GA Investment... Passing the Baton from Private Equity to Insurers

While private equity firms previously dominated as major investors in the GA industry

Recently, the landscape of GA (General Agency) M&A and investment has been shifting. While private equity firms previously dominated as major investors in the GA industry, it appears that insurers and financial holding companies are now taking over this role. This article explores the background and future outlook of this transition.

In the past, GA M&A and investments were primarily driven by private equity firms outside the insurance industry. Two notable publicly listed GAs are A+ Asset and Incar Financial Services, both of which achieved successful IPOs thanks to external investments. A+ Asset received investment from Skylake Investment in 2017 and went public in 2020, while Incar Financial Services secured funding from Hanwha Investment and Neoplux, leading to its listing.

Additionally, Goodrich received investment from JC Partners, and People Life, which was sold to Hanwha Life Financial Services, was backed by Corsair Asia. These GAs grew significantly with the help of early investments from private equity, which believed in their potential and value. However, private equity funds have a set period within which they must achieve their target returns and exit, pressuring GAs to pursue IPOs or sales.

Recently, however, interest from private equity in GA M&A and investment has waned, and GAs have also become less inclined towards private equity due to the stringent investment conditions and the pressure to list or sell regardless of their own preferences. With more financial flexibility, GAs no longer need to rely on private equity funds, which have become less attractive due to organizational expansion constraints imposed by GA self-regulation agreements.

Moreover, private equity's perspective on GAs has changed. While early-stage investments in GAs yielded high returns due to rapid growth, the current high performance and large scale of GAs have raised their corporate value, making it difficult to achieve high returns with low costs. Investors also predict slower growth in the GA industry over the next five years compared to the past five years. Even if GAs go public, their valuations do not rise as expected, reducing the appeal of GA investments.

In summary, GA M&A and investments are expected to shift from private equity to insurers and financial holding companies with different interests and objectives. These new investors can provide long-term, stable investments, given their closer ties and shared interests with GAs compared to private equity.

The investment landscape in the GA industry is changing. The role of private equity is diminishing while insurers and financial holding companies are stepping in. This transition promises better growth opportunities and a more stable investment environment for GAs. The future of the GA industry looks promising with these new developments.