Insurance Advisory Partners: Need for scale in insurtech space to drive M&A

Insurance Advisory Partners co-founders Tony Ursano and David Kimmel have told The Insurer TV that M&A activity should remain strong this year, with two drivers being the insurance services sector remaining “white hot” and insurtechs pondering their next stages of growth.

Ursano and Kimmel established Insurance Advisory Partners last year to focus exclusively on the insurance, insurance services and insurtech industries. Its portfolio of business is currently split fairly evenly between M&A and capital raising.

Ursano said there is currently a fair amount of strategic activity on the insurance carrier side as the industry continues to struggle with a return on capital less than its own cost of capital.

In addition, he said the insurance services market is “white hot”, while many insurtechs are thinking about their next stage of growth.

“We think 2022 is going to be quite active,” Ursano said about consolidation. “On the insurance side a number of transactions which have been in the works for a long period of time may or may not occur.”

On the insurance services side, Ursano said there will continue to be a lot of roll-up activity. “We’ll continue to see private equity trade in and out of various assets and we’ll continue to see strategic consolidation,” he said.

He continued: “And then on the insurtech side, I think between the partnerships that are required to drive some of these business models forward and also the need for scale in those businesses as well over time we will see active M&A activity in that space as well.

“So we’re very optimistic and excited about the environment that we launched our business into,” Ursano said.

A “huge capital need” in insurtech

Discussing the insurtech space, Kimmell said the company has turned down about 30 insurtech capital raising mandates and said yes to three.

“As our business and successes mature, we expect to see much more,” he said. “There’s obviously a huge ongoing need for capital in insurtech, but we plan to be very selective in picking companies to work with – companies that solve a true and large market need and have the right management team to do so.”

Kimmel – whose career includes two decades as an investment banker at JPMorgan, Deutsche Bank and Kidder Peabody – added: “We hope to be a bridge between the insurtech world and the more traditional insurance world.”

The insurtech space is facing contrasting fortunes. On one hand last year set a new record for insurtech fund raising. On the other, those companies that have gone public have seen their share prices plummet in the past 12 months.

“The market continues to change in various ways,” Kimmel said. “Early-stage insurtech is a bit fuzzier between seed and Series A fundings valuations. They are much higher at these levels by a factor than they were just a few years ago.”

The executive noted that at the other end of the scale, many pure-play insurtech companies were able to access the public markets through IPOs and special purpose acquisition company (SPAC) reverse mergers.

“Clearly the market has become much more discerning in this regard,” he said. “And there are examples of companies that have already pulled their SPAC deals and gone back to complete their fundings in the private markets.”

Ursano, who was most recently CFO at Hamilton Insurance Group and has also held roles at TigerRisk and Willis, suggested there may also be activity in the Florida homeowners insurance market, which he said “could be at an inflection point”.

“We do see a number of companies that have been stressed by the consistent volatility over the last few years looking to reload their capital base and take advantage of this inflection point,” he said. “And we do see new entrants coming into the space.”