MGA vs. direct appointments — the synergy premium.

A managing general agent is an intermediary that holds underwriting authority from a carrier and extends appointment-like access to retail agencies: the agency sends business to the agent, the agent places it with the carrier, and the agent keeps a portion of the commission for the access and operational overhead. The arrangement exists because carriers can't appoint every agency — direct appointments require carrier-level volume, underwriting discipline, and compliance — so an agency that can't clear those bars writes the carrier's business through the intermediary at a cost. It's entirely legitimate, and for many small agencies it's the only practical path to carrier breadth. But it's also a structural margin leak: every placed policy is commission the retail agency could keep if it held the direct appointment, which it usually doesn't until a buyer who does shows up.

§ 01 · Why sellers are broker-dependentThree structural reasons.

Sellers rarely choose intermediary placement as a preference; they end up there because of constraints that have nothing to do with the quality of the book. The first is volume — carriers set minimum premium thresholds for direct appointment, often $500,000 to $1 million of annual premium on preferred lines, and agencies below the line have no other route. The second is underwriting history — a new agency without a loss-ratio track record can't pass carrier review, and the intermediary layer provides the audit trail the carrier needs first. The third is bandwidth — direct appointments demand ongoing compliance, reporting, and relationship management that small agencies aren't resourced to deliver. All three constraints ease when the agency joins a larger platform, and that easing is the buy-side opportunity.

§ 02 · The commission gapPoints on the table.

The gap looks small in percentage-point terms and large in dollar terms. On a $1 million placed book, a 3-point improvement is $30,000 a year in additional commission — recurring, scalable, and dropping almost entirely to EBITDA, which is $210,000 of enterprise value per million dollars of migrated premium at a 7× multiple. The economics scale linearly with the size of the placed book, which is why the size of that book is the upper bound of the whole opportunity.

§ 03 · The synergy premiumThree components.

Three components make up the premium. The commission delta is the headline — the 2-to-5-point spread applied to migrated volume. Contingency eligibility is often the largest single piece: direct appointments qualify the combined book for profit-sharing that intermediary placement doesn't, and when the buyer's existing direct volume combines with the target's migrated volume the book frequently crosses a new contingency tier. And binding authority tends to be broader on direct appointments, enabling faster quote-bind-issue workflows and higher close rates that compound over renewals.

§ 04 · The graduation playbookCost, and what converts.

Capturing the premium follows a predictable sequence: inventory the target's book by placement type (reconciled against carrier and intermediary statements, not just the management system), confirm the buyer's existing direct appointments cover the carriers on the placed list, then transition the book by rewriting policies onto direct contracts — almost always at renewal, over 12 to 18 months, to avoid mid-term cancellation refunds and billing disruption. The premium isn't free: a full $10M migration runs 1,500 to 2,500 hours of service-team work and triggers 2-to-5% rewrite-related attrition, so net of cost the migration captures 60-to-75% of the gross commission delta. And not every carrier graduates — the ones that convert best offer direct appointments at the buyer's profile, carry clean loss-ratio history on the migrated segment, and grant compatible binding authority. Specialty and excess-and-surplus carriers that distribute exclusively through intermediaries stay placed permanently, so the pre-close job is to rank the book by graduation probability and treat the non-graduating segment as permanent exposure.

◆