THE HALES REPORT - Sterling Seacrest...58 58 LMC Insurance & Risk Mgmt $57 $54 -5.2% Private 96 59 World Insurance Associates LLC $30 $54 82.1% PE/ Management 59 60 Bowen, Miclette

The Hales Report Contact: [email protected] Page 1

THE HALES REPORT

Hales Top 100: Largest Commercial Focused Agents & Brokers In The U.S. Based On 2019 Revenue ($47B Total, +13% YOY).

This week we release the full “Hales Top 100” U.S. agents & brokers based on 2019

revenue. The list ranges from #1 Marsh & McLennan with $7.2B of U.S. revenue to the

#100 agency with $30M (High Street Insurance Partners). A few points of interest:

1) The entire Top 100 represents $47B of aggregate revenue, an increase of 13%

year-on-year, which includes not only organic growth but significant revenue

from acquisitions. Notably, only 5 agencies reported lower 2019 revenue.

2) The top 6 brokers by revenue are all publicly traded and represent $25.9B of

revenue, an increase of 10% in 2019, or 55% of the Hales Top 100 (56% in 2018).

3) Within the top 25 there are 13 private equity backed “aggregators” which

represent $13.2B of revenue (~28% of total), with growth of ~21% in 2019.

Across the entire Top 100, and including companies that have a hybrid PE/

Management ownership, Private Equity firms are invested in 21 of the Top 100

agents representing 29% of total revenue (vs. 27% in 2018). Revenues for this

group grew 22% in 2019.

4) Three of the Top 100 have been acquired so far in 2020 and are highlighted in

red: #35 Assurance Agency (Marsh Agency), #40 Associated Benefits (USI)

and #58 LMC Ins & Risk Mgmt (AssuredPartners). Additionally, #2 Aon is

expected to acquire #3 Willis Towers Watson in H1 2021.

5) The threshold to be a “Top 10” broker continued to increase, now >$1.5B vs.

$1.35B last year. See additional considerations in the subsequent article.

1270 Avenue of the Americas, Suite 930, New York, NY, 10020 | [email protected] Issue #11, Vol: 4 May 26, 2020

Inside This Issue

Hales Top 100 U.S. Agents & Brokers 2019 Update. Revenues $47B (+13% YOY) pg 1

A Closer Look At Top 100 Trends Incl. Size Thresholds & The $1B Broker Club pg 5

Retro, The “Tip Of The Spear,” And Reinsurance Driving Top Down Hard Market pg 9

Lloyd’s Sees COVID-19 Industry Loss Of ~$50B; Total Q1 Loss Tally ~$6-7.5B pg 13

CIAB Survey Shows Pricing +9.3% In Q1, Tracks COVID Impact Across Lines pg 14

Market Pressures + COVID Drive Acceleration In D&O Pricing In Q1 pg 16

BRP Keeping An Eye On M&A & Producer Opportunities Amidst COVID Volatility pg 18

NJ Joins CA In Mandating Premium Refunds; CA Extends Mandate Incl. No Cancels pg 19

Insurtech Q1 Stat Review: Strong Premium Growth, U/Wing Profits Still Elusive pg 21

Auto CPI Observes Sharp Decline (-6.2%) Reflecting Premium Giveback Programs pg 24

Hales Hits, Q2 Deal Diary & Broker Valuations pg 25


Exhibit 1

2018 2019 Company 2018 2019 % Change Type

1 1 Marsh & McLennan $7,219 $7,840 8.6% Public

2 2 Aon PLC $4,677 $5,016 7.2% Public

3 3 Willis Towers Watson $3,970 $4,370 10.1% Public

4 4 Arthur J. Gallagher $3,631 $4,063 11.9% Public

5 5 Brown & Brown $1,999 $2,385 19.3% Public

6 6 Truist $1,958 $2,215 13.1% Public

7 7 USI Insurance Svcs $1,795 $1,894 5.5% Private Equity

8 8 Hub International $1,685 $1,855 10.1% Private Equity

10 9 Acrisure LLC $1,336 $1,782 33.4% PE/ Management

9 10 Alliant Insurance Svcs $1,351 $1,585 17.3% Private Equity

11 11 Lockton $1,300 $1,437 10.5% Private

12 12 AssuredPartners $1,223 $1,429 16.9% Private Equity

13 13 NFP Corp. $1,175 $1,335 13.6% Private Equity

14 14 BroadStreet Partners $607 $747 23.1% Private Equity

15 15 Edgewood Partners / EPIC $437 $744 70.2% Private Equity

16 16 Risk Strategies $321 $530 64.9% Private Equity

19 17 Alera Group $283 $404 42.7% Private Equity

17 18 OneDigital $313 $403 28.6% Private Equity

18 19 CBIZ Benefits & Insurance Svcs $290 $298 2.7% Public

20 20 Leavitt Group $255 $286 12.4% Private

23 21 Higginbotham $200 $236 17.8% PE/ Management

21 22 Paychex Insurance Agency $226 $232 2.4% Public

24 23 Holmes Murphy & Associates $195 $229 17.6% Private

22 24 Insurance Office of America $209 $225 7.6% Private

28 25 Foundation Risk Partners $155 $220 41.9% Private Equity

25 26 Cottingham & Butler $189 $217 15.0% Private

29 27 The Hilb Group $141 $194 37.1% Private Equity

27 28 Cross Insurance $167 $186 11.3% Private

26 29 The IMA Financial Group $168 $183 9.4% Private

31 30 Woodruff-Sawyer $139 $159 14.4% Private

30 31 Hylant Group $141 $145 2.5% Private

44 32 Baldwin Risk Partners $80 $138 72.8% Public

32 33 PayneWest Insurance $130 $138 5.8% Private

33 34 Heffernan Group $128 $137 6.9% Private

35 35 Assurance Agency $116 $130 12.1% Private

34 36 BXS Insurance formerly BancorpSouth Insurance Svcs $118 $125 5.8% Public

37 37 INSURICA $104 $119 14.7% Private

38 38 Relation Insurance Services $99 $110 11.0% Private Equity

36 39 Meadowbrook / AmeriTrust $116 $110 -5.2% Private

39 40 Associated Benefits & Risk Consulting $96 $96 0.4% Public

42 41 Oswald Cos. $89 $95 7.5% Private

45 42 ABD Insurance & Financial Svcs $80 $93 17.4% Private

43 43 Propel Insurance $85 $93 10.0% Private Equity

40 44 Eastern Insurance $94 $93 -1.6% Private

49 45 TrueNorth Cos. $75 $86 15.0% Private

46 46 Lawley Service $76 $84 9.9% Private

47 47 Horton Group $76 $77 2.5% Private

51 48 Towne Insurance Agency $66 $76 15.9% Public

48 49 Marshall & Sterling Enterprises $75 $76 1.6% Private

52 50 Huntington Insurance $66 $71 7.8% Public

Hales Top 50 U.S. Agents & Brokers

Rank U.S. Revenue ($,M)


Exhibit 2

Source: The Hales Report survey

*Preliminary 2019 estimate (Hales assumed +5% growth YOY)

2018 2019 Company 2018 2019 % Change Type

50 51 M3 Insurance Solutions Inc.* $67 $71 5.0% Private

53 52 Houchens Insurance Group $64 $70 8.6% Private

55 53 Parker, Smith & Feek $61 $68 12.5% Private

New 54 Patriot Growth Insurance Services LLC $0 $67 NA Private Equity

54 55 Scott Insurance $62 $66 8.0% Private

56 56 The Graham Co. $59 $61 3.9% Private

57 57 Starkweather & Shepley Insurance Brokerage* $57 $60 5.0% Private

58 58 LMC Insurance & Risk Mgmt $57 $54 -5.2% Private

96 59 World Insurance Associates LLC $30 $54 82.1% PE/ Management

59 60 Bowen, Miclette & Britt $52 $54 3.3% Private

60 61 Frost Insurance Agency $50 $53 7.1% Public

64 62 Moreton $47 $52 11.9% Private

63 63 Bolton & Company $48 $52 8.5% Private

107 64 PCF Insurance Services $18 $51 181.1% Private Equity

62 65 Rose & Kiernan Inc. $48 $51 5.1% Private

70 66 Sunstar Insurance $44 $50 13.6% Private

61 67 Poms & Associates Insurance Brokers $49 $49 0.2% Private

71 68 The Loomis Co. $43 $49 13.4% Private

69 69 Armfield, Harrison & Thomas $45 $48 7.1% Private

67 70 The Mahoney Group $46 $48 3.7% Private

68 71 Riggs, Counselman, Michaels & Downes $45 $46 3.0% Private

78 72 Robertson Ryan & Associates $39 $46 19.0% Private

76 73 Sterling Seacrest Partners $40 $46 15.1% Private

87 74 Cobbs Allen $33 $45 35.8% Private

73 75 HMS Insurance Associates Inc. $41 $43 5.5% Private

79 76 The Partners Group $38 $43 12.9% Private

75 77 Fisher Brown Bottrell Insurance $40 $43 5.4% Public

72 78 Ansay & Associates $42 $42 -0.1% Private

77 79 First Insurance Group LLC $39 $42 6.8% Public

74 80 Charles L. Crane $41 $41 1.1% Private

91 81 Bukaty & Company $33 $38 15.2% Private

85 82 Rich & Cartmill $34 $38 12.6% Private

80 83 James G. Parker $37 $38 2.0% Private

81 84 M&T Insurance Agency $36 $37 3.0% Public

83 85 People’s United Insurance Agency $35 $37 6.9% Public

84 86 Christensen Group $34 $37 8.2% Private

88 87 MJ Insurance $33 $37 10.2% Private

99 88 InsGroup $28 $35 24.6% Private

88 89 R&R Insurance Svcs $33 $35 5.4% Private

92 90 Haylor, Freyer & Coon Inc.* $33 $34 5.0% Private

95 91 Kapnick Insurance Group $31 $34 10.6% Private

82 92 Sullivan, Curtis, Monroe $35 $34 -2.6% Private

90 93 Wood Gutmann & Bogart $33 $34 2.7% Private

94 94 Murray Securus $31 $33 4.8% Private

93 95 PSA Financial Services $32 $33 1.8% Private

97 96 Tompkins Insurance Agencies $29 $31 5.8% Public

106 97 The Liberty Company Insurance Brokers $21 $30 42.9% Private

103 98 HM Risk $28 $30 8.0% Private

100 99 The Buckner Co. $28 $30 6.3% Private Equity

108 100 High Street Insurance Partners $10 $30 200.0% Private Equity

Hales Top 51-100 U.S. Agents & Brokers


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A Closer Look At The Hales Top 100. Revenue Thresholds Continue To

Move Higher. $1B Brokers Reach $37B of Revenue, Stable 79% “Share.”

Within the Top 100, our “$1B broker club” now represents $37B of revenue (vs. $33B

YOY) or a consistent ~79% of total Top 100 revenues. This “bakers’ dozen” has totaled

13 since 2018, up from a count of 12 in 2017 and just 5 as of 2008. Conceptually, we

believe it makes sense to include the distinct middle market strategy of Marsh Agency

(>$2B of run-rate revenues) which increases the total $1B+ tally to 14.

We continue to view agency consolidation / growth of the major brokers as a key

negative secular trend for underwriters. These $1B+ firms, each with circa $10B+ of

premium volume, have the market clout to push for better terms/pricing for customers

and higher commissions for themselves. He Who Controls The Customer Wins!

As of 2019, the next $1B broker candidate is unclear, with a notable drop from #13 NFP

($1.3B) to #14 BroadStreet ($747M, +23%), #15 EPIC ($744M, +70%) and #16 Risk

Strategies ($530M, +65%). Subject to the current economic slowdown impacting the

pace of M&A transactions, at current growth rates, each could reach the $1B threshold

within the next 2 years. Exhibit 3

$15 $17 $19 $19 $20 $24 $26 $30 $33 $37

$8

$9 $9 $10

$12

$13 $12

$9

$9

$10

$23

$26 $28

$29

$32

$37 $38

$39 $42

$47

66% 67% 67% 66%

63%64%

68%

77%79% 79%

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

$0

$10

$20

$30

$40

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Rising "Share" For $1B+ Brokers ($, B)

Sub-$1B $1B+ Share Share of Top 100

Source: Hales Top 100, Business Insurance: Dowling Hales Analysis


As previously noted, the #1 broker of U.S. business (Marsh & McLennan) has grown

from $3.5B of domestic revenue in 1999 to $7.8B of revenue as of 2019. Note, the

#1 position declined from 2004 to 2009 due to the impact Eliot Spitzer had on the

industry in 2005 and the financial crisis following after. The hurdle to be “the #1

broker” has grown the least, albeit still up ~121% over the past 2 decades. By

comparison, the hurdle to be in the “Top 10” has grown >9-fold in 20 years: from

$147M in 1999 to $1.6B as of 2019.

While the threshold for Top 25, 75 and 100 each increased in 2019 to $220 (vs $200M),

$43M (vs. 41M) and $30M (vs. $28M), respectively, the threshold for Top 50 actually

decreased to $71M vs. $76M (reflecting several top 50 deals in recent years: JLT, Hays,

Integro and Wortham).

The exhibits on the following page provide additional insights.

Exhibit 4

$3.5B

$5.8B

$4.4B

$6.4B

$7.8B

$12M $18M $19M $27M $30M$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

1999 2004 2009 2014 2019

Historical Range of Top 100 Agents & Brokers

#1 Ranked Broker #100 Ranked Broker

Source: Business Insurance, Hales Report Analysis


Individual Rank Thresholds:

Exhibits 5 – 10

$7,840

$3,540

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

#1 Ranked Broker

Revenue Change ($M)

2019 2014 2009

2004 1999Sour ce: Business Insur ance, Hales Repor t Analysis

+121%

$1,585

$147 $0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

#10 Ranked Broker

Revenue Change ($M)

2019 2014 2009

2004 1999

+975%

Sour ce: Business Insur ance, Hales Repor t Analysis

$220

$55

$0

$50

$100

$150

$200

$250

#25 Ranked Broker

Revenue Change ($M)

2019 2014 2009

2004 1999

+299%


$71

$24

$0

$10

$20

$30

$40

$50

$60

$70

$80

#50 Ranked Broker

Revenue Change ($M)

2019 2014 2009

2004 1999

+191%


$43

$16

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

#75 Ranked Broker

Revenue Change ($M)

2019 2014 2009

2004 1999

+163%


$30

$12

$0

$5

$10

$15

$20

$25

$30

$35

#100 Ranked Broker

Revenue Change ($M)

2019 2014 2009

2004 1999

+138%



A Closer Look At Rankings By Ownership –

Public Companies: The top 6 brokers are publicly traded (included bank Truist) with growth of

10% in 2019 led by Brown & Brown which was +19.3% (Hays acquisition). Further extending the

list to all brokers with public ownership (typically within a larger publicly traded group) the

composite’s $27.1B of revenue was up 10% YOY. Note, the ranking includes U.S. only revenue.

Exhibit 11

Private Equity Backed: Within the Top 100 there are 21 firms with private equity ownership.

This composite, dominated by “aggregators,” represents $13.8B of revenue which

increase 22% during 2019 (and represents 29% of the total 100 vs. 27% in 2018).

Exhibit 12

Top Brokers - Public Ownership

'18 '19 Company 2018 2019 % Change Type

1 1 Marsh & McLennan $7,219 $7,840 9% Public

2 2 Aon PLC $4,677 $5,016 7% Public

3 3 Willis Towers Watson $3,970 $4,370 10% Public

4 4 Arthur J. Gallagher $3,631 $4,063 12% Public

5 5 Brown & Brown $1,999 $2,385 19% Public

6 6 Truist $1,958 $2,215 13% Public

18 19 CBIZ Benefits & Insurance Svcs $290 $298 3% Public

21 22 Paychex Insurance Agency $226 $232 2% Public

44 32 Baldwin Risk Partners $80 $138 73% Public

34 36 BXS Insurance formerly BancorpSouth Insurance Svcs $118 $125 6% Public

39 40 Associated Benefits & Risk Consulting $96 $96 0% Public

51 48 Towne Insurance Agency $66 $76 16% Public

52 50 Huntington Insurance $66 $71 8% Public

60 61 Frost Insurance Agency $50 $53 7% Public

75 77 Fisher Brown Bottrell Insurance $40 $43 5% Public

81 84 M&T Insurance Agency $36 $37 3% Public

83 85 People’s United Insurance Agency $35 $37 7% Public

97 96 Tompkins Insurance Agencies $29 $31 6% Public

Total $24,586 $27,126 10%

Source: Dowling Hales Proprietary survey, Company Reports.


Top Brokers - Private Equity Ownership

'18 '19 Company 2018 2019 % Change Type

7 7 USI Insurance Svcs $1,795 $1,894 6% Private Equity

8 8 Hub International $1,685 $1,855 10% Private Equity

10 9 Acrisure LLC $1,336 $1,782 33% PE/ Management

9 10 Alliant Insurance Svcs $1,351 $1,585 17% Private Equity

12 12 AssuredPartners $1,223 $1,429 17% Private Equity

13 13 NFP Corp. $1,175 $1,335 14% Private Equity

14 14 BroadStreet Partners $607 $747 23% Private Equity

15 15 Edgewood Partners / EPIC $437 $744 70% Private Equity

16 16 Risk Strategies $321 $530 65% Private Equity

19 17 Alera Group $283 $404 43% Private Equity

17 18 OneDigital $313 $403 29% Private Equity

23 21 Higginbotham $200 $236 18% PE/ Management

28 25 Foundation Risk Partners $155 $220 42% Private Equity

29 27 The Hilb Group $141 $194 37% Private Equity

38 38 Relation Insurance Services $99 $110 11% Private Equity

43 43 Propel Insurance $85 $93 10% Private Equity

New 54 Patriot Growth Insurance Services LLC $0 $67 NA Private Equity

96 59 World Insurance Associates LLC $30 $54 82% PE/ Management

107 64 PCF Insurance Services $18 $51 181% Private Equity

100 99 The Buckner Co. $28 $30 6% Private Equity

108 100 High Street Insurance Partners $10 $30 200% Private Equity

Total $11,293 $13,793 22%

Source: Dowling Hales Proprietary survey, Company Reports.



Retro, The “Tip Of The Spear,” And Reinsurance Driving Top Down Hard

Market. Significant Rate Increases Likely To Continue With Trickle Down

To Primary Market Into 2021.

What were already “firming” or “hardening” areas across the P&C (re)insurance market

pre-COVID have transitioned to truly “hard” markets, with scarce capacity and

substantial rate increases. The change has been most significant in the property

catastrophe reinsurance markets in recent weeks, leading up to the important June

1 renewal date where many U.S. programs (and nearly all of Florida) renew. Again,

the trajectory was already in play prior to COVID, but there has been a substantial

change in recent days / weeks both in terms of capital availability and perceptions of

risk (i.e. rate level required for reinsurers to participate).

Importantly, we view the hard(ening) reinsurance market at June (both in rates and

terms & conditions, including stricter pandemic exclusions) as a precursor of what’s

to come at the more significant January 1 renewals. Higher reinsurance costs will

ultimately make their way into higher primary rates. While the magnitude of

primary rate increases already took a step higher in 2019, particularly in larger

account / “specialty” markets, we expect a broader upward movement in back ½

2020 and into 2021.

Exhibit 13

The drivers are threefold: (i) lower capacity/supply, given COVID-19 losses and financial

market impacts, (ii) less prevalence / willingness / ability from “alternative” markets

to participate, and (iii) reaction and changing “psychology” around risk given what is

likely to be the largest “shock” loss ever to the P&C industry (see COVID loss updates /

our tally in the subsequent article). Primary insurance companies must also price in the

higher cost of their own risk transfer (reinsurance).

0

50

100

150

200

250

300

350

400

450

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021EP

/C

at

Rein

sura

nce

RO

L Index

GUY CARPENTER WORLD PROPERTY CAT REINSURANCE ROL INDEX*

Source: Guy Carpenter; D&P Analysis

*1990 = 100 *2012 = 100

0

10

20

30

40

50

60

70

80

90

100

2012

2013

2014

2015

2016

2017

2018

2019

2020


While we continue to view Berkshire Hathaway / Ajit Jain, with ~20% of U.S. statutory

capital, as the “ceiling” on the market, listening to Warren Buffett’s annual meeting,

it’s likely the amount of capital they’re willing to put on the line is less today than in a

“normal” environment.

RenRe’s Kevin O’Donnell summed it up well on the reinsurer’s recent earnings call:

“Over the years, I have speculated that market dislocations would look and feel

different with decreased amplitude of rate increases, shorter temperable persistence

and more narrow geographic distribution. I'm pleased to report that I was wrong. We

will now find ourselves in a traditional hard market... In sum, in the market, capital is

now scarce and risk is now abundant.”

Additional Perspective On The Retro / Reinsurance Markets …

Over the past several years, continued catastrophe losses coupled with lower capital

from “alternative” markets has reduced the size of the retro market from ~$25-30B in

deployable limits to likely <$20B today. Recall, we have previously described the retro

market as the “tip of the spear” in the property catastrophe (re)insurance markets.

The implication is that if retro reinsurance capacity is not available (or substantially

higher priced) many (re)insurers will be forced to change their gross / net strategies

(likely deploying less limit) and charging higher prices for risks assumed. The immediate

impact has been on traditional property reinsurance with primary property rates also

expected to be pressed higher by the alternative capital dominated retro market.

Exhibit 14

Source: Company Reports, Hales Analysis

Global Insurance Sector Capital (Including Life) =

$2.5-3T

Global P/Cat Reinsurance

Limits = ~$425B

"Direct" Retro / ILWLimits = <$20B

Rated Retro

Collection

of Smaller

Players

Handful of Players Have a

Significant Share

Collateralized

Retro =

70-75%

The Property-Cat Pricing SpearThe Retro Market


Lloyd’s Sees COVID-19 Industry Loss Of ~$50B Or >$200B Incl. Lost

Premium & Asset Valuations. Updated COVID Loss Tally: = ~$6-7.5B Of

Losses Recorded In Q1.

Lloyd’s has added to the industry loss tally for COVID-19 estimating a loss to the Lloyd’s

market of $3-4.3B (£2.5-3.5B) with an industry incurred loss estimate of ~$50B.

Lloyd’s agrees with others that COVID-19 is likely to represent the largest ever loss for

the P&C industry, and could exceed $100B including other factors (such as lost

premium) while the total economic impact will be ~$203B (including asset hits).

Exhibit 15

COVID Industry Insured Loss Estimates

Dowling & Partners $40B to $80B

Willis Towers

$11B (“Optimistic”) to

$32B (“Moderate”) to

$80B (“Most Severe”)

Lloyd’s ~$50B

Source: Company Reports

Given the magnitude of the loss, Lloyd’s CEO John Neal now expects the P&C

industry to enter a “hard” market rather than a “hardening” market, with a post-

event experience similar to 9/11 and 2005 following Hurricanes Katrina, Rita and

Wilma. See above article for more thoughts on the hard market.

Exhibit 16


For Lloyd’s, its estimated net COVID losses are in-line with payouts from 9/11 and the

combined impact of Hurricanes Harvey, Irma and Maria. That said, Lloyd’s anticipates

its share of the loss will be underweight relative to the broader industry, and with ~52%

being ceded to reinsurers. Roughly 70% of the loss is coming from 4 classes: (1) Accident

& Health / Contingency (31% of losses), (2) Property Direct/Fac (17%); (3) Property

Treaty (12%); and (4) Political Risks, Credit and Financial Guarantee (11%). The

remaining 30% includes exposure to long-tail/ casualty lines including D&O.

Exhibit 17

Our COVID-19 reported insured loss tally, shown on the following page, now stands

in the range of ~$6-7.5B of insured losses booked in the first quarter. Clearly this is

just a “drop in the bucket” relative to the “ultimate” industry loss expected. Note, the

Lloyd’s loss estimate is shown separately to avoid double counting (many of the other

companies shown have Lloyd’s operations that would feed into the Lloyd’s figure).


Q1 Reported COVID-19 Loss Tally, ~$6-7.5B …

Exhibit 18

Reported p/t Reported p/t

Company P/C ($, M) Company P/C ($, M)

Global (Re)Insurers U.S. Centric Primaries

Munich Re ~€800 Travelers $86

Allianz ~€500 W.R. Berkley $67

AXA XL "Mid-Triple Digit" € Hartford $34

Swiss Re $476 Selective $24

Markel $325 CNA $15

Zurich $280 Hanover $13

AIG $272 American Finc'l $10

AXIS $235 RLI $5

Berkshire $230 ProSight ND

Hannover Re € 220 Sub-Total $0.3B

Aviva £200

Beazley $170 Total Q1 Industry Tally $5.9B

Alleghany $153 Lloyd's Q1 Market Loss* £500M-1.0B

Hiscox ~$150 Total Q1 Industry Loss Range = ~$6-7.5B

Everest Re $150 Source: Company Reports, D&P Analysis, FactSet.

Sirius Int'l $140 Note: *Some losses are included in individual company

RenaissanceRe $104 estimates above.

Talanx € 93

Arch $87

Fairfax $84

Intact C$83

Enstar $40

Tokio Marine $37

Lancashire $35

Argo $26

PartnerRe $18

Chubb $13

Third Point Re $10

IGI $2

SCOR ND

Liberty Mutual ND

Sub-Total $5.6B

COVID-19 Loss Tracker: Pre-Tax P/C (Re)Insurance Losses Reported In Q1:20

Total Q1 Industry Loss Range = ~$6-7.5B


CIAB Survey Shows Pricing +9.3% Across All Lines, Business Interruption

Seeing the Most Claims Activity from COVID-19; Carriers Ability To

Collect Premium The Most Pressing Issue.

CIAB released the results of their Q1:20 pricing survey, which showed pricing

momentum continued into Q1:20. Perhaps the more interesting part of the survey is it

included a COVID-19 supplemental which looked to provide a baseline on how

commercial lines were being impacted by the pandemic.

Unsurprisingly, according to respondents the

line seeing the most claims activity is

Business interruption, with 45% of the

increased activity related to the line of

business. The next highest was Workers’

Comp at 20%. One respondent noted that

claims were being reported regardless of

what the outcome might be to avoid late

reporting / loss of coverage. The survey

notes that its still to early to know what the

outcome will be on these claims.

Respondents noted that viral exclusions

were common and for most BI policies

property damage is the trigger. 75% of

respondent’s clients had some form of

Business interruption.

Exhibit 19

Impact on the Industry: For respondents, the

biggest issue facing the industry was

carriers’ ability to collect premium, with

72% of respondents noting this has been

affected. In particular, small businesses

were noted to be struggling to pay premiums

and needed forbearance in Q1. “The major

impact in the near term is collecting

premiums. The waterfall June 1 renewals

will be very telling”, one respondent noted.

Additionally several respondents mentioned

having clients go out of business due to the

pandemic.

Exhibit 20

0% 10% 20% 30% 40% 50%

Employment Practices

Other

D&O

Commercial Property

Workers' Comp

Business Interuption

Respondents Reporting Increased COVID-related Claims Activity

0% 20% 40% 60% 80%

Other

Pricing

Accuracy of exposire data

Availability of coverage

Carriers ability to collectpremium

Have the Following Been Impacted by COVID-19?

https://www.ciab.com/resources/covid-19-and-continued-market-hardening-put-stress-on-p-c-market-in-q1-2020-according-to-ciab-market-survey/


Respondents also noted the ability to obtain coverage was becoming an issue. “COVID-

19 has made availability of coverage and current limits at risk. Businesses that have

essential workers are being underwritten with greater scrutiny”. Carriers were also

noted to be reluctant to offer Civil Authority coverage and have been adding virus

exclusions and lowering pandemic limits, some were even noted to have a moratorium

on writing Business Income policies.

Survey Results: The Q1-20 CIAB pricing survey showed commercial premium rates

increased +9.3% across all account sizes = highest since 2003.

Details By Account Size … CIAB notes commercial premium pricing accelerated in Q1

across all account sizes, led by Large accounts (+12.6% vs. +9.4% in Q4:19), followed by

Medium accounts (+9.8% vs. +8.0%) and Small accounts (+5.5% vs. +5.2%).

Exhibit 21

Details By Line Of Business … Average premium increases were led by Umbrella (+17.3%

vs. +13.6% in Q4) and Commercial Property (+12.0% vs. +9.7%). In addition, Commercial

Property increases were just under double digits (+9.6% vs. 10.5%). General Liability

was ~stable at +5.8%. While Workers’ Comp rates continue to decrease, the rate of

decline improved in Q1 to the best it has been since Q1:17 (-1.2%).

Exhibit 22

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Q1:1

1

Q2:1

1

Q3:1

1

Q4:1

1

Q1:1

2

Q2:1

2

Q3:1

2

Q4:1

2

Q1:1

3

Q2:1

3

Q3:1

3

Q4:1

3

Q1:1

4

Q2:1

4

Q3:1

4

Q4:1

4

Q1:1

5

Q2:1

5

Q3:1

5

Q4:1

5

Q1:1

6

Q2:1

6

Q3:1

6

Q4-1

6

Q1:1

7

Q2:1

7

Q3:1

7

Q4:1

7

Q1:1

8

Q2:1

8

Q3:1

8

Q4:1

8

Q1:1

9

Q2:1

9

Q3:1

9

Q4:1

9

Q1:2

0

CIAB: AVERAGE PREMIUM RATE CHANGES BY ACCOUNT SIZETtl. Cml Small Mid-sized Large

Source: CIAB, Hales Analysis

-8%

-3%

2%

7%

12%

17%

Q1:1

1

Q2:1

1

Q3:1

1

Q4:1

1

Q1:1

2

Q2:1

2

Q3:1

2

Q4:1

2

Q1:1

3

Q2:1

3

Q3:1

3

Q4:1

3

Q1:1

4

Q2:1

4

Q3:1

4

Q4:1

4

Q1:1

5

Q2:1

5

Q3:1

5

Q4:1

5

Q1:1

6

Q2:1

6

Q3:1

6

Q4:1

6

Q1:1

7

Q2:1

7

Q3:1

7

Q4:1

7

Q1:1

8

Q2:1

8

Q3:1

8

Q4:1

8

Q1:1

9

Q2:1

9

Q3:1

9

Q4:1

9

Q1:2

0

CIAB: AVERAGE PREMIUM RATE CHANGES BY MAJOR LINE OF BUSINESSTtl. Cml Cml Auto Cml Property Umbrella Gen. Liab. Workers Comp

Source: CIAB, Hales Analysis



COVID-19 & Pre-Existing Market Pressures Drive Acceleration In D&O

Pricing. Aon Sees ALL Companies Getting Higher Rates In Q1.

The Directors & Officers (D&O) market has been under pressure for several quarters,

largely driven by the often-discussed “social inflation”, including an uptick in the

number of securities class actions (see exhibit 23), as well as bigger players like AIG

dropping limits and reducing capacity. Pressure is likely to only grow amidst / following

COVID-19, given the potential for company bankruptcies, and for lawsuits to come out

of false / misleading statements made by management teams and in financial

statements as to both the company’s response to the virus and its effect on the

company’s financials. At a minimum, it’s reasonable to expect there will be material

defense costs associated with D&O claims related to COVID, and further substantial

rate pressure (upwards) is likely.

Exhibit 23

Both Aon and Marsh provided updates on D&O pricing as of Q1, with Marsh reporting

D&O pricing up +44%, with 95% of clients facing price increases as a result of the overall

litigation environment. In addition, 37% of Marsh’s public D&O clients increased their

retentions in Q1. The Q1 CIAB survey noted D&O increases of +8.9% compared to

+7.0% in Q4, … “the highest increase in premium pricing aside from Commercial

Property, Commercial Auto, and Umbrella, suggesting that social inflation, identified

as a possible cause for D&O troubles last year, may be continuing to affect this line.

Respondents also noted D&O and EPL limits are getting reduced and carriers are

underwriting D&O more strictly.”

Aon found similar results in Q1 as their Public Company D&O Quarterly Pricing Index

revealed an acceleration in price increases to +26.2% YOY compared to +14.8% and in

prior quarter. Note, these increases are based on primary policies renewing in both

Q1:20 and Q1:19 with the same limit and deductible (See Exhibit 24 on the next page).

42 34 37 44 64124 114 94 93

45 41 41 5356

99 91103 103*

39 47 4857

74

10091 113 113*

25 43 4254

77

88106 94 94*

151165 168

208

271

411 402 404 403*

0

50

100

150

200

250

300

350

400

450

2012 2013 2014 2015 2016 2017 2018 2019 2020

Federal Securities Class Actions

Q4

Q3

Q2

Q1

Source: Stanford Law School's Securities Class Action Clearinghouse; *Projected filings based on TTM actual filings


https://www.aon.com/risk-services/thought-leadership/d_o_report/default.jsp


Additionally, using 2001 as a base year, the average price per $1M in limit came in at

1.51 in Q1, substantially higher than 0.74 YOY (+104.1%). While quarterly results can

be volatile, excluding three unique clients, the Q1 pricing index would have increased

+73.0%, marking the 9th straight quarter of YOY price increases. Note, the stretch of

positive rate momentum was preceded by 18 consecutive quarterly price decreases.

Exhibit 24

Like Marsh, Aon found that an overwhelming majority of its clients faced pricing

increases in the first quarter. In fact, for the first time since the Index began in 2012,

100% of companies received a pricing increase in Q1.

Exhibit 25

All in, COVID-19 has been affecting recent D&O policy renewals as, “…many

insurers have sought to impose COVID-19-related exclusions on D&O policies.

These exclusions will likely reduce the potential future exposure to COVID-19-related

claims. Some sectors, including retail, manufacturing, travel/leisure/hospitality, and

real estate, have experienced increased rates. The overall market is continuing to

see rate increases; however, with the hardening of the London D&O market, it is hard

to determine the direct impact COVID-19 has had on premium increases.”

~Angus Duncan (Willis Towers Watson)

-7.0

%

-4.2

%

-1.2

%

9.9

%

3.7

%

0.0

%

-2.4

%

-2.0

%

-4.8

%

-4.4

%

-3.7

%

-12.2

%

-3.8

%

-2.3

%

-10.3

%

-7.0

%

-9.2

%

-16.5

%

-2.9

%

-5.0

%

-8.7

%

-7.0

%

-5.9

%

-9.2

%

3.2

%

6.1

%

3.1

%

11.6

%

13.8

%

17.1

%

69.7

%

64.9

%

104.1%

-40%

-20%

0%

20%

40%

60%

80%

100%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2012 2013 2014 2015 2016 2017 2018 2019 '20

Aon Quarterly D&O Pricing Index YOY % Change

Source: Aon Risk Solutions

38%

21%

15%

19%

24%

26%

18% 35%

34%

43%

44%

53%

50%

56%

51%

42%

39%

35%

16%

35%

27%

23%

14%

19%

16% 18%

21%

32% 32% 35%

33%

48% 3

8%

45%

31%

37% 35%

36%

28%

24%

33%

35%

42%

48%

45%

39%

27%

19%

16%

27%

52%

67%

76%

72%

78%

69%

64%

54%

49%

41%

41%

34%

27%

21%

26%

19%

16%

25%

25%

26%

22%

36%

44%

53%

61%

77%

80%

90%

94%

100%

Q1-1

2

Q2-1

2

Q3-1

2

Q4-1

2

Q1-1

3

Q2-1

3

Q3-1

3

Q4-1

3

Q1-1

4

Q2-1

4

Q3-1

4

Q4-1

4

Q1-1

5

Q2-1

5

Q3-1

5

Q4-1

5

Q1-1

6

Q2-1

6

Q3-1

6

Q4-1

6

Q1-1

7

Q2-1

7

Q3-1

7

Q4-1

7

Q1-1

8

Q2-1

8

Q3-1

8

Q4-1

8

Q1-1

9

Q2-1

9

Q3-1

9

Q4-1

9

Q1-2

0

Primary Price Chgs - # Of Companies

Increased

Flat

Decreased

Source: Aon Risk Solutions


BRP Group Keeping An Eye On M&A And Producer Opportunities Amidst

COVID-19 Volatility. Personal Mix Adds Revenue Stability.

BRP Group, the #32 broker in the Hales Top 100 (publicly traded as of October 2019),

reported Q1 organic growth of 5%, below 12% in Q4:19 and 10% in 2019. Lower

contingents and Medicare marketing income were a drag, and growth would have been

~10% adjusting for this. BRP also expects their “MGA of the Future” (renters program)

to augment growth going forward (was +12% in Q1 including this recent acquisition).

BRP expects organic growth to remain in positive territory (personal lines mix of ~47%

adds stability) but they not it’s a very fluid environment. In their Middle Market

(Commercial) business they saw a drag from rate & exposure of -1pt in April, but this

increased to +5% as of Mid-May (volatility will likely continue). The Q1 result included a

1pt drag on growth related to a COVID-19 accounting adjustment, with BRP doubling its

annual bad debt provision due to the uncertainty re: clients’ exposures / ability to pay.

BRP also signaled further margin pressure (Q1 was 26% vs. 34% YOY) as investments will

continue despite the revenue pressure, including a desire to grow the producer count.

“…as you see some of our peers taking more broad brush action that may be needed or

warranted in their businesses, we think that's going to create opportunities for high

performers that may have gotten swept up and cost saving actions that aren't

necessarily as surgical as they could have been.”

BRP also remains active in M&A, but their appetite will be sensitive to broader economic

trends. “We have ample capacity to be nimble with respect to our operations and

acquiring new partnerships. And as we continue to take the temperature of the economy,

we can either continue to move forward and allocate capitals in new high quality

partnerships or keep our powder dry should the economy not show signs of recovery. This

is a fluid situation.” During Q1 BRP completed 4 acquisitions with >$30M of annual

revenue and so far in Q2 closed 3 with ~$9.5M of revenue.

Exhibit 26

Brokerage Organic Growth 2017 2018 2019 Q1:19 Q2:19 Q3:19 Q4:19 Q1:20

A.J. Gallagher 4.4% 5.6% 5.8% 5.7% 5.8% 5.8% 6.1% 3.1%

Aon 4.0% 5.0% 6.0% 6.0% 6.0% 5.0% 7.0% 5.0%

Brown & Brown 4.4% 2.4% 3.6% 2.0% 3.9% 3.4% 5.2% 5.6%

Marsh & McLennan 3.0% 5.0% 4.0% 5.0% 3.0% 6.0% 3.0% 5.0%

Willis Towers Watson* 4.0% 4.7% 6.4% 4.4% 6.1% 5.6% 9.8% 4.4%

BRP Group 17.0% 18.0% 10.0% 12.4% 12.0% 5.0%

Public Composite 4.1% 4.9% 5.3% 5.2% 5.0% 5.4% 6.1% 4.7%

Other notable / non-public

Hub 4.0% 3.6% 4.5% 1.8% 3.8% 6.8% 5.6% 6.2%

BB&T 1.7% 6.0% 8.8% 6.7% 11.6% 8.7% 7.9% 7.2%

Total Composite 3.7% 4.9% 5.5% 5.1% 5.3% 5.7% 6.2% 4.8%

Source: Company Reports, D&P Analysis; *WLTW brokerage proxy = combined corp. risk & broking + inv. Risk & reins, historical is WSH; Aon total co. 2017 forward


NJ Joins CA In Mandating Both Personal & Commercial Premium Refunds

/ Givebacks; CA Extends Order Related To Premiums & No Cancellations.

States continue to “press the issue” on premium returns / right sizing relative to

the new (lower) exposure base amidst COVID-19, including (i) New Jersey’s

Department of Banking and Insurance issuing a bulletin mandating premium refunds to

policyholders through the form of a premium credit, reduction, return of premium,

dividend or other adjustments (similar to CA’s earlier move); and (ii) California’s

insurance commissioner extending the order for insurance companies to partially refund

premiums to the month of May (previously was March & April).

More importantly (in our view, given premium givebacks are already occurring) the

California commissioner also requested that insurers extend the non-cancellation

provision by an additional 60-days, to July 14th. This exacerbates the premium

collectability and agency bill issues previously highlighted in Hales#8. We expect the

second and third quarters of 2020 will bring an increased occurrence of “bad debt” and

related negative revenue true-ups. The risk for underwriters also includes effectively

providing “free insurance” in the interim. See our updated CA timeline in Exhibit 27.

Exhibit 27

California COVID-19 2020 Sequence of Events

March 19Stay at home order issued

April 13Premium Refund

Order Issued

June 12Insurers must report

refunds given or planned(60 days post refund order)

August 12Refunds / Notifications Must

Be Issued(120 days post refund order)

Q1:20 Q2:20 Q3:20 Q4:20

March 17Bars/Clubs Close,

Restaurants open for takeout/delivery

March 4State of

Emergency Announced

May 15Premium Refund Order Extended

Source: Dowling Hales Analysis

July 14Expiration of non-cancellation order

https://www.nj.gov/dobi/bulletins/blt20_22.pdf

http://www.insurance.ca.gov/0250-insurers/0300-insurers/0200-bulletins/bulletin-notices-commiss-opinion/upload/Bulletin-2020-4-Premium-Refunds-Credits-and-Reductions-in-Response-to-COVID-19-Pandemic.pdf

https://www.dowling.com/file/Hales_Report_Issue_8_2020__1.pdf?docRef=f90a8689-3177-4243-bfdc-0a1d1917af65


Note, the NJ Department ordered the “initial premium refund or other adjustment to

all adversely impacted NJ policyholders, and for each month that the public health

emergency is in effect [declared 3/9]… as quickly as practicable, but in any event no

later than June 15, 2020.”

The premium givebacks /right sizing relate to the following lines (for both CA & NJ):

personal and commercial auto, workers’ comp, commercial multi-peril, commercial

liability, med mal and any others were risk of loss has fallen substantially.

“With the vast majority of Californians still under ‘stay at home’ orders, the risk of

accident and loss remains low for many lines of insurance and their premiums should

reflect that … While I appreciate companies that have already taken action to return

premiums, the Department of Insurance will be checking that the reductions are

adequate and consumers and businesses are not shortchanged.”

- CA Insurance Commissioner, Ricardo Lara


InsurTech Q1-20 Statutory Review: Double Digit Sequential Premium

Growth Reported In Q1, But No Signs of Moving to Underwriting Profit.

Each quarter, we track the “insurtech” statutory entities that file quarterly statements

with the NAIC. Below we look at the 3 biggest writers (all are VC backed insurtechs).

Beyond the statutory data, we also observed a few notable trends in Q1 including;

Insurtechs announced premium credits…In total we observed several insurtechs

announced COVID-19 related premium credits across personal and commercial lines,

which we summarize below. Earlier this month, Next Insurance announced an extension

to its 25% premium reduction through May for GL, prof. liability, and cml auto

policyholders. Recall, Next had previously offered a 25% reduction to premiums for

April. For Root, the company expects premium credits to range from 3% to 10% of April

and May monthly premium. In its stat filing, the company expected its premium credits

to total at more than $1.5M to qualifying policyholders.

Exhibit 28

Premium Refund Announcements Company Lines of Business / Account Size Eligible Details

NEXT General Liability, Prof Liability & Commercial Auto

25% credit for 1 month (April). Later extended through May.

biBERK / THREE Workers' Comp, General Liability, BOP, Cml Auto, Umbrella, Prof. Liability

20% credit for 2 months

Root Personal Auto

Stay Home Driving Bonus, whereby, customers that reduce their driving by 20% (or more) in April and May can earn up to a 10% credit on premiums paid during those 2 months.

Source: Co Reports

AIG places Blackboard into run-off…As part of its Q1-20 earnings release, AIG

announced intentions to place Blackboard U.S. Holdings, Inc. (Blackboard), AIG’s

technology-driven subsidiary, into run-off. Recall, in May 2017 and in coordination with

AIG’s appointment of Brian Duperreault as CEO, AIG agreed to acquire Hamilton U.S.

Holdings, which was later renamed Blackboard, for book value plus $30M, which at the

time was estimated at $110M. Blackboard wrote ~$34M of DPW in Q1-20 and ~$85M in

2019. Blackboard’s management has entered into discussions with potential investors

to try and arrange a potential sale.

Munich Re closes investment in Next Insurance…First quarter statutory filings show

that Munich Re, through Ergo Group, closed its previously announced $250M investment

in Next Insurance in March 2020. This latest (and sizeable) investment highlights Munich

Re’s evolving approach to insurtechs by taking a more targeted investment approach.

In many respects, Next can be viewed as an extensions to Munich Re and acts as the

company’s U.S. small commercial platform.


Summary of statutory results…

Direct premiums written at Lemonade increased 15% sequentially to $38.0M from

$33.1M in Q4 and compares to $25.3M YOY. The growth this quarter fully offset a

sequential decline in Q4 as DPW also totaled $38M in Q3. Each of the company’s top 5

states reported double digit sequential growth in Q1 and growth among the 10 largest

states totaled 15.3% in Q1.

While strong growth continues, the company reported an underwriting loss of $2.5M in

Q1-20 (in line with Q1-19). On the positive side, the direct loss ratio saw consistent

improvement throughout 2019 and into Q1-20, declining to 68.4% from 70.1% in Q4:19.

Lemonade added only 1 reinsurance relationships in Q1, Catlin, although the company

has listed XL as a reinsurer in the past. Overall, the company’s largest reinsurance

relationships (per YE2019 financials) include Hiscox and Nephila (including Allianz Risk

Transfer), with ceded premium of ~$2.0M/each.

Exhibits 29 & 30

Similar to Lemonade, Root reported a double digit sequential increase (+14%) in direct

premiums in Q1-20 to $164.1M vs. $143.7M in Q4-19. The overwhelming majority of

premium comes from personal auto as the company’s entrance into renters’ insurance

(entered in Q3-19) produced total premium of $0.22M in Q1. The company continues to

produce a sizeable underwriting loss at $35.7M, but down from a loss of $60M in Q4.

With Q1 results, the company reported adverse development driven by higher than

expected bodily injury and property damage on accidents occurring in H2-19.

The company’s direct loss ratio remains elevated at 103.2% in Q1-20 vs. 105.5% in Q4-

19. Q2:19 is still the only quarter in 2019 where Root reported a direct loss ratio below

100%. Root disclosed one new reinsurance relationship, Peak Re, in Q1.

$0

.6

$1

.3

$2

.5

$4

.6

$7

.5

$9

.9

$1

5.5

$1

4.0

$1

9.3

$2

5.3

$3

8.0

$3

3.1

$3

8.0

$0

$5

$10

$15

$20

$25

$30

$35

$40

Q1-1

7

Q2-1

7

Q3-1

7

Q4-1

7

Q1-1

8

Q2-1

8

Q3-1

8

Q4-1

8

Q1-1

9

Q2-1

9

Q3-1

9

Q4-1

9

Q1-2

0

Lemonade Quarterly Direct

Premium Written

Source: Statutory Filings

($2

.5)

($3

.9)

($4

.8)

($4

.6)

($1

.5)

($1

.5)

($2

.3)

($1

.4)

($2

.5)

($3

.3)

($5.0)

($1

.4)

($2

.5)

($6)

($5)

($4)

($3)

($2)

($1)

$0

Q1-1

7

Q2-1

7

Q3-1

7

Q4-1

7

Q1-1

8

Q2-1

8

Q3-1

8

Q4-1

8

Q1-1

9

Q2-1

9

Q3-1

9

Q4-1

9

Q1-2

0

Lemonade Quarterly Net

Underwriting Gains (Losses)



Exhibits 31 & 32

Following a sequential decline in quarterly direct premiums in Q4, Metromile

rebounded back to ~$27M of DPW in Q1:20, up ~20% sequentially but down -0.5% YOY.

The company reported an underwriting loss in Q1 (-$4.4M). Recall, while Metromile did

report a modest underwriting profit in Q4 of $0.1M, the quarter had benefited from

negative underwriting expenses. The company reported a notable improvement in the

direct loss ratio down to 66.0% compared to 74.2% in Q4. In management news, Jeff

Briglia, Metromile’s Chief Insurance Officer and COO, was recently appointed as

President and CEO of Plymouth Rock Management Company of New Jersey.

Exhibits 33 & 34

$0

.1

$0

.4

$0

.9

$2

.6

$7

.9

$1

4.9

$3

2.8

$5

0.8

$8

8.7

$9

9.2

$1

19

.5

$1

43

.7

$1

64

.1

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180Q

1-1

7

Q2-1

7

Q3-1

7

Q4-1

7

Q1-1

8

Q2-1

8

Q3-1

8

Q4-1

8

Q1-1

9

Q2-1

9

Q3-1

9

Q4-1

9

Q1-2

0

Root Quarterly Direct

Premium Written


($1

.9)

($2

.3)

($3

.9)

($7

.7)

($8

.0)

($1

2.8

)

($2

6.0

)

($1

3.9

)

($2

9.7

)

($2

2.5

)

($49.7)

($60.2)

($3

5.7

)

($70)

($60)

($50)

($40)

($30)

($20)

($10)

$0

Q1-1

7

Q2-1

7

Q3-1

7

Q4-1

7

Q1-1

8

Q2-1

8

Q3-1

8

Q4-1

8

Q1-1

9

Q2-1

9

Q3-1

9

Q4-1

9

Q1-2

0

Root Quarterly Net



$1

0.4

$1

2.2

$1

4.9

$1

5.4

$1

9.1

$2

0.2

$2

4.5

$2

3.4

$2

6.7

$2

5.9

$2

8.6

$2

2.2

$2

6.5

$0

$5

$10

$15

$20

$25

$30

Q1-1

7

Q2-1

7

Q3-1

7

Q4-1

7

Q1-1

8

Q2-1

8

Q3-1

8

Q4-1

8

Q1-1

9

Q2-1

9

Q3-1

9

Q4-1

9

Q1-2

0

Metromile Quarterly Direct

Premium Written


($1

.6)

($2

.5)

($1

.2)

($4

.1)

($3

.5)

($3

.1)

($4

.3)

($5

.8)

($5

.6)

($5

.5)

($10.2)

$0.1

($4

.4)($12)

($10)

($8)

($6)

($4)

($2)

$0

$2

Q1-1

7

Q2-1

7

Q3-1

7

Q4-1

7

Q1-1

8

Q2-1

8

Q3-1

8

Q4-1

8

Q1-1

9

Q2-1

9

Q3-1

9

Q4-1

9

Q1-2

0

Metromile Quarterly Net




Personal Auto CPI Sees Sharp Decline In April (-6.2%) Reflecting

Reduction From Premium Giveback Programs.

The Personal Auto Premium CPI (proxy for insurance rates) came in at -6.2% in April, a sharp

decrease from +1.1% in March. The CPI is clearly capturing some of the premium givebacks,

most commonly 15% for 2 months (would equate to 5% on a 6-month policy). With ~14% market

share, GEICO by itself would account for ~2pts of the decline, all else equal.

We assume this impact will continue in May-June, likely moderating as frequency recovers and

the givebacks run their course. Although data indicates miles driven are increasing in May, it

is still running at very low levels vs. last year. Recently, Allstate extended their giveback

another month and State Farm has uniquely taken more “permanent” action, announcing it

will be reducing rates by a national average of 11% (although the company has generally been

uncompetitive prior to this action). These recent actions suggest that frequency continues to

run at extremely low levels, beyond what was assumed with the first round of giveback actions.

Exhibit 35

Severity trends will be important to watch as traffic volume and frequency returns to normal =

Q1 commentary suggested increasing severity. Dowling & Partners’ CPI “Loss Cost Index” began

rising in late 2018 and continued to drift higher through 2020 to 4.0% vs. 2.3% YOY. Given the

sharp decline in premium and increased severity trend, the spread between premium and loss

costs widened further to -10.3% (vs. -2.8% in March).

Exhibit 36

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Personal Auto Premium CPI (YOY % Change)

Source: Bureau of Labor Statistics

April-20:All-time low (-6.2%)

Feb-18:Recent peak (+9.7%)

2019 2019 2019 2019 2019 2019 2019 2019 2019 2020 2020 2020 2020

CPI - Auto Related Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr

Motor Vehicle Ins. Premium 1.4% 0.7% 0.7% 0.6% 0.7% 0.2% -0.2% -0.2% 0.0% 0.0% 0.3% 1.1% -6.2%

Medical Care (Bodily Injury - 50%) 1.9% 2.1% 2.0% 2.6% 3.5% 3.5% 4.3% 4.2% 4.6% 4.5% 4.6% 4.7% 4.8%

Auto. Body Work (PD - 40%) 3.2% 3.0% 3.9% 4.0% 3.9% 4.5% 4.1% 4.0% 4.4% 4.1% 3.8% 3.8% 4.3%

Used Cars & Trucks (PD - 10%) 0.8% 0.3% 1.2% 1.5% 2.1% 2.6% 1.4% -0.4% -0.7% -2.0% -1.3% 0.1% -0.7%

Weighted Avg. Phys. Dam. 2.7% 2.5% 3.4% 3.5% 3.5% 4.1% 3.6% 3.1% 3.4% 2.8% 2.8% 3.1% 3.3%

D&P Loss Cost Index 2.3% 2.3% 2.7% 3.0% 3.5% 3.8% 3.9% 3.7% 4.0% 3.7% 3.7% 3.9% 4.0%

Premium-Loss Severity Gap -0.9% -1.6% -2.0% -2.4% -2.8% -3.6% -4.1% -3.9% -3.9% -3.7% -3.4% -2.8% -10.3%

Other Auto Related

Motor Vehicle Main. & Repair 3.8% 3.4% 3.5% 3.3% 3.8% 3.5% 3.4% 3.2% 3.4% 3.2% 3.5% 3.4% 3.1%

Motor Vehicle Parts & Equip. ex Tires 2.5% 3.1% 1.7% 0.5% 0.9% 1.7% 2.3% 1.8% 2.6% 3.7% 4.1% 3.5% 3.1%

Prof. Medical Services 0.4% 0.7% 0.9% 1.1% 1.4% 1.5% 1.6% 1.7% 1.6% 1.2% 1.2% 1.6% 1.7%

Hospital & Related Services 1.4% 1.5% 0.8% 1.0% 2.2% 2.1% 3.4% 3.2% 2.9% 3.7% 4.1% 4.2% 5.0%

New Vehicles 1.2% 0.9% 0.6% 0.3% 0.2% 0.1% 0.1% -0.1% 0.1% 0.1% 0.4% -0.4% -0.6%

Source: Bureau of Labor Statistics, Dowling & Partners Analysis


Hales Hits

In an interview with the New York Times, Chubb CEO Evan Greenberg put the industry

losses from COVID-19 at “$100 billion or greater” while adding Chubb’s payouts will be

“quite visible” in Q2. Recall, Greenberg previously suggested in the Q1 conference call

that COVID-19 is “more than very likely to be the largest event insurance history when

you add it all up, both the asset side and the liability side of the balance sheet.”

A.M. Best’s initial stress testing related to COVID-19 revealed that most insurers’ capital

levels provided an adequate buffer against a possible shock to their balance

sheets. Sensitivity to the pandemic was greater for those with material exposures to

mortgage loans, carriers operating in domiciles in higher country-risk tiers, and

companies with smaller capital bases. “Insurers are likely to see a significant hit to

earnings in 2020, rather than a material decline in risk-adjusted capitalization.”

S&P revised its outlook on the global reinsurance sector to negative, expecting a

combined ratio of 101-105% for the year, or even higher if COVID-19 losses accelerate

(exceed >$30B for the (re)insurance sector). “We expect to take negative ratings

actions on reinsurers whose COVID-19 losses wipe out their earnings and become a

capital event and that in our view won’t be able to sufficiently rebuilt capitalization

over the next 12 to 24 months, as well as for those reinsurers that entered 2020

with an already historical weaker operating performance.”

Bold Penguin, the Ohio-based tech provider operating a commercial exchange, and Mylo,

a digital broker launched by Lockton (the #12 U.S. broker with $1.4B of revenues),

expanded their partnership to give Mylo agents multi-product quoting capabilities through

a single interface built by Bold Penguin. Note, the partnership began ~2 years ago

following Lockton’s decision to focus on small businesses through the creation of Mylo and

a funding round led by Guggenheim Partners.

London market specialist Brit received approval from Lloyd’s to launch Ki, a new fully

digital syndicate that will provide following capacity to broker placements in a more

efficient / “no touch” manner. The new syndicate will only trade electronically through

a Google Cloud developed platform and will use algorithms (i.e. no underwriters)

developed by Brit & data analysts at University College of London, to provide following

capacity quotes / line share to brokers on every risk placed by “nominated” lead

syndicates in selected classes of business. While beneficial to overhead expenses and

Lloyd’s overall goal to improve efficiency, the initiative does not address the elevated /

rising acquisition costs in at Lloyd’s (i.e. brokers commissions will not be impacted).

The UK will temporarily guarantee business-to-business transactions currently supported

by trade credit insurance through a reinsurance agreement with insurers (details

TBD). These backstops, now in place in Germany, France, the Netherlands and the U.K.,

allow trade credit insurers to continue to offer capacity without taking any significant

underwriting risk (tempering the loss trade credit (re)insurers otherwise would face

amidst the COVID-19 pandemic).


The Pennsylvania Supreme Court denied a petition to roll up all PA COVID-19 related

cases into 1 judicial process, a big “win” for the (re)insurance industry. The Petition

sought the Court to use its powers to assume control / expedite the case so other similar

complaints could be quickly resolved. Several P&C Insurance trade groups filed an

Amicus Brief opposing the Petition arguing that the courts of PA will need to work

through myriad claim specific coverage issues on an individual, case-by-case basis.

The Wisconsin Supreme Court overturned the state’s stay-at-home order, ruling

“Emergency Order 28 is declared unlawful, invalid and unenforceable.” This is a topic

to watch (if orders are deemed unconstitutional) as some policyholders seek business

interruption coverage related to civil authority.

https://www.wicourts.gov/sc/opinion/DisplayDocument.pdf?content=pdf&seqNo=260868


U.S. Deal Diary – Q2 Updates: The 12 deals over the past 2 weeks put the total Q2

count of deals at 52 (vs. 163 total in Q2 2019). So far this year, the deal tally of 210

is lower than 300 at this time last year.

Exhibit 37

Exhibit 38

91 88 66 109 91 58 62 91 74 4898 122 107

155 139206 158

72 57 8969 75

48 5277 80

49

83118 130

160 150

163

67 61 85 75 86

42 60

80 6860

10195 108

127 170

184

59 7191 95 86

7294

106 144

79

106104 119

149 142

140

289 277331 348 338

220268

354 366

236

388439

464

591 601

693

210

0

100

200

300

400

500

600

700

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

U.S. Middle Market Agency Transactions By Quarter / Year

Q1 Q2 Q3 Q4

Source: SNL(Preliminary), Factset, other public sources

2019 Jan-20 Feb-20 Mar-20 Apr-20 May-20 2020

National Brokers

Acrisure, LLC 98 6 10 2 1 8 27

Broadstreet Partners 36 11 4 2 3 - 20

AssuredPartners, Inc. 35 3 3 3 3 - 12

Hub International 37 2 2 4 - 4 12

Hilb Group, LLC 24 3 2 2 1 - 8

Arthur J. Gallagher & Co. 30 2 1 3 - - 6

Brown & Brown 23 1 - 4 1 - 6

Alera Group 24 - - 3 2 - 5

USI, Inc. 10 - 2 1 1 1 5

BRP Group 8 - 2 - 1 2 5

RSC Insurance Brokerage, Inc. 17 3 - 1 - - 4

Marsh & McLennan Companies 4 2 - - 1 - 3

NFP Corp. 15 1 - - 1 1 3

Patriot Growth 23 - 1 1 - - 2

Seeman Holtz 6 - - - - - 0

Sub-Total 390 34 27 26 15 16 118

Other 303 26 14 31 12 9 92

Total Broker Deals 693 60 41 57 27 25 210Source: SNL, Factset, and other public sources through YTD

Most Active Acquiring Brokers - Monthly (Domestic Deals)


Exhibit 39

Date Acquirer AcquireeAcquiree

State1-Apr BRP Group, Inc. Insurance Risk Partners OK

1-Apr Marsh & McLennan Companies, Inc. Assurance Holdings Inc. IL

1-Apr NFP Corp. Fiduciary Investment Advisors LLC (FIA) CT

1-Apr BroadStreet Partners, Inc. Book of Business CA

1-Apr BroadStreet Partners, Inc. Book of Business VT

1-Apr BroadStreet Partners, Inc. Certain Insurance Assets IN

2-Apr Brown & Brown, Inc. Dealer Financial Services of NC, Inc. NC

6-Apr AssuredPartners, Inc. Early, Cassidy & Schilling, Inc. MD

7-Apr Aon plc Farmington Company CT

7-Apr One80 Intermediaries, LLC International Excess Program Managers Agency OH

9-Apr DOXA Insurance Holdings LLC Lawrence E. Smith & Associates Inc./Scholastic Insurance of Florida LLC MO

13-Apr Integrity Marketing Group, LLC Brokerage Resource, Inc. NC

14-Apr Simplicity Group Holdings, Inc. Fidelity Financial Group Inc. TX

15-Apr AssuredPartners, Inc. GIGA Solutions, Inc. FL

17-Apr TWFG Holding Company, LLC Panoptic Insurance TX

20-Apr Alera Group, Inc. Cambridge Benefit Solutions AZ

21-Apr Alera Group, Inc. Barkley Risk Management & Insurance CA

21-Apr AssuredPartners, Inc. Transportation Insurance Advisors LLC FL

21-Apr Hilb Group LLC Books of business RI

22-Apr XPT Group LLC LP Risk, Inc. TX

27-Apr Spotts Insurance Group, Inc. Hugh J. McGinley Insurance Agency PA

28-Apr Norman-Spencer Agency, Inc. Assets of Intercorp Inc. N/A

28-Apr Norman-Spencer Agency, Inc. BNK Insurance Services, LLC TX

30-Apr Ameritas Mutual Holding Company Dental Select, Inc. UT

30-Apr High Street Insurance Partners, Inc. Ayres-Rice Insurance Agency, Inc. MI

30-Apr Trustmark Corporation Boyles Moak Insurance Services MS

1-May BRP Group, Inc. Assets of Southern Protective Group, LLC GA

1-May Heffernan Insurance Brokers, Inc. Assets of Contractors Insurance NW WA

1-May IMA Financial Group, Inc. ESS NexTier Insurance Group, LLC PA

1-May Heffernan Insurance Brokers, Inc. Assets of TWIS CA

2-May Trustmark Corporation Creative Benefit Solutions, LLC AL

4-May Crest Insurance Group, LLC John Creps Insurance Agency, LLC AZ

4-May High Street Insurance Partners, Inc. Ken Bleeker Insurance Agency MI

4-May High Street Insurance Partners, Inc Gates-Cole Associates, Inc. NY

4-May USI Insurance Services, LLC Associated Benefits and Risk Consulting, LLC MN

11-May Hub International B & G Group Inc NY

11-May XPT Group LLC Houston Surplus Lines, Inc. TX

12-May Hub International Division of Healy Group, Inc. IN

13-May Higginbotham Insurance Agency, Inc. Amerman Insurance Services LLC TX

14-May Hub International Hatchett Insurance Agency, LLC TN

15-May Hub International Lashua-Lachance & Polik Insurance Agency, Inc. MA

18-May NFP Corp. Team Scotti PA

19-May Integrity Marketing Group, LLC Equis Financial, Inc. NC

Source: SNL, Factset, other public sources; Note: Does not include deals where target was not disclosed; Excl. Acrisure deals.

2020 U.S. Middle Market Brokerage M&A Since April


Public Broker Valuations:

Exhibit 40, 41 & 42

17.9%

31.4%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

12/31/18

1/31/19

2/28/19

3/31/19

4/30/19

5/31/19

6/30/19

7/31/19

8/31/19

9/30/19

10/31/19

11/30/19

12/31/19

1/31/20

2/29/20

3/31/20

4/30/20

Broker Price Performance vs. S&P 500 (Since YE'18)

S&P 500 (17.9%) Broker Composite (31.4%)

Source: Factset

21.7x

21.8x

10.0

12.5

15.0

17.5

20.0

22.5

25.0

5/20

3/20

1/20

11/19

9/19

7/19

5/19

3/19

1/19

11/18

9/18

7/18

5/18

3/18

1/18

11/17

9/17

7/17

5/17

3/17

Public Broker P/E vs. S&P 500 - Since YE '16Brokers S&P 500

Source: Company Reports, Factset

14.4x

14.3x

6.0

8.0

10.0

12.0

14.0

16.0

Curr

ent

Q1-2

0

Q4-1

9

Q3-1

9

Q2-1

9

Q1-1

9

Q4-1

8

Q3-1

8

Q2-1

8

Q1-1

8

Q4-1

7

Q3-1

7

Q2-1

7

Q1-1

7

Q4-1

6

Q3-1

6

Q2-1

6

Q1-1

6

Q4-1

5

Q3-1

5

Q2-1

5

Q1-1

5

Q4-1

4

Q3-1

4

Q2-1

4

Q1-1

4

Historical Public Broker EV/EBITDA Public Brokers Middle Market Composite

Source: Company Reports, Factset


Important Disclosures

This report does not provide individually tailored investment advice. It has been prepared without regard

to the individual financial circumstances and objectives of persons who receive it. This report is not an

offer to buy or sell any security or to participate in any investment. The firm has no obligation to tell

you when the opinions or information in this report change. The information and statistics contained

herein are based upon sources which we believe to be reliable, but have not been independently verified

by us. The firm makes every effort to use reliable comprehensive information, but makes no

representation that it is accurate or complete. The firm may, at any time, hold a position in the public

shares or private equity of any companies discussed in this report.

Documents

THE HALES REPORT - Sterling Seacrest...58 58 LMC Insurance & Risk Mgmt $57 $54 -5.2% Private 96 59 World Insurance Associates LLC $30 $54 82.1% PE/ Management 59 60 Bowen, Miclette