Colonnade publishes industry commentary on commercial lines insurance premium finance.
As we reported in our April 2015 industry commentary, insurance premium finance is a well-established, high margin, high growth commercial lending activity that generates low credit quality costs. We estimate the commercial segment has increased to roughly $35 billion of annual originations.
Much has transpired in the insurance premium finance industry since our last report. Two large banks have divested their top five premium finance units, totaling more than $2 billion of portfolio, in both cases to consolidators. Two banks have entered the industry through acquisition and another de novo. New entrant banks continue to demonstrate their ability to expand premium finance originations rapidly utilizing their low cost balance sheets.
Banks no longer lead the industry, however, controlling just under half of all commercial lines originations and one-third of the overall market. The market has shifted since 2013, when banks controlled nearly 60% of the commercial segment. Independents now control a slight majority of originations.
New entrant banks and an increasing universe of financial sponsors remain interested in the sector and are actively seeking entry through acquisition of an established platform. While we do not anticipate any significant divestitures from the large players in the foreseeable future, absent an exogenous event, several rapidly growing mid-sized players are emerging. Continued acquisition interest across a small pool of possible targets creates scarcity value for any premium finance company of size considering coming to market, buoying valuations.
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