2.4
Insurance Trends in Private Equity:
Expansion
Insurers Continue to Expand into Private Equity, Broadening Capacity for Portfolio Companies
On the portfolio company side, insurers have begun launching internal PE teams and practices to better serve brokers who specialize in working with such firms. This started on the management liability side; but recently, several of these insurers have launched property and casualty practices to support the growing management liability book of business. In other cases, existing property and casualty insurers are launching practice groups.
We believe this is important for a few reasons. First, it means that PE is generating meaningful profits for insurers, leading to more entrants into the market and additional available underwriting capacity. Next, it means the insurers have noticed there can be enterprise-level economies of scale when different divisions talk to each other about coverages for the same portfolio company. It’s now not uncommon for the insurer to have a practice lead who is responsible for managing the relationship internally and ensuring the broker has full access to all divisions that would like to quote a portfolio company.
This is a positive trend for portfolio companies because it creates leverage for the PE firm in terms of coverage and pricing.
For example, if a certain insurer underwrites and binds the go-forward management liability (D&O insurance) program for a PE firm transaction at closing, that insurer may also have an appetite for the property and casualty lines of coverage. This increases leverage for the broker.
Next, insurer-specific divisions specialize in PE, and typically, these underwriters will only work on PE deals or portfolio companies. This means they understand the tight timelines of transactions and how to view the risk in a fundamentally different way—from a portfolio vantage point versus an individual risk.