Dynamic Changes in the Specialty Market
The specialty sector (specifically E&S wholesale brokers) has largely been the beneficiary of a raising rate environment. George Bucur, Financial Advisory Director and Co-Head of the Specialty Practice, talks about the current rate environment and addresses the question – How may brokerages fare when rates return to historic norms given the mass consolidation that has impacted this sector?
Video Transcription
Hello, my name is George Bucur. I’m a director within MarshBerry’s financial advisory practice. Serving specialty firms such as MGA’s (managing general agent), MGU’s (managing general underwriter), wholesale brokers, and program managers, we’re here today to bring you an update on the overall trends we are seeing in the rate environment.
One of the very notable observations that MarshBerry has made over the last several years is that there’s been mass consolidation within the specialty sector. Why is this relevant to you specifically, focusing on wholesale brokers? This is relevant because when you have mass consolidation of the top four that can range from 5 billion to 25 billion of premium, that puts massive pressure on your organization to stay relevant in the market. Whether it’s making spends on risk mitigation, loss control, technology, etc., those are all costs that can be much more easily absorbed by a large organization versus that of a smaller organization. What this rate environment has done over the last three and a half years is it’s offered a reprieve to that of the smaller wholesale broker by offering higher commissions. The question is, what happens after the next 6 to 18 months as we get out of this firm to rate market cycle that we’re in? What happens to your operations when rates go back to let’s say historical norms and the profitability that you are enjoying the last couple years is no longer there?
Pay attention as while we may seem to think that the rate cycle will continue with this firm to hard rate for a continued period of time, at some point it will end and there will be implications to your business. If you have questions as to how the rate environment may impact your operations, please do not hesitate to reach out. Until next time, be well.
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