Going it alone – global brokerage firms could try to split up | Insurance business America
According to the deal expert, company separations are likely to be the “top issue”.
Insurance News
By Jen Frost
Business splits could be a “top priority” for global insurance broker executives looking to add value as major players step up their internal transformation efforts, an insurance business expert at PwC said.
“A lot of boards and management teams look inward and say, ‘OK, we have advice, we have brokerage’ – in Marsh’s case [McLennan]“You have several other companies with different brands,” Mark Friedman, head of U.S. insurance operations at PwC, told Insurance Business. “Any good management team that owns any kind of conglomerate [or] When multiple companies operate with limited overlap, we will look at that and ask, “Is there a way to unlock shareholder value by separating companies?”
“I’m not sure what direction they’ll go in, but that analysis needs to be at the forefront, given what we’ve seen from others in this space and, frankly, other sectors… the sum of the parts is more worth than the current valuation and is there a way to unlock value?”
Other players in the insurance sector have opted for simplification
Insurance carriers have already moved toward simplification over the past two decades, seeking business sales and separations to increase profitability in core businesses rather than acting as broader one-stop shops.
“The market rewards simplification compared to conglomerates or just being a one-stop shop, and to be fair, no company has really done a good job of cross-selling products in insurance,” Friedman said.
Underwriting is experiencing the “next wave” of simplification – PwC is leading deals
The underwriting side of the insurance industry is currently experiencing the next wave of this evolution, with companies tackling increasingly more focused areas.
“Companies have seen and experienced that if you incentivize people with the right incentives, if a group focuses only on inland waterways and only on commercial vehicles, it enables them to delve deeper and help them with underwriting do better because they don’t focus on different risks in general – they know a small subset of the risks, but they know them very well,” Friedman said.
Faced with valuation issues and regulatory pressure, banks are trying to sell insurance lines
Banks have also opted for simplification, which could lead to further strengthening of insurance brokerage businesses.
“Does a bank with $50 billion to $100 billion in total assets that does this side business that’s 10% or 15% get the actual multiple of an insurance brokerage that a standalone company like Gallagher or Ryan Specialty Group gets?” Friedman asked .
Concerns about mortgage risk and the risk that regulators will adopt a different approach to capital could prompt banks to sell their insurance assets as they too focus on simplification.
“What we’ve seen is that banks have recognized that while their industry is under stress, they have valuable assets that they can really monetize at a relatively high value, strengthen their balance sheets and focus on what’s right for them “does well.” at and what is the core of their strategy, namely the core banking business.”
What does 2024 have in store for insurance M&A?
Friedman spoke to Insurance Business about M&A trends in the insurance sector during an interview in January.
This is an increase compared to 298 announced deals worth $7.7 billion in the same period last year.
PwC predicted that insurance carriers and brokers will continue to be attractive targets in 2024 amid a boom in managing general agent (MGA) deals and a shift in focus to acquisitions in the property and casualty (P&C) insurance business, PwC predicted.
In PwC’s US Deals 2024 Outlook, the insurance and asset and wealth management sectors were ranked as the most likely for mergers and acquisitions compared to the overall market due to tighter overall purse strings.
“Nothing is recession-proof, we have seen people in the insurance sector not doing well before [during an economic squeeze], but it has proven to be very resilient across various market cycles,” Friedman said. “We continue to see more and more new entrants or potential new entrants in this space.”
While underwriting valuations have generally increased, brokers have experienced some downward pressure related to funding costs, said Friedman, who cautioned that valuations in other sectors have fallen “a little more sharply.”
M&A activity surrounding P&C businesses is increasing following a series of major transactions, including Brookfield Reinsurance’s $4.3 billion America Equity Life deal and National Western Life Group’s merger agreement with S. USA Life Insurance Company in the life insurance and pension insurance sector.
“The market has been dominated by life and retirement insurance platforms and brokerages in recent years,” Friedman said. “We’re seeing a bit of a shift, so we’re seeing a lot more activity on the property and casualty side.”
The decline in inventory has been compounded by regulatory CP2 changes in Bermuda, giving buyers pause. This hesitation in the life insurance space has created a “vacuum,” according to Friedman, and capital is now flowing into property and casualty insurance, with a focus on insurers, underwriters and MGAs.
Specialty MGA market remains hot – PwC deals lead the way
PwC predicted that P&C insurers are increasingly looking for distribution partners with profitable underwriting track records and that the specialty MGA market will remain hot.
“Many brokers are recognizing that the future of the underwriting, fee and insurance business is shifting more toward MGA and MGU models, as opposed to the traditional broker-only introduction broker,” Friedman said. “It’s more about us introducing you, we also do the underwriting and, by the way, we eat our own food.
“Insurance companies are concerned about anti-selection and the MGA model gives distributors a real incentive to do profitable business and offer reasonable prices.”
similar posts
Stay up to date with the latest news and events
Join our mailing list, it’s free!
Source link
2024-01-29 11:35:07
www.insurancebusinessmag.com
