“Recent news that Argo Group had finally found a buyer in Brookfield Reinsurance reminds us very much of the sale of Aspen to Apollo in early 2019, the parallels are interesting,” say analysts at insurance research firm ALIRT.
The analysts note that in both instances, the buyers are large private equity groups involved on both the life and P&C sides of the US insurance market.
Further, both are acting as “white knights” for mid-sized specialty commercial insurance groups that are/were facing financial difficulties.
David Paul, Principal, ALIRT Insurance Research, commented, “Private equity continues to become more involved in the acquisition of P&C insurers after taking a lead role in the purchase of P&C agencies/brokers over the past decade.
“We have watched this development on the life insurer side of our business since the watershed acquisition of Athene by Apollo Global in 2013. We now appear to be witnessing a similar trend unfolding within the P&C market as well.”
The research firm observes that regarding life insurance operations, Apollo has long held an ownership position in Athene Holdings (formally merging with it in January 2022), while Brookfield Re holds an approximate 20% stake in annuity specialist American Equity Investments and in May of last year acquired American National Group, which has both life and P&C operations.
Meanwhile, both of the target companies were/are publicly traded, with Bermuda and Lloyd’s-based operations supplementing their US-focused business, and both have also entered into substantial loss portfolio transfer arrangements with Enstar over the past several years.
The analysts continue that it is no surprise that these transactions took place, given the pressure on both of the groups’ operating units.
ALIRT suggests that the principal takeaway from this is that while the US commercial specialty lines sector, as a whole, is enjoying an upsurge in profitability after five years of firm/hard market rates, there are certainly insurer groups within that cohort that continue to wrestle with the impact of protracted soft-market underwriting behaviour over ten years.
The analysts cite other examples of this, including AXIS’s US operations; GuideOne Insurance Group, which has a specialty/program arm; Hallmark Financial Services, which sold its surplus lines operation to Core Specialty in 2022 and is currently in a legal tussle with run-off specialist DARAG over the terms of a 2020 loss portfolio transfer.
The research firm concludes, “While we are by no means predicting that any of these companies will undergo any (or additional) substantial ownership changes, we have found that weak current financial results can – and often do – result in remedial shifts in business mix, management teams, capitalisation, reinsurance strategies, etc.
“Public ratings can also be revised lower. Keeping abreast of the current absolute and relative financial performance of one’s insurer partners allows an insurance distributor to be proactive as regards its carrier platform and thus avoid any potential negative fallout from any sudden shifts in strategy. As we like to say in this regard, knowledge is power.”
