Insurance capacity is the amount of risk an insurance intermediary (MGA) can take on behalf of an insurer. If MGA has a binding agreement with X amount in Dollars capacity then the MGA can not issue more policies if X amount is exceeded.
It’s required for any insurance intermediary to take on risks, no capacity means no ability to take on risks.
This is a lengthy contractual process that happens between the insurer and the intermediary. Some of these details include: the kind of product, rating and quote and policy templates, as well as reporting to the insurer.
Once the agreement has been made and the capacity agreement has been signed, the intermediary can start trading.
Insurance capacity is typically managed through a system that allows for binder management and the use of limits. Once the limits are reached, no more risks can be issued.
