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Today's Viewpoint: A MarshBerry Publication

It’s no surprise there’s an uptick in consolidation among large, PE backed and public brokers. It could be just the tip of the iceberg.

Consolidation in the insurance industry is nothing new and has been a growing trend in the past several years. With the growing pace of specialty distributor acquisitions, it’s no surprise there is an uptick in consolidation among the larger private equity backed and public brokers and at this stage, it could be just the tip of the iceberg.

A number of large retail brokers have recently partnered with wholesalers and managing general agents (MGAs) to capture more premium dollars, move upstream, and expand cross selling opportunities. In June 2020, JenCap Holdings LLC, a wholesaler and MGA, joined forces with EPIC Insurance Brokers & Consultants, a retail broker, to form a holding company, Galway Insurance Holdings. Both JenCap and EPIC were private equity backed prior to the combination and were recapitalized by The Carlyle Group, Harvest Partners, LP and Oak Hill Capital. To name a few more, Specialty Program Group was launched by Hub International Limited in 2015; CRC Group, AmRisc, and McGriff are owned by Truist Insurance Holdings, Inc.; U.S. Risk Insurance Group, LLC, acquired USI Insurance Services in July 2019; Arthur J. Gallagher & Co. maintains Risk Placement Services Inc. as its specialty arm; and the list goes on.

In the last year alone, the largest specialty broker, Amwins, Inc., announced a definitive agreement to acquire Worldwide Facilities, LLC, the number six largest specialty broker with approximately $2.1 billion in premium. The number three largest specialty broker, Ryan Specialty Group LLC, acquired the number five largest broker, All Risks Ltd. at $2.6 billion in premium, before announcing its plan for an initial public offering (IPO). The following chart summarizes the consolidation in written premium among the largest specialty brokers after these announced transactions become effective.

A number of factors contribute to the consolidation of specialty distributors including improved market access, economies of scale, investment in technology and infrastructure, and a growing trend of retailers reducing their list of approved wholesalers. Further, as the consolidation of traditional retail brokers continues, it becomes increasingly difficult to get your name on the approved list as a small to medium sized wholesaler or MGA. Most retailers and specialty distributors under common ownership maintain a proverbial ‘wall’ between the two operations with separate branding to maintain their independence in the market. However, there is a preference and profit motive to refer clients between both houses which can further squeeze out the smaller wholesalers.

The appetite for specialty distributors is expected to increase but as the number of merger & acquisition targets become harder to come by, even more consolidation among the largest wholesalers and MGAs will continue.

If you have questions about Today’s ViewPoint or would like to learn more about M&A trends for specialty firms, please email or call George Bucur, Director, at 440.392.6543.

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Sources: Business Insurance, Insurance Journal, and MarshBerry estimates

MarshBerry generally defines specialty firms as niche focused brokers and agents often referenced in the industry as program managers, program administrators, managing general agents, managing general underwriters, wholesale brokers, and/or general agents.

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