Private-equity investors see more opportunities in insurance

Bain Capital LP’s launch of a private-equity fund targeting the insurance sector reflects continued investor interest in the industry despite the recent slowdown in deals, analysts say.

Bain Capital Insurance, the Boston-based investment firm’s insurance investment unit, said last week it raised $1.15 billion for Bain Capital Insurance Fund LP, exceeding its initial target of $750 million, with backing from institutional investors and wealthy individuals and families.

Focused on middle-market transactions in North America and Europe across the insurance sector, the fund will be used to carve out and turn around businesses, launch new insurance platforms and form partnerships, according to a statement issued by Bain Capital.

It will also make “inflection” or event-driven investments when opportunities arise.

The reported oversubscribing of the closing indicates investor interest in the sector, said Timothy J. Cunningham, managing director of Optis Partners LLC in Chicago.

Although there’s been a pullback in deals, the distribution side of the business is still “a pretty crowded field,” he said.

“The flip side is it’s still a big universe, and if they have the right team in place and patience, and a good story to tell, they may be successful,” Mr. Cunningham said.

Much of the interest in the insurance sector from alternative investment managers has been around spread-based business, such as fixed and fixed-indexed annuities, while the insurance brokerage sector has not been a significant area of focus, said Dafina Dunmore, Chicago-based senior director at Fitch Ratings Inc. 

“This appears to be a bit different,” since Bain said it is targeting the “entire insurance value chain,” Ms. Dunmore said.

While the volume of mergers and acquisitions generally has been down, demand and interest in the insurance sector continues to increase, she said.

“We have observed from increased competition and continued rollups in the insurance industry that does impact valuations favorably,” she said.

While the fund is looking at large, existing businesses, it may also invest in niche operations, including managing general agents and insurance brokers, Matt Popoli, Boston-based partner and global head of Bain Capital Insurance, said in an interview.

“We’re quite comfortable buying a small business, backing a good team, and growth through acquisition but also through organic growth,” Mr. Popoli said.

“We’re also big believers in the partnership model,” Mr. Popoli said. He cited Bain’s investment in Harrisburg, Pennsylvania-based Keystone Agency Partners LLP, the 46th-largest brokerage of U.S. business according to?Business Insurance’s?most recent ranking, and its launch of Summitas Gruppe, an insurance brokerage platform based in Munich, Germany, in partnership with JDC Group AG and Canada Life Irish Holding Co. Ltd. 

“A number of our recent investments have been partnership strategies where we partner with large broker networks themselves to go acquire a number of their members in a traditional broker/agency rollup fashion,” he said.

Insurtech valuations are also quite different today than they were two years ago, making for “some fallen angel opportunities,” Mr. Popoli said.

Other recent insurance investments by Bain include Aptia Group Ltd., a business formed through the acquisition of the U.S. employee benefits administration and the U.K. pension administration businesses of Marsh & McLennan Cos. Inc.

Bain Capital also backed Beat Capital Partners Ltd., a London-based venture capital firm focused on the insurance industry that formed in 2017.