VC firms could help industry

Insurance industry insiders have backed the influx of capital into various aspects of the market, de...

Insurance industry insiders have backed the influx of capital into various aspects of the market, despite the negative publicity that venture capitalists (VC) and private equity (PE) firms have received recently.

Since 2005, nearly £1.5bn has been invested in the insurance industry via VC and PE funds. Every type of firm from IT providers and brokers, such as Towergate and Alexander Forbes, to underwriters and insurers, such as Hyperion, have all been involved in re-financing deals or buyouts using external funding.

In addition, recent research conducted by Plimsoll indicated that the insurance industry could benefit from this type of financing.

David Pattison, senior analyst on the project, said: "It's certainly no surprise that trade buyers and private financiers are taking a close look at the industry - some of these businesses have huge potential, which is not being realised at the moment. We've heard a lot about PE firms recently, and this is one industry where they could reap rich rewards."

Andy Baldwin, head of insurance at Ernst & Young, agreed: "The industry is going through a re-structure. PE investment challenges some of the fundamental and accepted structures, and acts as an accelerator, removing some of the inefficiencies. It is still a largely fragmented industry in terms of distribution - this is the perfect opportunity to consolidate."

He added: "The UK already has one of the most advanced insurance industries in the world, and PE is helping to maintain this position. The industry will continue to attract investment and we have not seen the end of this. The soft market is making people look to mergers, which offers a window of opportunity for PE."

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