An MGA underwrites an insurance risk on behalf of a capacity provider (an insurance company or Lloyd’s syndicate) but is not a party to the resulting insurance contract. MGAs underwrite as a ‘coverholders’.

• A coverholder is a third party given delegated authority by an insurer or Lloyd’s syndicate
• Delegated authority empowers a firm to accept, bind and control insurance products within the scope of a specific binding authority
• A binding authority is the contract under which delegated authority is given to a third party.

The binding authority sets out key details such as:

• The Coverholder's contact details
• The period of the contract
• Who is responsible for underwriting (and claims, if applicable)
• Who is their deputy?
• The classes of business underwritten and the limits applicable
• Premium, commission, and profit share

When underwriting, the coverholder must consider three key factors:

1.    Burning cost: where premium income equals claim payments
2.    Operating costs: the cost of running the business
3.    Profit margin: required to increase reserves and pay shareholders