Today's Viewpoint: A MarshBerry Publication

Raising Capital


Raising Capital Might Be the Smartest Decision You Make in 2020

MarshBerry hosted its 15th Annual Impact Summit virtually November 10, bringing together leading capital providers to offer market commentary and insights for the best ways to tap the non-investment grade debt markets. The theme this year was raising capital and why it could be the smartest decision you can make in 2020. Conversations surrounded topics such as how the insurance industry got to where it stands today and where we go from here.

Attendees of the summit heard the State of the Industry from MarshBerry’s Chairman and CEO, John Wepler, an overview of Standard & Poor’s Global Ratings on publicly-traded insurance brokers by Julie Herman, Director – North America Financial Services Ratings for S&P Global, a debt conversation with Ed Bowler, USI CFO, and an overview of the recent United States election by Joel Wood, Council of Insurance Agents and Brokers, Senior Vice President of Government Affairs.

State of the Industry

The United States has been experiencing the longest economic expansion during a hardening rate environment in the industry. The ongoing demand for broker acquisitions has kept valuations at all-time highs, driven by the institutional investment community’s desire to invest in high recurring revenue, low capital expenditure businesses. As brokers weigh potential increases in the capital gains tax rate, MarshBerry anticipates a continued flood of new merger and acquisition (“M&A”) activity.

If brokers wish to remain independent, organic growth and broadening ownership must be their focus. Creating ownership opportunities for team members who have proven their value to the company creates an alignment of purpose, helping to attract top talent to the firm. Employees who have ownership opportunities will buy in to the organic growth strategy of the company, helping to drive long-term value creation for all shareholders.

S&P Ratings Update

S&P Global rates 25 insurance brokers globally and this number continues to grow largely due to private equity interest and M&A driven capital markets activity. S&P noted within their portfolio, a total of four negative rating actions were taken, none of which were downgrades. S&P noted most of their ratings were unchanged due to revenues tied to non-discretionary services, the rising rate environment, highly variable expense base, solid cash flows, and minimal refinancing risk. So far in 2020, over $12 billion in debt has been raised as firms continue taking advantage of favorable pricing.

A Discussion on Debt Refinancing

Agency or brokerage owners may bristle at the prospect of bringing on more debt. However, in two decades there hasn’t been an insurance agency or brokerage that has defaulted on its debt. The insurance industry has been stress tested during the Great Recession, and most recently during the worst pandemic in modern history. Both times, the industry has passed the tests with flying colors. To date, both the rating and regulatory environment have been favorable to borrowers. There is a question mark around the incoming administration, and whether regulation will remain as favorable as it has been in the past. If your firm is looking to raise debt, now is your best opportunity.

U.S. Election Recap

The United States election is definitely one for the history books. With record voter turnout, and a potentially contested race, is the nation poised for a new President to arrive in the White House in January? Still unknown is which party will control the Senate with both Senate seats in Georgia heading to run-offs as none of the candidates won 50% of the total vote. As of the Impact Summit, the current split of the Senate sits at 48 Democrats (including two independents who caucus with Democrats) and 49 Republicans. The Senate race in Alaska is not yet called, but it is expected that the incumbent Republican will hold onto the seat. If this is the case, the split is 50 Republicans and 48 Democrats. If the Republicans win one or both Georgia seats during the January run-off, they will hold on to control of the Senate. If both seats are won by Democrats, the split would be 50-50, with Vice-President Elect Harris casting the tie-breaking vote.

What’s at play in the insurance sector? Several considerations including the potential for health care coverage to shift away from commercial markets, the range of public option proposals on the Affordable Care Act from minimally disruptive to extremely disruptive, Private Insurance prices for hospital serves related to Medicare, and Prescription Drug Distribution and Pricing.

Wrapping It Up

Brokers continue to face headwinds when it comes to driving organic growth. Fortunately, despite a global pandemic, a tumultuous election season, and uncertainty around policy changes to be enacted by the incoming administration, it is possible that the fourth quarter of 2020 will be the most active quarter for M&A in the history of the industry. So set your revenue and organic growth goals, develop the roadmap to meet them, and conquer your own destiny.

If you have questions about Today’s ViewPoint or would like to learn more about the availability of debt capital in the insurance brokerage market, please email or call Gerard Vecchio, Managing Director, at 212.972.4886.

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MarshBerry continues to be the #1 sell side advisor in the industry (as ranked by S&P Global). If you're considering selling your firm, we are the best choice to help you through the complicated process. If you don't hire MarshBerry, hire a reputable advisor that can help you navigate one of the most important business decisions you will ever make. You will be much better off having an advisor in your corner that knows the industry than trying to do this on your own.