Managing General Agent (MGA) — Delegated Underwriting Authority Commission and Profit Commission

💡 Accountant's Note

A Managing General Agent (MGA) is granted binding authority by an insurance carrier — essentially an outsourced underwriting operation. The MGA binds, issues, and manages policies using the carrier's paper (the carrier bears the insurance risk), earning significantly higher commissions than retail brokers (20–35% of premium) in exchange for the underwriting expertise and infrastructure they provide. Revenue components: (1) MANAGEMENT COMMISSION (primary): a percentage of the gross written premium bound by the MGA — recognized at policy inception (same as retail broker commissions, point-in-time at binding). (2) PROFIT COMMISSION: similar to contingent commissions — if the MGA's book has a loss ratio below the agreed threshold, the MGA earns an additional profit participation. Variable consideration — constrained until the carrier's determination. (3) CEDING COMMISSION: if the MGA's carrier reinsures part of the risk (very common) — the MGA may earn a ceding commission on the reinsurance premium ceded. (4) POLICY ISSUANCE FEES: fixed fees per policy issued, covering the MGA's administrative costs. The MGA's most significant regulatory risk: if the carrier becomes insolvent, the MGA is not the insurer — policyholders have claims against the carrier, not the MGA. But the MGA holds the client relationships and the expertise.