Investing in insurance with Grier Tumas Dienstag and Leda Zaharieva

Insurance deals now account for almost half of the total financial services’ private-equity deal volume by number of transactions. McKinsey spoke with Grier Tumas Dienstag and Leda Zaharieva, partners in Boston and London, respectively, to learn more about what is driving private-capital investors to allocate investments to insurance companies and what to expect going forward.

McKinsey: Why do insurance deals account for such a large share of financial services’ private-equity deal volume today?

Grier Tumas Dienstag: It’s really a confluence of events. Record levels of available capital, successful exits, and the proliferation of insurtechs—some wildly successful, others less so—have caught investors’ attention. The current hard market, which is also partially driven by long-lasting changes such as rising catastrophe activity, cyberattacks, and social inflation, has made distribution businesses, such as brokers and managing general agents [MGAs], more attractive due to higher commissions.

Leda Zaharieva: This hard market also can lead to more insurance shopping, causing insurance carriers to be innovative in terms of pricing, underwriting, and claims servicing to increase retention and compensate for claims inflation. Insurance buyers also have increasingly complicated risk transfer needs, and the pandemic, as well as recent cyber and natural catastrophes, has led to an acceleration of this trend. All these forces lead to opportunities for attractive private-equity assets.

Record levels of available capital, successful exits, and the proliferation of insurtechs—some wildly successful, others less so—have caught investors’ attention.

McKinsey: What types of investments are being made?

Grier Tumas Dienstag and Leda Zaharieva: We see five main themes that capture most investments:

  • M&A-driven value creation: Historically, the primary driver of insurance deal volumes has been brokerage investments, but “roll-ups” are now increasingly being deployed among MGAs, claims services, and third-party administrators.
  • Technology-enabled growth plays: Such plays have been seen across services, from agency management systems and human resources information systems to claims.
  • Moves by digital disruptors: Digital disruptors are increasingly active across the value chain, from aggregators to MGAs, with many becoming full-stack insurers themselves and/or working with the rising number of fronting insurers.
  • Balance sheet–driven return on equity expansion plays: This includes roll-ups of smaller carriers, run-off or closed-book consolidation in both life and P&C [property and casualty], and specialty (re)insurance platforms.
  • Private-capital participation: Several such participants have established permanent capital vehicles and created separate insurance-focused funds.

McKinsey: How do you expect these investment themes to evolve over time?

Leda Zaharieva: We believe most of these themes are here to stay, and new investment themes will emerge on the margins or as enablers of these themes.

While the attractiveness of some investments is aided by the hard market environment—especially for commercial and specialty insurers, as well as reinsurers, brokers, and MGAs—many of the other underlying forces are less influenced by the market cycle.

Take brokers—they remain highly fragmented and continue to create opportunity for attractive value-creating roll-up plays. With a proven track record in North America and the United Kingdom, some brokers in France and Germany are starting to follow suit, despite a less attractive market structure. In North America, where potential for roll-ups in lines like large commercial is increasingly limited, value creation—beyond multiple arbitrage—has become more important. Also, in personal lines, investors are now looking to replicate franchise success and grow associations.

We believe most of these themes are here to stay, and new investment themes will emerge on the margin or as enablers of these themes.

The claims services oligopoly in the United States remains, although considerable opportunity exists both for these players to expand their offerings—for instance, monetizing data—and for innovators to serve targeted parts of the claims value chain. We increasingly see players try to stitch together point solutions to create more robust offerings for insurance carriers. And some of the most mature players have managed to be successful in both the United Kingdom and the United States.

Grier Tumas Dienstag: There has been a general boom of IPOs/SPACs [special purpose acquisition companies], with several US blueprint cases still to arrive in Europe. Many insurtechs have IPOed with high hopes and have seen their valuations plummet. That has decreased excitement about SPAC investments, but still, investment continues. It’s more likely that we’ll see more consolidation and expectations will be tempered. In fact, there is an increasing amount of M&A consolidation activity between insurtechs, as well as corporate exits—especially as newly public companies and SPACs face growing headwinds.

Balance sheet plays are here to stay across geographies: a further roughly $1 trillion of liabilities is expected to transact over the next five to ten years from traditional public insurers sponsoring private-backed vehicles as these trends continue.


Grier Tumas Dienstag is a partner in McKinsey’s Boston office, and Leda Zaharieva is a partner in the London office.

For more on insurance investing, see:

Creating value in US insurance investing