Leader: Rates may be flat but deals are set to soar

Finally, after six long quarters of decline, the UK economy officially emerged from recession this week. Not that anyone would have noticed. Thousands of companies across the UK are suffering from financial difficulties. SMEs are in the doldrums and contraction in the mid-market is hitting super-regional brokers like never before.

The majority of the market incorrectly called the rating climate. There are those who gambled on rate increases for 2010, those who positioned themselves for regional trench fighting and those who attempted to diversify to spread risk. But the reality is that we are at least a year away from any meaningful rating change, aside from fluctuations in the motor market or any sizable event.

Whatever way you look at it, right now, your average client is screaming: “I simply can’t afford it”, and brokers have to manage this skilfully and be realistic about it. The overall size of the pot has decreased, and although risks have spiralled in many corners, the trend is for businesses to reduce cover, push for a deal, as well as demand proposals for premium cut-backs. As a result, this increased competition equates to lower prices and a soft market, all exacerbated by the old hands who talk prices down to curry favour with key clients and position themselves for renewals in the medium term. (For further insight into the issues affecting your corporate clients, visit our sister title Strategic Risk online, at www.strategicrisk.eu.)

Meanwhile, if you didn’t know it already, you’ll see from pages 12-13 that 2009 was officially the worst year on record for mergers, acquisitions and deal-making. The reasons for this are probably the only thing that is clear. The two years before 2009 were noticeable for an M&A frenzy, which was spurred on by unique distribution plays, favourable economic and tax conditions, as well as a dose of goodwill as ageing brokers spotted an opportunity to make hay on the golf course.

Today, there is a fresh batch of investor capital waiting in the wings, alongside the opportunists who are all looking to attack the consolidator model, snap up what’s left in the regions, and strike lucky before pricing multiples erupt again and insurers get their acts together. It’s only a matter of time before the deals begin to spring up all over again. IT

tom.broughton@insurancetimes.co.uk