Program administrators and managing general agents (PAs/MGAs) appear to be interested in making acquisitions. This year, 72 percent of participants in Guy Carpenter’s Fifth Annual Specialty Insurance Program Issuing Carrier Survey indicated an interest in growing through acquisition, up slightly (though not materially) from 70 percent in 2008. A mature segment of the insurance industry, this remains one of the few ways to accelerate top-line growth and capture market share.
Fifty-nine percent of respondents to the survey would like to acquire other PAs/MGAs, and 44 percent would prefer to acquire carriers — with both categories up from 2008’s 54 percent and 39 percent, respectively. Interest in wholesalers has waned; 13 percent of respondents are targeting them this year, compared to 23 percent last year. Respondents considering acquiring third-party administrators have increased from zero last year to 5 percent this year.
The majority of respondents plan to use company funds to make acquisitions (56 percent, compared to 54 percent in 2008’s survey), though company stock is another popular way to finance acquisitions (23 percent). As a result of the worldwide financial crisis, the use of institutions - such as private equity and bank financing — has fallen sharply. Last year, 27 percent of respondents indicated an interest in working with private equity partners, with 8 percent listing banks as a financing source. This year, they garnered only 3 percent and 5 percent, respectively.
With the continuing downward pricing trends and lack of any appreciable top- and bottom-line growth, program carriers are looking at various program segment firms to acquire. Their interest continues to lay mostly with MGAs and managing general underwriters (MGUs) — as well as other insurance companies. However, a number of carriers have also shown interest in wholesaler and third party administrator acquisitions. As one might expect, given the market segment surveyed (i.e., insurance carriers), company funds are generally being used to fund their acquisition activity - an interesting byproduct of a buyers’ market for insurance and a condition to watch as we move into 2010.