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Member, Beacon International Group, Ltd.
It doesn't take clairvoyance to forecast consolidation among insurance brokers--it's already happening.
As we report on page 1, private equity firms continue to acquire brokers, with The Blackstone Group agreeing to purchase a majority stake in Alliant Insurance Services Inc. for an estimated $1.1 billion. This is the latest in a string of billion-dollar private equity deals, including purchases of USI Holdings Corp. and Hub International Ltd.
Why are investors so interested in brokers? For one, they tend to produce consistent returns, with stable client bases and without the risk associated with underwriting. Revenue growth, however, usually comes via acquisition, and that's part of Blackstone's plan for Alliant. Interestingly, all three recently acquired brokers were largely built on a strategy of acquiring other firms.
But questions remain. In the soft market, typically a difficult environment for business growth, can brokers generate returns high enough to satisfy investors? Will the owners make expense cuts that hurt client service? More consolidation in the brokerage field clearly is ahead, but we wonder if that ultimately will benefit buyers and underwriters, who both are well served by a broad choice of distribution channels.