A change is as good as M&A for Australian insurers

The mergers and acquisitions market in Australia's general insurance sector is on the way up again in the wake of financial services reform in Australia.

"A lot of principal-owned broking houses are that much older and the principals are looking to retire from the increasing amount of regulatory and other administrative requirements,” says Ted Hogg – a doyen of M&A – of Edward Hogg Consulting.

Hogg's comments coincide with QBE CEO Frank O'Halloran's affirmation that the giant insurer is on the prowl, as well as Austbrokers CEO Lach McKeough comment to InsuranceNewsAustralia this week, that his company was as "keen as ever” to acquire.

"There has been a very strong move in the area of authorised representatives," says Hogg. "A lot of the mini-brokers, that is those who have about $200,000 to $300,000 brokerages, have worked hard to build up business because they have been very good sales people, but (they're) not so good at handling the back room operation that is required nowadays.
"They are now thinking of moving on to the authorised representatives (ARs) situation where they retain their business and control of their assets because of the on-selling of their rates.”

One of the leaders in this type of activity is MGA Insurance Brokers group, says Hogg. MGA gives the smaller brokers – the ARs – the tools, resources and support by handling the back room work of the business.

This pattern enables small brokers who were struggling with the administration side to keep "getting out and selling”, while MGA, for example, gives them support. "Alexander & Alexander (long absorbed into Aon) did this many years ago,” he adds.

"I have never seen such a big move toward authorised representation as I have in the past six months. I expect to see more of this and more moves into broker cluster groups coming up in the near future.”

Hogg also believes Australia will follow the UK pattern of numbers of portfolios selling to underwriting groups.

"These portfolios are of great interest to underwriters, especially if they have a great record of profitability. And the sellers are getting high prices for such businesses.”