UK dubbed ‘Wall Street of insurance’ as international interest in acquisitions grows

International acquisitions have become more common within the insurance industry recently, with multiple overseas firms announcing deals to create a presence in the UK.

Such transactions are very noticeable from US-based firms, with several pushing themselves into the UK market with the purchase of insurers and brokers.

For example, on 1 February 2024, Hadron Specialty said it was snapping up London-based Folgate Insurance Company. Just two weeks later, Novatae Risk Group revealed it was expanding with the purchase of Lime Street broker Bretton Woods International.

This interest of moving into new territory comes at a time when American influence in the UK broker market is growing, with data from Insurance Times’ Top 50 Brokers report confirming this trend.

Published on 13 November 2023, the report revealed that 50.2% of the combined revenue of the featured brokers came from 12 firms owned by North American corporates.

This was an increase from 2013, when this proportion stood at 36%.

Why the interest?

So, why the increase in M&A interest for the UK insurance market?

John Wepler, chairman and chief executive of US advisory firm MarshBerry, said businesses across the pond viewed the UK as the “most logical launching point” when rolling out plans to grow internationally.

“There are roughly 20 insurance distributors in the US that are over $1bn (£800m) in revenue, the majority of which do not have a presence in Europe,” he explained.

“Many without a UK presence are rolling out plans to establish a European beachhead in London, as it is the Wall Street of insurance.”

Richard Beaven, chief operating officer at broker Academy Insurance, added there was a “different view of appetite” from US firms, with many looking at what they could do with a “buy and build of the insurance market”.

He said the UK market appealed to US firms because of “strong margins and strong cash flow”.

“It’s all the things that people love,” he added.

“They love to see cash generation and margins in brokers can be way higher than other businesses.

“So, that has attracted a lot of capital – there is a willingness to pay higher multiples coming out of the US.”

Other countries

It’s not just the US showing curiosity in UK broking, however, with other international firms also interested in breaking into the UK market.

For example, German legal insurance business Arag SE announced on 17 July 2023 that it has acquired Bristol-based Das UK – a move it said was a “unique opportunity”.

And Australian insurance firm Open revealed that it was entering the UK market with the acquisition of MGA So-Sure in March 2024.

“I would not be surprised if there [were] more internationals coming into the UK,” Jason Wilby, co-chief executive and co-founder of Open, said.

“It is known for being one of the most competitive and hardest markets there is, but there are also really successful businesses here in the UK.”

Open’s latest deal will see it leverage So-Sure’s products to bolster its embedded insurance proposition and begin growing across the UK.

Embedded insurance is a way for firms to include insurance policies as an add-on as part of a digital sale.

Wilby said the UK was a “mature market with opportunities for innovation and to transform some legacy platforms”.

“There is already quite a lot of affinity insurance distribution models here, but quite often [these models can be] underinvested,” he added.

“A lot of them are 20-year-old programmes and schemes on creaky old technology and not offering an end to end digital experience, but also not able to offer a lot of innovation.

“That is one of the reasons this is quite attractive to us – there is a mature legacy market here.”

Consolidation

With the UK being an attractive marketplace for overseas firms, it should not come as a surprise that the number of insurance-related M&A deals across the UK and Ireland increased by 31% during 2023.

According to figures by management consultancy FTI Consulting, which were published on 25 March 2024, the number of transactions in this territory surged from 177 in 2022 to 232 in 2023.

However, Stephen Ross – head of UK and European M&A at Brown and Brown Europe, the new name for Global Risk Partners (GRP) – warned that as the UK insurance marketplace remained attractive for overseas M&A activity, there would be “a smaller number of material targets out there”.

GRP was acquired by US broker Brown and Brown in July 2022 as it looked to establish itself as a major force in the UK retail insurance market.

“There has been significant consolidation within the marketplace over the last three years,” Ross said.

“For example, GRP was one of those and that is now part of Brown and Brown, so that isn’t on the marketplace.

“There has also been a number of other businesses that have been acquired.

“This is a factor of the amount of consolidation within the marketplace.”

In turn, he felt it was key that firms had a sufficient footprint to start with in order to economically drive value from smaller transactions.

”[Deal size reducing] is driven by the fact that a number of those larger players have been consolidated,” Ross said.

”For a business like us, we are able to do smaller transactions because we have a national footprint and we are able to absorb smaller businesses into our network.”