A takeover wave amongst Dutch insurance brokers is taking place

By Insurance, News

Private equity is growing its footprint in the Dutch insurance brokerage industry. An attractive financial profile, large consolidation potential and the possibility for ‘multiple-arbitrage’ led them to be responsible for 21% of all acquired revenue over the last two years. IG&H and PhiDelphi Corporate Finance jointly investigate the drivers for and impact of the M&A wave that is currently taking place.

A takeover wave amongst Dutch insurance brokers is taking place
Dutch firms active in insurance distribution (‘brokers’) are interesting to various types of investors. Due to this wide variety of potential buyers over 65 large public transactions have taken place over the last two years, and 2020 has already kicked-off with multiple impactful transactions. Recent developments regarding the coronavirus will impact this trend as is discussed below.

The sector is changing as a result of this M&A wave. Valuations have risen to as much as 14-15x EBITDA for the largest advisors and nearly all market segments are concentrating. The overwhelming interest in the sector might come as a surprise as the sector suffers from decreasing commission rates and increasingly stringent legislation. IG&H and PhiDelphi Corporate Finance investigate who are the buyers and sellers, what drives them and what the outlook is for the M&A surge.

Private equity creates foothold, but brokers remain the largest buyers
Incumbent managing general agents (‘volmachten’) were the most active buyers, both in number of deals as in sum of acquired revenues. These brokers can create value relatively easily by transferring regular brokerage portfolios towards their mandated portfolios, while deduplicating the operation from costs.

Out of all acquired volume, 21% has been acquired by private equity (PE). Their share of deals in terms of numbers is low (6%), but these are often impactful transactions involving large brokers. Large quantities of ‘dry-powder’ looking for investments and an attractive, predictable, financial profile make large brokers attractive targets. Next to these drivers the potential for ‘multiple-arbitrage’, where they profit from the fact smaller brokers trade against lower multiples than larger brokers, is often used to create financial value.

M&A wave to continue on the longer term
Drivers of the current M&A wave such as synergies in both the top- as bottom-line and ageing boards of management will be relevant in the future as well. On top of that, there is still room for further consolidation from two points of view. The first is that most segments are still highly dispersed with a large longtail of smaller brokers, which are often inactive. The second view considers concentration: most non-life segments are nearly not as concentrated as the Group D&A and Pension segments, indicating there is room for consolidation amongst larger brokers as well.

It is evident that the coronavirus will impact the wave on the short to mid-term. All investors are dealing with more urgent matters like managing current businesses and capital availability is likely to decrease on the short term as well due to uncertainty. On the longer term, when business goes back to normal, the identified value pools and drivers will however pursue to exist.

An important precondition for successful continuation of the M&A surge is long term customer value creation. IG&H and PhiDelphi see two successful strategies: extensive backwards integration, and/or as part of a strategic move to create a broad ecosystem in which insurance brokerage is just part of the solution provided to customers.

If you are interested in the sector or would like to discuss the findings in depth you can contact:

Jan Pieter van der Helm
Director Financial Services at IG&H-
E: janpieter.vanderhelm@igh.com, +31(0)622554190

Harald Miedema
Partner at Phidelphi Corporate Finance
E: miedema@phidelphi.com, +31(0)611517340

If you want to read the full paper in Dutch, please find it here.

 

 

 

Foreign insurers spread their wings on the Dutch non-life market

By IGH, Insurance, News

In the past three years, foreign insurers have managed to increase their premium volume to more than 10% of the Dutch non-life market, according to a study conducted by IG&H. More and more foreign risk bearers enter the Dutch insurance market without reporting to DNB, helped by a mismatch between customer demand and offer, rising premiums, harmonizing legislation, and consultants who professionalize.

The newspapers are full of press releases about foreign risk bearers that enter the Dutch market, but exact figures on their size are difficult to find because new entrants don’t report to DNB. Now, it’s possible through a combination of interviews as well as public and IG&H data.

Whereas Dutch risk bearers have grown by barely 3% a year in recent years, foreign risk bearers have managed to record an annual growth of more than 10% up to approximately €1.6 billion GWP in 2018. This means they now hold more than 10% of the Dutch non-life market (note: this 10% concerns foreign risk bearers that have never reported in the Netherlands and therefore don’t include Allianz and Amlin, for example). The premium volume is still highly concentrated – approximately 80% of this premium volume is still provided by risk bearers that have been active in the Netherlands for a long time (e.g. Chubb, AIG, and Lloyd’s). However, this division is expected to become less concentrated in the coming years.

New players such as Starstone, China Taiping, and CNA Hardy expand the number of mandated brokers step by step, focusing primarily on corporate non-life insurances at the larger, professional consulting firms and service providers. In doing so, they indicate their specific desire to grow as well as their assiduous search for larger limits. Furthermore, interviews point out that risk bearers organize themselves with the long term in mind – by implementing Dutch management with market experience, among other things.

Impact on the Dutch insurance landscape

This expansion of foreign risk bearers has a major impact on the Dutch insurance landscape. Traditional full-service insurers are coming under further pressure. Whereas in the past, successful and profitable activities could be realized in the Dutch non-life market through one of the three value chain roles (full-service insurer, mandated broker, consultant), the mere role of underwriter has been successfully established now, too.

This means insurers are now being attacked in a part of the value chain where they used to operate relatively unopposed. On top of that, foreign parties can reap the benefits of international diversification and a position that’s often stronger in financial terms, which means they hold strong cards for this position.

This doesn’t directly sideline traditional full-service insurers. In the search for distinction, though, many Dutch insurers will be forced to delve deeper into specific target groups and risks. While doing so, it’s important that they truly provide added value through an in-depth understanding of local customer needs, through (data-driven) expertise, and by expanding the offer with related services. Instead of mere insurances, they should offer complete solutions, which provide a distinctiveness that is difficult to match for foreign competitors. For foreign risk bearers, the Dutch market represents a relatively small share in the total portfolio, and they often lack specific (target group-related) knowledge about the Netherlands.

If you want to read the full paper in Dutch, please find it here.

Written by: Jan Pieter van der Helm (director insurance), Jeroen Enthoven (consultant insurance) and Remon Balster (consultant insurance)

Mismatch leads to visible decline in the business claims market

By Insurance, News

More and more occupational groups are (temporarily) uninsurable. The business claims market is going through major developments and is looking for a new balance. Due to a sharply reduced supply and increasingly complex needs, a mismatch is increasingly arising. One that will not be solved for the time being. This is shown by the IG&H Performance and Distribution Monitor.

Since the big blow in the sector ten years ago, insurers in the business claims market have been struggling with their positioning. Which target group do they want to serve and, for example, do they work with authorised agents or not? Until there is clarity about the price, the supply side is strongly standardized to limit risks. As a result, our monitor shows, the sector is effectively standing still in its development.

Conflicting developments

The sector is faced with a mismatch between supply and demand. On the one hand, the complexity of customer demands increases. What used to be a simple risk is changing into a complex risk due to demographic, ecological and technological developments.

At the same time, the range of products offered by insurers is shrinking and even more standardized, among other things through new data solutions which should exclude risks. Although these can have a positive impact on financial performance, they also increase the number of uninsurable groups. This resulted, among other things, in reports in the news about taxi drivers and waste processors. The monitor also shows that, for the first time in a long period of time, independent advisers are not as good at assessing the services provided by insurers in the commercial property-casualty market.

Finding balance is not possible without a fight

Insurers will have to break this trend. In the future, the market will have to move back to a new balance in which customer and insurers share the risks. IG&H sees three different options; hyper focus on niche specialisation, an increase in scale or expansion of the service. Finding a new balance will be gradual, but it will be tricky, since certain professional groups are (temporarily) difficult to insure.

Share of independent insurance advisors increases further

By Insurance, News

The share of independent advisers in the distribution is increasing, but the evaluation of insurers’ services is deteriorating, according to the Performance and Distribution Monitor of IG&H. Are insurers properly pre-sorted?

Last year we reported that the independent consultant was on a strong rise. The most recent data show that this growth continues. With the exception of the life market, the share of independent consultant remains at least equal. In the commercial insurance market, individual income market and mortgage market, the share of independent consultant even increased. Due to the strong positioning of the advisor for advice requirements regarding mortgages, occupational disability and (new) business risks, this growth is expected to continue.

Tension field of interest advisers and insurers
However, the evaluation of independent consultants’ insurance services is declining. Historically, insurers in private sub-markets were better assessed than those in business submarkets. In the last measurements, this difference was reduced because the performance in private submarkets deteriorated. This is partly due to the need to realize cost savings.

The market is clearly in motion. Insurers are rearranging their processes and improving solvency, agitated and under pressure from shareholders and regulators. In the search for a new balance, the emphasis is now on cost reduction and risk reduction. That is why they make strong choices in the areas of products, processes, pricing and remuneration. In some cases in the non-life insurance market, this even leads to uninsurability within certain branches.

Together with a declining performance, this all forms a breeding ground for a lower NPS. Given the prominent and often even increasing importance of advisers in distribution, this creates a tension field.

Jan Pieter van der Helm
Director Insurance at IG&H
j.vanderhelm@IGH.NL

Granular share of wallet data for all major product lines for truly data-driven sales management

By Data science, Insurance, Uncategorized

What they wanted
Make data-driven choices in the broker market: that is what leading Dutch omnichannel insurers want to be able to do. Key questions are: Who are today and tomorrow’s leading brokers? Where do we stand in terms of both volume and NPS? How do we enhance our position to realize sustainable growth? To this end, they wanted to gather in-depth data on volume, movements, share of wallet, and NPS. Read More