Will a hard market fuel or stall M&A?

Mergers and acquisitions during a hard market are likely to play out differently depending on whether you’re looking at things as a broker or a carrier. On one side, a hard market may be the fuel to keep the fire burning, but it could be an extinguisher for the other.

An executive panel discussion at the recent the Insurance Brokers Association of Ontario’s Young Brokers Conference in Niagara Falls, Ont. saw leaders from across the industry offer insights on what the expectations of M&A should be as a hard market settles in on the industry.

It could be the final chapter of a broker’s exit strategy.

“I don’t see it slowing down,” said Paul Stone, vice president of national distribution engagement for sales and distribution at Travelers Canada. “There’s definitely a cohort in that 55-plus range that are looking at [their] options.”

Donna Ince, senior vice president of personal insurance at RSA, agreed. “What we’re hearing from brokers is that the hard market is making things tough. Those in a late age bracket are saying maybe it’s time to sell and move on.”

She noted something like upgrading their business’ technology is not an investment many older brokers want to make. “They might say this is a bit tough. I do think there’s more saying they want to tap out and are waiting to time it [properly].”

On the carrier side of things, a hard market is more likely to force everyone to take a step back. Ince predicted that there will probably be fewer M&A transactions, “as they try to clean up their own books and get themselves back into a profitable position.”

Stone called the market an “incredibly fragmented landscape” and when you combine that with high loss ratios, it’s just not the right time to make any major deals.

“I think the issue we have right now: There’s a lot of work to be done,” he said. “The last thing you want to do is try to absorb – culturally [and] financially – the change of an acquisition. The timing couldn’t be worse.”

Keeping costs down and efficiency high has been and will continue to be a priority for carriers through a hard market, said Paul Sweetnam, vice president of Economical Insurance’s Ontario region.

“The reality is, from a merger and acquisitions point of view, it’s tough to go in and purchase somebody right now,” he said.

That doesn’t mean the window is totally shut. If a carrier wishes to put its capital to use, they will. “I think the threat is still there, but we may hit the pause the button for that profitability focus,” Ince said.

For Sweetnam, it’s possible to see some M&A activity in areas where carriers can expand their lines of business. They may look at areas where there is less competition or focus on an area where they can add to their expertise and bring more value to the market.

“I think that’s where you’re going to see M&A moving forward,” he said.