The fierce winds of merger, acquisition and consolidation have swept back and forth across the UK general insurance broking market for over a decade. Far from relenting, those winds are gathering fresh impetus as US money sweeps in across the Atlantic.
There is nothing new about Dollar-rich investors descending on the UK. For two decades from 1972, when US giant Gallagher set up in London, the Lloyd’s and London Market was transformed as US firms took advantage of the reforms Lloyd’s pushed through to force brokers to divest themselves of underwriting interests and then exploited the later turmoil of heavy losses and scandals.
Gallagher has again been a key player in the expansion of US ownership of the UK’s commercial broking sector, gradually widening its base in the provincial market. They are not alone.
At the top end, Marsh raised the stakes in early 2019 when it acquired JLT, prompting Aon to respond with a botched attempt to acquire Willis Towers Watson, a deal that collapsed after months of uncertainty last summer.
Others have set-up from scratch with McGill & Partners headquatering themselves in Dublin with a branch in London which they have used to poach key teams from established London Market brokers.
Outside London, the story of the last decade has been about the growth of the consolidators. There are around a dozen firms that have bought a significant chunk of the market – and continue to do so – but now they are finding themselves the target of takeovers. The consolidators are consolidating.
Last autumn Howden, a modest player in the consolidation game, bought Aston Lark, one of the highest profile and active consolidators.
This month Brown & Brown – itself a major consolidator in the USA ¬– moved in on another of the big consolidators, Global Risk Partners (GRP) in a transaction worth US$1.96bn (£1.48bn), B&B’s largest deal inside or outside the USA.
These two deals have something else in common. Both of the acquisition targets were backed by private equity and were only a couple of years into those deals. Now, they are backed by established insurance businesses with strong capital bases and deep pockets, both ready to play a longer game than any private equity backer would have the appetite for.
This does not mean that private equity is out of the picture. Far from it, as there are vast reservoirs of money sitting in US private equity funds and insurance broking remains an attractive proposition. It promises stable earnings, especially from those top quality firms that have a loyal customer base. Although the whirlwind of merger and acquisition activity over the last decade has already removed some of those business ripe for growth, the prospect of stable earnings amid the unpredictable volatility in global markets at present will be attractive.
The market is awash with speculation about what this might mean.
Will the new capital already in the market and behind Aston Lark and GRP propel them into a new orbit as super-consolidators?
Could private equity still transform one of the other players so it can outbid its competitors in a market where the number of blue chip opportunities is shrinking and prices rising?
Or, are we on the cusp of a serious consolidation of consolidators?
Whatever the answers are, it does seem likely that within a year or two there could easily be a group of five or six serious heavyweight consolidators controlling a very significant proportion of the UK commercial insurance market. This would have a major impact on that delicate balance of power between brokers and insurers. It has been gradually shifting with the large broking groups and consolidators able to demand more from insurers but the next few years could see a faster and more fundamentally shift.
If this happens there will be some challenging implications for customer choice with SMEs finding they have fewer options before them if they want to move their business.
If you would like to discuss a potential research project within the commercial insurance industry, do get in touch as we have a bespoke panel to whom we can contact to help you answer those burning questions. If this is the case Karen Scott or Toby Finden-Crofts will be delighted to help.