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‘Insurance is cycle-agnostic at some level,’ says Carlyle’s James Burr on $1.78bn NSM deal

'It's a very fragmented market in both the US and the UK to the extent that if you have the proper platform and management team, there are a lot of M&A opportunities,' Burr says.

The Carlyle Group’s financial services arm earlier this week made its 10th insurance investment through the acquisition of NSM Insurance Group from White Mountains in a deal that values the Conshohocken, Pennsylvania-based target at $1.78 billion. To learn more about the transaction, affiliate title PE Hub caught up with James Burr, a managing director in Carlyle’s global financial services group.

NSM offers insurance for niche sectors, such as speciality transportation, pet, social services and real estate, with operations in the US and UK.

“This is a company that we have long admired and had a lot of respect for the management, and it fits our investment thesis and profile very well,” he says. “When it became available, we did everything we could to position ourselves to prevail.”

Carlyle sees vast opportunities in the insurance sector, despite the challenges of the current economy, including inflation.

“Markets are choppy, that’s for certain,” he says. “However, insurance is a non-discretionary spend. Whether you are in boom times or bust times, items have to be insured by someone. At some level, insurance is cycle-agnostic, not completely, but very much at some level.”

Burr says NSM is diversified, covering both B2B and B2C, with areas like pet insurance and collectable car insurance, which he believes will drive revenue.

The insurance industry, particularly the brokerage subsector, fits well with the private equity model. “It’s a very fragmented market in both the US and the UK to the extent that if you have the proper platform and management team, there are a lot of M&A opportunities.”

With access to capital from Carlyle, NSM will be able to scale new heights in the insurance sector, Burr says. Carlyle will keep the current management team, led by its chief executive Geof McKernan. The company has a “nice” pipeline that Carlyle and the management team can work on to further grow the company both organically and inorganically.

Regarding NSM’s outlook, Burr says this deal will help the insurer not to be “encumbered by the limits of being part of a public company”.

“Our ability to amp up investment into platforms, the people and advertising is much greater outside of the purview of public investors,” he says. “We can invest heavily in the company for future growth.”

Burr says even though the hold times for Carlyle’s investments average five years, at present, Carlyle does not have a predetermined hold period, as the NSM strategy will depend on how the business flows.

“We are more focused on the roadmap as to where we think this company will go, and somewhere on that journey, it will make sense to bring in another partner. That will be a combined agreement between management and Carlyle.”

The current transaction represents the 10th for Carlyle’s financial services team in the insurance sector, having previously invested in platforms such as JenCap, which was formed in March 2016 to consolidate speciality insurance distribution businesses, including managing general agents, programme managers and transactional wholesale brokers. In 2020, Carlyle, through JenCap, teamed up with Oak Hill Capital to form another platform, Galway Insurance Holdings. Other insurance investments include Hilb, Sedgwick, PIB and EPIC.

Last year, M&A in the insurance sector grew by more than 160 percent, to $58 billion in 2021, up from $22 billion in 2020, according to Deloitte. Moving forward, PE Hub expects to see more insurance sector consolidation.