Surviving the soft market: The role of refinancing in broking

Debt has always been a key part of the UK general insurance (UKGI) broking arena, with average debt levels currently standing at more than 35 times earnings before interest, taxes, depreciation and amortisation (ebitda), according to the latest analysis of broker financial accounts by market intelligence firm Insurance DataLab.

With such high levels of debt in the market, managing financing arrangements is an increasingly important task for many broking bosses, making the refinancing of this debt a hot topic in the industry.

Market commentators anticipate that 2025 will see a surge of refinancing deals, with one broking boss – who wished to remain anonymous – expecting the soft market to be a key driver behind this year’s wave of refinancing.

“The concern is that the soft market is taking hold at a rapid pace,” he told Insurance Times. “It’s not a gradual reduction – it’s happening quickly.

“That’s catching a lot of brokers out because they are predominantly commission-based businesses and that softening of rates is having quite an effect on income.”

He added that this income ripple effect is compounded by the increase in competition that coincides with a softening market, as brokers look to steal business from rival firms.

“It’s not just about rates going down – a soft market also means heightened competition because every broker is scrambling to keep their clients while others try to win them over,” the senior leader explained.

“Even if a client renews with you, they’ve likely been approached by multiple competitors, which means more pressure on margins and retention.”

Another factor driving the number of refinancing deals being seen is the low interest rate environment. With financing costs dropping, brokers have an opportunity to restructure their debt on more favourable terms, allowing them to free up capital for strategic investments.

The broker boss highlighted that, for firms relying on debt to fund acquisitions, refinancing is crucial – particularly if falling premiums lead to a slowdown in organic growth – and in an environment where margins are under pressure, securing better borrowing terms can provide a critical competitive advantage in the race for growth.

“Financing for some of the highly geared businesses is a significant outgoing and if you save on the bottom line, it can be redirected into borrowing more, having a bigger purse and being able to buy loads more brokers,” he added.

This flexibility is particularly evident in ‘accordion’ financing arrangements, which are a common feature in many refinancing deals. These structures allow brokers to secure access to a larger debt facility upfront while drawing down funds only when needed – helping firms manage their capital more efficiently.

“Ultimately that means you can lock in a more favourable interest rate now and secure that for the long term,” the broker said.

Platform purse strings

Andre Frazao, associate partner at business consultancy firm FTI Consulting, noted that the maturity of the insurance market is also playing a role in the high number of refinancing deals being made.

He described the rise of players such as Jensten Group, Specialist Risk Group, JM Glendinning and Seventeen Group the “second or third wave” of platform brokers in the UK, saying that many of them are now reaching a stage in their growth trajectory where they need to refinance.

“Many mid-market players have reached a size where refinancing becomes a necessity to fuel their next stage of expansion,” he added. “You will continue to see more deals this year because you now have more sizeable platforms.

“Some of those will be coming to market because they have already gone through two years of consolidation and they need further equity to continue [that expansion].”

Frazao is seeing a similar trend in Europe, with the number of platform brokers growing at a significant rate.

“Five years ago, Germany had just one platform [broker] and today it has 11 or 12,” he said. “These businesses grow so fast that in three years, they are ready for the next round of financing.

“If you do what [these platform brokers] do in terms of acquisition pace, then they run out of equity very quickly. So, they need to go through another refinancing to get more equity to keep going.”

The European market is becoming an increasingly important playground for many UK-based broking firms, with a rising number looking to plant flags in Continental Europe to secure their growth ambitions.

For example, PIB Group has bought businesses in both Spain and Poland, to name a few.

No-brainer next step

The good news is that access to debt facilities is increasing, making it easier for brokers to secure better deals and prepare themselves for the next stage of their development.

“For some of the smaller firms, there were no financing options available at all six months ago. The door was shut,” the broking boss said. “That has changed and there are now more people looking to do more in the market on the finance side of things.”

Frazao added that this is no surprise given the resilient nature of the broking business model, citing that many brokers continue to report positive growth in the wake of the 2008 financial crisis.

“[Broking firms have] such a resilient business model and that’s why they are a very attractive sector,” he said. “Even if the rate comes down, brokers have a number of initiatives they can implement, such as cross and upselling.

“So even in soft market conditions, brokers will continue to deliver positive growth.”

The aforementioned broker leader said the amalgamation of all these factors means that securing a refinancing deal is a no-brainer for brokers as they move through 2025.

“If you’re not looking at refinancing right now, you’re a bloody idiot,” he concluded.