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The Impact of COVID-19 on M&A in the P&C Insurance Industry

September 3, 2020

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While the phrase might be over used, the effects of COVID-19 are truly unprecedented. In times like these, it is natural to try to make some sense of it and how it might affect us. I have heard too many predictions on how the crisis is going to impact property and casualty (P&C) insurance in general and, more specifically, how it influences both the demand for and the pricing of P&C brokerages, Managing General Agencies and other distribution channels. The fact is, we really cannot predict how the pandemic will impact the future. So, if you are considering an upcoming M&A transaction, the best strategy is to make your decisions based on the current facts and conditions in front of you.


My point is that it is easy to make the wrong decisions based on assumptions. For example, it is plausible that both profits and the valuation of brokerages will fall because of the effects of COVID-19. The economy has shut down for part of the year, quarterly GDP had the worst decline in history and there is unprecedented government spending which has resulted in billions of dollars in additional public debt. Based on this, a broker might land on two possible courses of action: one, hold-off and wait for better times or two, sell now before things get worse. Our answer? Not so fast!


While profits in the P&C Insurance industry may have dipped in March and April, brokers have, for the most part, made up for lost ground and profits have been very comparable year-over-year.

COVID-19 continues to negatively impact certain segments of the economy, while others have been left relatively untouched. Most importantly to brokers though, there has not been a change in the fundamental demand for insurance over the medium to long-term.

We are not saying the health crisis is not impacting brokers, especially in hospitality, certain specialty areas and lower end products, but what we have found is the quick rate in which our P&C Insurance clients have reacted. In some cases, the crisis has spurred them to make financial and operational changes that were long overdue. For example, cuts to unnecessary expenses and acting to deal with under-performing employees. We have also seen tremendous acceptance and customer transition to online quoting and renewal capabilities being offered through brokerages.

We have been reviewing our clients’ July and August year-to-date results and have found that revenue numbers are line with 2019, and as mentioned above, a number of clients that have also cut expenses. In many cases, we are forecasting stronger 2020 results when compared to 2019.

Of course, there are exceptions. Such as with brokers that have a heavy concentration in travel, hospitality or entertainment.

Brokerage M&A Activity

The markets’ reaction to the pandemic has been very interesting. While some purchasers understandably paused, others have continued to actively pursue acquisitions, albeit cautiously at first.

In March, we had four on-going M&A processes. In each case, we’ve had long conversations with both our clients and the potential purchasers. Most processes paused for at least two weeks and approximately a third of potential purchasers dropped out immediately. By mid-April, half the parties that dropped out showed some interest in coming back to the process and in the end, we had competitive offers like what we would have expected in 2019 for all four mandates. That is not to say that vendors did not have make some concessions in terms of hold-backs, representations and warranties, but in general, the results have been good from a vendor perspective.

Based on our discussions with brokers across the country, we expect M&A activity to resume to near normal levels this fall.

How Should a Brokerage Proceed?

Our advice is the same as it has always been. That is, make business decisions based on the facts in front of you rather than trying to predict how current events might impact your business in the future. A great example is the hard market conditions and lack of capacity. Brokerages that deal in specialty areas that are finding their limited markets unstable or at risk, might consider selling or merging with a larger brokerage. On the other hand, if your brokerage is dealing with the hard market conditions but your books performance is good, you may want to hold off – if there is no burning platform, you do not have to jump.

What are We Seeing in the Market?

We remain very active in the P&C Insurance market throughout Canada and want to shed light on what we are experiencing in the current M&A environment:

  • For most potential transactions, the list of potential purchasers has narrowed. This does not mean that the demand is not there, but rather purchasers are more targeted.
  • Size, composition and quality of the underlying book has never been more important.
  • Vendors must be open to changes in the transaction landscape, including pricing and other deal terms that purchasers might be looking for in a COVID-19 environment.
  • Vendors should be able to demonstrate a good understanding of how the pandemic has impacted their business and what they are doing about it.
  • Vendors are showing more interest in confirming that purchaser financing is in place to close the transaction.
  • Given the current pricing of brokerages, combined with perceived risks of COVID-19, purchasers will be very focused on growth potential and prices will be higher for those brokers who can effectively demonstrate this.
  • It has never been more important to understand the underlying value of your brokerage. A pre-sale pricing and or operational analysis is a good investment.
  • There are alternatives to a full divestiture. Understanding what you want and then looking at a variety of possible options can be useful.
  • While auctions generally result in the highest prices and best terms, it is important to know there are alternatives worth exploring.

In closing, we are positive about the state of the P&C Insurance industry in terms of M&A given the current facts in front of us. The dynamics are more complicated, but with proper planning there continue to be good deals to be had from both a vendor and purchasers’ perspective.

As always, we are open to sharing what we know and hearing what you have to say about the P&C Insurance industry in Canada. Please do not hesitate to contact me via email at or give me a call at 604-694-7548.

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