Private Equity
The firm makes private equity investments in the insurance distribution and insurance services segments. We manage a private equity fund of committed equity capital focused on insurance distribution. The fund focuses on acquiring property-casualty independent insurance agencies. We also make private equity investments in insurance services companies that provide claims administration, subrogation recovery, underwriting services and business process outsourcing services to insurance companies.
 Overview
Insurance Distribution
Insurance Services
|
Private equity is emerging as an important source of capital for the insurance industry. Following the September 11, 2001 terrorist attacks, private-equity investors were instrumental in launching a number of new reinsurance companies in the Bermuda market. Major insurance brokers have turned to private equity firms to divest their wholesale brokerage operations in the aftermath of industry-wide investigations into broker-compensation practices. More recently, the major private equity firms have become active in the retail brokerage segment with the take-private transactions involving HUB International and USI Holdings.
Private equity is an important source of capital for the insurance services industry for the following reasons:
• |
The cost of compliance relating to the Sarbanes-Oxley Act of 2002 makes it difficult for some companies to remain publicly-traded. Selected publicly-traded companies have decided to become private companies because the advantages of continuing as a public company may be outweighed by the disadvantages.
|
• |
Private equity can be used to achieve alignment of management and ownership interests. Many publicly-traded companies have encountered difficulties simply because the interests of management and the shareholders were not properly aligned. With private equity capital, the management group normally maintains a significant ownership stake. Management thus is incented to act in a manner consistent with maximizing the interests of all shareholders.
|
• |
The capital structure in a private equity-backed company incents management to add value. While managers of a public company may be shareholders, the total value of their investment in the company tends to be much less than the present value of their salaries and bonuses. With private equity, the relative values of salaries and ownership are changed. The use of debt also becomes a much more important tool for adding value with private equity than with a public company. |
|
|
