Premium Growth by Specialty Firms Continues to Exceed that of Retail Brokers

Video Transcription

Welcome, my name is George Bucur, I’m a Director of the MarshBerry’s financial advisory practice.

Catering to specialty distributors such as MGA’s (managing general agent), MGU’s (managing general underwriter), wholesale brokers and program managers, this time we are bringing you an update on the overall market size from an E&S (excess and surplus) and from a program perspective and how the overall growth of the specialty distribution sector translates to a preference from buyers.

Specifically, MarshBerry estimates that the overall specialty distribution marketplace is around $77 billion in premium. That constitutes 10.5% of the overall property and casualty marketplace and that has grown from 9% just 10 years ago. Looking at program managers, you see that the compound annual growth rate of program managers has been 7% compared to that of the retail counterparts of 3.9% from 2009 to 2019.

Transitioning to the E&S sector, we see that the overall E&S premium has grown at a compound annual growth rate of 7.3% from 1988 to 2019. Again, significantly outclassing that of the retail counterparts that grew of 3.8% during that time period. Why is this relevant and why do we highlight the growth and the fact that both the E&S sector and program managers are growing at a quicker rate than that of their admitted markets? Reason being is growth, organic growth specifically, is the holy grail in terms of valuation in today’s marketplace. To measure the preference that buyers have for those firms that are able to grow organically, MarshBerry created what is called the specialty distribution preference multiple. And as you can see, of the specialty distributors, there were 123 transactions that constituted approximately 6.2% of the overall number of independent brokers and agents in the marketplace. We take the 6.2% and we divide it by the percentage of retail firms that were acquired in 2020, and you see that the specialty distribution preference multiple is 3.2 times and has been growing for a number of years. The reason for this, or one of the main reasons for this, is the fact that specialty distributors can grow organically at a higher rate than that of their retail counterparts, and therefore it’s attracting interest from a large amount of buyers.

If you have any questions as to why or how the overall valuation marketplace may be impacting your operations and why buyers may be interested in having a conversation, please reach out. I’ll be happy to have a conversation. Until we talk next time, be well.