This company wants to buy your insurance business

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There are few banks selling their insurance units in the last 13 months. These sellers cited the high premiums paid as an incentive for the transactions.

Irina – stock.adobe.com

The last 13 months are marked by Number of bank-owned insurance agency salesAnd many have one thing in common: Arthur J. Gallagher & Co. as buyer.

In the third quarter alone, Gallagher completed 12 acquisitions, and executives at the Rolling Meadows, Illinois-based insurance giant have no plans to slow down. They said they have signed a non-binding timeline with 45 potential divestitures and billions of dollars to deploy more merger and acquisition activity through 2024.

Many of the acquisitions are what management described as “bundled” transactions involving relatively small stand-alone insurance agencies. But Gallagher made several high-profile deals with the bank.

In September, Gallagher announced plans to buy Eastern Bancshares’ insurance coverage for approx. 510 million dollars in cash. Boston-based Eastern is using the money to acquire Massachusetts-based Cambridge Trust for $528 million. A month later, the $48.5 billion-asset Cadence Bank agreed to sell its insurance business to Gallagher. 904 million dollars in cash. In the year In November 2022, Eastern completed a deal to buy M&T Insurance Agency from Buffalo, New York-based M&T Bank Corp.

Earlier this month, Evans Bankor It became the latest bank To reach an agreement to sell the insurance business to Gallagher. The Williamsville, New York facility expects to do so. 15 million dollars earned after tax.

Patrick Gallagher, chairman, president and CEO of Gallagher, said in a conference call with analysts last month that intense competition has created a seller’s market for insurance assets, which has led to higher premiums being paid in these deals. For example, Gallagher paid $904 million for Cadence — the nation’s second-largest bank-affiliated brokerage — more than five times its trailing 12-month revenue from insurance subsidies. Similarly, Evans estimates for $2.1 billion in assets trailing roughly four times trailing 12-month earnings and nearly 20 times trailing 12-month earnings through Sept. 30. That made it too sweet to pass up, said President David Nasca. and CEO of Evans.

“We have not been given anywhere near that level,” Nasca said in an interview. “It is worth using this opportunity to redeploy capital in our core business.”

Rolling the wave

Banks such as Cadence and Evans, which have sold insurance assets in recent months, have benefited from a decade-long trend of insurance companies adopting spin-off strategies, said Franklin Manchester, principal global insurance consultant at Cary, North Carolina-based analytics software developer SAS. Both established players such as Gallagher, Aon and Willis Towers Watson have participated in mergers with new competitors with venture capital funds.

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“It makes sense to take this opportunity to redeploy capital in our core business,” said Evans President and CEO David Nasca.

“Owning an insurance distribution is a big investment,” he told Manchester Brokers. “Well, how about hundreds of them? Now, we’re starting to understand why the AJ Gallaghers of the world wanted to own that broadcast.”

The predictability of the insurance business prompted buyers like Gallagher to pay off their purchases, Manchester said.

“Cash is king. People in the business predict how they’re going to pay their insurance premiums, so they can predict very well what they’re going to get each year in terms of revenue. Because of that, we’re seeing historic levels of EBITDA. Multiples from acquisitions.”

All the banks involved in these agreements have sold insurance brokers. A broker owns the client relationship. They also command a significant amount of revenue from each sale, Adam Deninger, global industrial insurance leader at information technology consultancy Capgemini, wrote in an email to US Banker. “This is obviously an incredibly high-margin business.”

Gallagher said he was pleased with the bank’s acquisitions, and indicated that management is interested in doing more deals. “We’ve had tremendous success with our friends at M&T. We’re very excited about Orient and Cadence,” company chief Patrick Gallagher said on a conference call in late October. “In fact, if there are other banks looking in that direction, we’re in a great place to look.”

The company has a lot of firepower. Chief Financial Officer Douglas Howell said on the conference call that Gallagher said $3.5 billion could be allocated to futures deals using “only free cash and additional borrowings.”

Gallagher has 49,000 employees, does business in 130 countries and reported $2.5 billion in revenue for the three months ended September 30. The rollout strategy leverages scale and advanced technology to increase the productivity of the agencies it acquires.

With a small agency, “you’re not going to get the scale you need to use technology like a general distribution … sell, sell,” Manchester said. “Go from one distribution point to 1,000, now you can talk about running a decentralized call center for customer service…those tools are not available to the local agency at the scale they do in individual markets. Now those [agents] It can identify more opportunities to drive revenue and bring more products to market.”

All of this could be an attractive selling point for insurance brokers at domestic and foreign banks considering an exit strategy. On a conference call, Patrick Gallagher noted that agents at acquired agencies can compete for larger client accounts.

“The big deals that are generating over $125,000 to $150,000 in commission are significantly higher than they were five or 10 years ago,” he said. “We’re giving them a chance to do that.”

Ex-bankers also seem to be happy with the new arrangement. Bart Kresse, president of the Western New York Gallagher area, a Gallagher unit of M&T Insurance Agency, can serve clients of any size. “The synergies we’ve created between our local relationships and Gallagher’s resources have really helped us grow our business,” Kresse, who was the division’s president under M&T, said in an interview.

The deal also expands the career opportunities available to individual agents, Kresse added. “When you’re an insurance agency that’s part of a bank, there aren’t many of those opportunities. The opportunities are on the bank side, not the insurance side.”

Nasca is expecting similar results for Evans Agency. “This is an opportunity [the Evans Agency] “To be able to have a terrific presence in Western New York and to land at a great organization that gives you the opportunity to really fly.”

Reaching the top

But the insurance M&A frenzy may end soon, experts warn. Gallagher and other insurance conglomerates were able to take advantage of historically low interest rates as they stockpiled purchases. Now, the higher the rates, the more difficult the strategy will be to follow.

“In my opinion, eight, nine, 10 times EBTA is unsustainable because of the interest rates we’re seeing,” Manchester said. “We’re starting to see mergers and acquisitions going down in the marketplace. They’re peaking.”

With rapid, M&A-fueled growth likely to slow over the past decade, insurance consolidation could lead to cost controls. Manchester is predicted to start dropping less profitable distribution points. Similarly, banks are increasing the size of their branch networks.

“If you want to know what insurers are doing, look at what banks did 10 years ago,” Manchester said.

Those are still important issues for banks interested in selling their insurance partners. But for Cadance and Evans, the focus is on putting fresh capital to work.

Nasca is promising a “smorgasbord” approach. “This gives us the flexibility to look at capital acquisitions. It gives us the ability to look at share buybacks and investment restructuring. There are all kinds of things we can do,” Evans CEO said.



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