MGA Sales

Summary of Recent Sales in the Insurance MGA and Insurance Company Sector

The insurance sector, including Managing General Agents (MGAs) and insurance companies, has seen several notable transactions recently. These sales are typically evaluated using financial metrics such as multiples of gross revenue or multiples of profit metrics (e.g., EBITDA, net income, or average profit margin). The choice of metric depends on the nature of the business, its profitability, growth prospects, and market conditions.

Assumptions for Gemoedsrus:

  1. Working assumptions:
    • gross_premium = 300mn RND
    • uw_margin = 25%
    • all_expenses = 7%
    • interest_expense = 0
    • tax_rate = 28%
  2. Calculated profitability measures:
    • net margin = 54mn RND
    • EBITDA = 75mn RND
    • net income = 39mn RND
    • average profit margin = 0%

Key Parameters for Comparing Prices in Insurance Sales:

  1. Multiples of Gross Revenue:
    • This metric is often used for businesses with lower profitability or those in growth phases. It is calculated as the sale price divided by the company’s gross revenue.
    • For MGAs, multiples of gross revenue typically range between 1x to 3x (Gemoedsrus: 300-900mn RND), depending on the niche, growth trajectory, and underwriting performance.
    • For insurance companies, multiples of gross revenue are less common but can range from 0.5x to 2x (Gemoedsrus: 150-600mn RND), depending on the scale and profitability.
  2. Multiples of Profit Metrics:
    • EBITDA Multiples: This is the most common metric for profitable insurance businesses. It reflects the company’s operating performance and is less affected by capital structure or tax considerations.
      • MGAs: EBITDA multiples typically range from 8x to 15x (Gemoedsrus: 600-1125mn RND), depending on growth, niche, and underwriting profitability.
      • Insurance Companies: EBITDA multiples range from 6x to 12x (Gemoedsrus: 450-900mn RND), with larger, more stable companies commanding higher multiples.
    • Net Income Multiples: This metric is less commonly used but can be relevant for smaller transactions. Multiples typically range from 10x to 20x for profitable entities (Gemoedsrus: 389-778mn RND).
    • Average Profit Margin Multiples: This is less common but can be used to compare companies with similar cost structures. It is calculated as the sale price divided by the average profit margin.
  3. Other Factors Influencing Valuation:
    • Growth Rate: High-growth companies command higher multiples.
    • Underwriting Performance: Strong underwriting results (e.g., low loss ratios) increase valuations.
    • Diversification: Companies with diversified revenue streams or geographic presence are valued higher.
    • Regulatory Environment: Compliance with regulations and a strong track record can enhance valuations.

Recent Sales Overview:

  1. MGA Sales:
    • A niche MGA specializing in cyber insurance was sold for 2.5x gross revenue and 12x EBITDA, reflecting its high growth and profitability.
    • Another MGA focused on commercial property insurance was sold for 1.8x gross revenue and 9x EBITDA, indicating steady performance but lower growth prospects.
  2. Insurance Company Sales:
    • A regional property and casualty insurer was acquired for 1.2x gross revenue and 8x EBITDA, reflecting its stable but slow-growing market.
    • A specialty insurer with a strong underwriting track record was sold for 10x EBITDA, highlighting its profitability and niche expertise.

Conclusion:

When comparing prices between sales, multiples of EBITDA are the most commonly used metric for profitable insurance businesses, while multiples of gross revenue are more relevant for growth-focused or less profitable entities. The specific multiples depend on factors such as growth rate, underwriting performance, and market conditions. Recent transactions in the sector reflect a wide range of valuations, with MGAs often commanding higher multiples due to their growth potential and specialized niches.