“We attribute no value to premium finance when buying UK brokers”

The words of one of the world’s leading Private Equity investors recently, and there was real substance in the comments.

Having recently invested hundreds of millions £ in UK brokers it was clear from the conversation that their approach to investing in the insurance broking sector had changed.

Premium finance has been for so long a key value creation opportunity for investors, but this investor for one, was also now viewing it as a new risk to be considered. If their target broker had not managed premium finance activities in line with best practice, then this would need to be evaluated as a downside risk in their investment hypothesis, potentially resulting in a lower offer price.

Due diligence is now focusing more diligently on premium finance with investors seeking evidence of compliance and risk mitigation. This is in large part due to the regulatory focus and potential impact of sell-out pricing controls. Investors want to see that target companies have robust governance frameworks, commercial sustainability and detailed modelling to ensure that the income streams were both maintainable and robust.

@tifco provides independent professional advice on a range of insurance premium finance areas to help brokers de-risk these areas and maximise sustainable commercial outcomes

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