The insurance industry has experienced a turbulent period in recent years, dealing with the challenges of depressed premium rates, high costs, digital disruption, Brexit and Covid-19. Now, for the first time in many years, the non-life insurance sector has been enjoying increasing premium rates in many classes of business. This has brought some new investments from both new and existing capital providers and strong M&A activity.
Whilst Covid-19 has impacted results in the short-term, the industry has shown its resilience in dealing with both the financial and operational consequences. However, there has been some damage done to the industry’s reputation and public perception, particularly in its response to business interruption claims.
Non-life insurers are presented with a number of challenges and opportunities which they must respond to in order to survive and thrive:
Climate change and the ESG agenda: In addition to the obvious impact on insured weather-related events, the global transition to net zero will have a far-reaching impact on insurers as they withdraw from carbon-intensive investments, business lines, and customers. Insurers’ effectiveness at responding to and proactively managing ESG issues will be closely regulated.
Continued digital transformation: To remain competitive, insurers must undergo major process and systems change. Data excellence will be a prerequisite for successful participants in the sector.
Capital management: To take advantage of profit opportunities, insurers must be nimble in the marshalling of capital whilst also responding to changing regulatory requirements. This may present opportunities for the legacy sector as insurers look to recycle capital deployed in under-performing portfolios.
Economic fallout: Whilst insurers may have weathered the initial financial impact of Covid-19, global economies have been protected by government support. As this support is withdrawn, a significant increase in defaults and failures is inevitable, which will trigger increased claims activity on financial lines policies.
Uncertain loss types: Emerging risks such as cyber are not fully understood and difficult to quantify.
We advised a global insurance group in relation to its exposure to a UK insurance business.
Our client needed to fully understand the balance sheet of its debtor and assess contingency options should a planned sale of the business fall through.
We first reviewed the business’s balance sheets to help our client gain a much clearer understanding of the assets and liabilities.
We then mobilised a multi-disciplinary team to review and understand the complex dynamics of the firm and its situation and communicate the key risks and alternative options.
Our work allowed our client to identify a credible alternative which helped pave the way to a successful sale and reduction of their exposure.
Turnaround
Supported an underperforming PE backed insurance broker who were facing acute cash flow issues and required the design and implementation of a wide-ranging turnaround plan to improve profitability and support a recapitalisation of the business.
A combined value creation and restructuring services approach was taken, which involved embedding a small senior team into the business to support management in stabilising the cash position, improving cash visibility and forecasting and driving sustainable cash improvement.
Our team successfully delivered and implemented a turnaround and recapitalisation of the business with the transfer of ownership to a new private equity owner, delivering £50m of run rate savings post-deal.
Business combination & refinance
Supported two PE houses in consolidating assets into a single co-owned vehicle which would enable the newco to pursue a buy-and-build strategy. In addition, the group was seeking to leverage the assets and refinance existing debt in the various structures by raising a listed bond (requiring regulatory clearance and the alignment of independent timetables under tight PE deadlines).
Our work included:
Detailed structural planning;
Key stakeholder management;
Supporting preparation of the 5-year plan which underpinned the rights issue and refinancing process; and
Capital markets support for the listed bond raise.
Our team successfully delivered the initial business combination, £1bn+ bond raise and structured a 100-day integration plan.
