term obligations - allowing for how quickly cash
can be realised from investment programmes or reserves).
A solvent company has more assets than debts, i.e. a a positive net
worth and a manageable debt load. A company with adequate liquidity may
have sufficient cash to pay its bills, but might risk becoming insolvent
due to its inability to raise cash when it is needed.
A healthy company is one that is solvent and has adequate liquidity.
Financial ratios applicable to liquidity and solvency are discussed