Despite reports of a moribund UK economy, the UK insurance sector has proven its resilience, with M&A activity continuing unabated, details Clearwater International.
The large-scale consolidation of the UK market, which has been running for many years, appears to continue unabated. Interest in M&A is likely to continue, as investors view the insurance market as a robust sector and as such have invested in consolidation platforms, most of which have deep pockets funded in part by significant debt facilities. By its very nature, insurance is likely to be less affected by economic uncertainty albeit there may be some downward pressure on premiums as customers hunt for the best deal.
Insurance businesses serving niche sub sectors, where there are limited alternatives available will to some extent resist premium deflation or will indeed be able to raise premiums and in turn will be extremely attractive to acquirors or investors.
Furthermore, the attractiveness of higher margin insurance businesses such as managing general agents (MGAs) continues and will no doubt strengthen as acquirors look to bolster their margins. As ever, good businesses with niche focus and high rates of renewals will be very much sought after by a large number of buyers.
Within this sector, technology differentiated businesses continue to be of interest. Be it lower cost of customer acquisition, more automated risk management or just more efficient administration – these innovative companies are being sought out by larger more traditional players.
James Barraclough, Partner, Clearwater International said:
“Solid valuations, succession planning by many owners of brokers as well as a tightening of market capacity in Q4 2019 have all helped to increase the supply of targets for consolidators and there remains a steady stream of bolt-on acquisition targets in the market. What will be interesting is how quickly consolidators can acquire these bolt-ons and how effectively they integrate them as the consolidators themselves will be thinking about how they crystallise value. It would not be surprising to see some of the larger consolidators undertake their own transactions in the near term, they themselves capitalising on the strong valuations and market demand for insurance businesses.”