National Program’s acquisition strategy
This article originally published in Insurance Business’s special section on M&As in Spring 2021.
Today’s MGAs are engines of profitable growth, heating up the M&A space, say Steve Bouker, Arrowhead EVP, and Chris Walker, Arrowhead CEO and president of Brown & Brown National Programs. Both have 30-plus years of experience and have seen the evolution of the MGA model. They sat down to discuss the state of the programs market and what it’s like to be a part of National Programs.
Q: What are the major trends you’re seeing?
Chris Walker: The programs space was once driven by topline growth. Loss ratio was a consideration, but it wasn’t the primary concern. Today, we see a heightened awareness of profitability for all parties. The loss ratio has to be acceptable to the carrier partner, and commission levels have to allow the program administrator to make a profit. It’s about the long-term sustainability of the program.
Another trend is specialization — having underwriters who truly understand their niche and can underwrite that business to a very profitable level. This expertise in specialty niches has helped MGAs become profitable growth engines for insurance companies.
Steve Bouker: Program administrators have been legitimized because they’re generating the results that insurance company partners need to see. They’re now seen as experts in specific lines of business. As a result, insurance carriers trust quality MGAs with their capacity.
Q: So what does that look like?
Bouker: An example is earthquake. An insurance company might have a multiline underwriter who’s concerned with the entire property — the buildings, its contents, all the different coverage parts and perils. On the other hand, a program administrator might focus on one peril such as earthquake. By doing that, the MGA can be more surgical and bring specialized expertise and experience to generate a more carefully underwritten book of business.
As a specialty underwriter, an MGA can demonstrate its value proposition to the various distribution channels [with] specialized forms; more focused rates; and a more informed, available underwriting staff. Producers become very comfortable working with MGAs because of that specialization.
Q: What’s your outlook for M&A activity in the programs space?
Bouker: We’re seeing higher and higher valuations for acquisitions. Acquisition targets are paying attention; many of them are looking to monetize the businesses that they’ve built. But because the valuations and multiples are high, acquirers are more selective than ever. If you’re going to pay these types of valuations, you need to make sure you’re acquiring a very high-quality business. It’s critical to understand all aspects of the business, not just the financials.
National Programs will continue to be very selective, looking for teams that have demonstrated experience, expertise and the ability to generate profitable results for their carriers over time.
Walker: We’re bullish on M&As. Brown & Brown has tremendous history, expertise and resources in the acquisition space. We continue to seek out opportunities for businesses that fit our culture and have a particular specialty. We think M&A activity is going to be pretty robust in the next three-to-five-year window.
Q: What was it like to be acquired by Brown & Brown’s National Programs?
Walker: We were impressed with the speed at which Brown & Brown moved. They were very thorough; they met with us in person several times and conducted a complete due diligence. But there was no foot-dragging, which you often see in these situations. Once they felt good about what they saw, they moved quickly. The transaction was closed, and they let us run our business.
Q: What does National Programs look for in an acquisition prospect?
Bouker: Four things we’re looking for: First is the team, the organization’s culture. Are they a good fit? Do they appreciate underwriting integrity the same way we do? Second, is there a unique quality to that prospective acquisition from a strategic standpoint? Does it have a unique product or a unique business model that’s of interest? Third, what can we add to make the business even stronger? And fourth, what are the long-term prospects of the company? We’re not acquiring companies for the short term; our strategy is to buy and hold. This is different than other models looking for a quick return.
Walker: I’d emphasize the organization’s culture. Is it thriving, inclusive and diverse? Are they specialists in their field? Do they have enduring carrier relationships? And to Steve’s point about long-term viability, can we make that business stronger by integrating it with our distribution network, actuarial services, modeling capabilities, technology infrastructure and agency management program?
Q: What added value does National Programs offer? Its differentiators that attract other firms for acquisition?
Bouker: First and foremost, our carrier relationships. With $3.5 billion in written premium in the marketplace, we’re able to attract high-quality carrier partners. We can establish a dialogue with them at the CEO level about their interest in allocating capacity toward the program market we’re looking to acquire.
Second, it’s innovation through technology: deploying intelligent technology and people to craft superior, tailored products and services, simplifying the insurance process for our producers and their clients.
Walker: I would say our overall market position, size and influence are a big advantage. National Programs is well known. People take our calls. So we can help push new initiatives and ideas because of our position.
Each program is powered by a robust shared-services mechanism — from point-of-sale and policy administration through operations and customer service. We have our own claims TPA and other ancillary services like subrogation, SIU and Medicare compliance. And a powerful sales multiplier is National Programs’ network of over 25,000 distribution partners made up of retail agents, wholesalers and online aggregators, to financial institutions and industry associations.
Q: Describe your acquisition process, like due diligence and what a firm can expect.
Walker: Brown & Brown has a team that does this for a living. They’ve built a process that’s efficient and effective. It’s a delicate balance between being thorough, leaving no stone unturned and not getting in the way. For example, data requests can be a big time and resource drain on the acquisition target. When Arrowhead was acquired, we set up a data room so that they were able to get our information at any time with minimal effort on our part.
Bouker: Another edge we have is that the insurance professionals and our M&A team work together on the acquisition. So, the acquisition target has discussions with people who understand the business side. Chris and I have walked in their shoes because we, too, were acquired, and we have experience in the business. That makes for a very constructive due diligence.
Q: Talk about your culture and what makes it unique.
Bouker: Our corporate culture is built around a decentralized working environment, where the individual companies retain their own culture and the entrepreneurial spirit on which they’re built. They retain their identity in the market but at the same time leverage the extensive resources of National Programs. It’s the best of both worlds.
We want to be entrepreneurial, nimble and responsive to our customers. That’s why the decentralized environment works. If we were to centralize everything, we would become a giant bureaucracy. We wouldn’t be able to be as responsive and as entrepreneurial.
Walker: The organizations we acquire were successful to begin with. We don’t want them to lose their entrepreneurship, creativity or specialization. Instead, we want that to continue to grow and flourish.
Bouker: We’re looking to acquire firms whose leaders want to continue to grow and build their business. They like what they’re doing, they like the products, they like the sales, they like working with their teams. But maybe they’ve reached a point where they need the assist of additional carrier capacity, additional distribution and additional technology capabilities. If so, we’d like to talk with them.
If you’re interested in learning more about becoming part of Brown & Brown National Programs, contact Jimmy Curcio, JCurcio@NationalPrograms.com