When Zurich completed its £8.1bn takeover of Beazley at the start of October, a major Lloyd's specialty insurer stopped being an independent company. The price tag made the headlines, but the deal also reflected an appetite for buying specialist underwriting capability rather than building it.
Further down the market, the same logic is driving interest in specialist MGAs, according to Jamie Richards (pictured), head of M&A at Ripe, who has led the business's recent acquisitions, said two forces are pushing insurers towards the chequebook: where the underwriting talent now sits, and how long it takes to build scale from scratch.
The barriers to entry for an underwriter setting up alone are as low as they have ever been, Richards said, and many of the market's strongest underwriters are doing exactly that. With incubator backing, an entrepreneurial underwriter can build a business more quickly than by joining an insurer and growing a book in-house.
That has moved the expertise insurers want outside their walls. "In that specialty part of the market, it is easier to buy something that's got some scale and some maturity than build it in-house," he said.
Timing matters too. With competition for growth intensifying, niche lines often carry better economics because they face less competition and offer more differentiation. When the market softens or insurers push for growth, access to those lines becomes particularly appealing.
Speaking from Ripe’s experience as a buyer, Richards said the value lies in underwriting capability, ideally an expert with enough data behind them to sustain a competitive advantage, along with routes to market that would be difficult to replicate organically. An insurer building a specialist portfolio from scratch has no historical data to give it an underwriting edge, and a renewal book cannot be established overnight.
Richards sees consolidation and new MGA formation as two halves of the same cycle. When MGAs are absorbed into large groups, high-quality underwriters often leave to set up again, and many of those new ventures are later acquired themselves.
"It's like a virtuous circle where you're seeing a lot more new MGAs come to market with interesting specialist products, which should only be good for brokers," he said.
When an MGA a broker places with ends up inside a large group, the reality can be more positive than market chatter suggests, provided the integration goes well. Done well, a deal leaves intact what makes the MGA work and adds technology, capital and appetite for growth, which should leave brokers dealing with a better-resourced partner.
Consolidation still reduces the number of independently owned MGAs, though that does not necessarily mean less underwriting capacity or fewer products. Richards acknowledged the trade-off, describing the outcome as some good and some bad.
That cycle looks set to keep turning. Richards expects more insurers to turn to acquisitions for specialist underwriting expertise, data and technology rather than building them in-house, and consolidation often prompts experienced underwriters to leave and start again.
That means a specialist market in constant motion, with established MGAs moving inside large groups while new ones emerge with fresh appetite. Where those underwriters go next may matter as much as who is doing the buying.
