A Positive Outlook for the Insurance Industry

At the end of January, I had the privilege of attending our second annual Insurance Distribution Forum, where we welcomed management teams and investors from the insurance distribution and services space. We are on the verge of a new era, defined by rapid technological progress and constantly changing global dynamics, so it was great to participate in conversations around the journey of exploration in the spirit of collaboration and innovation. During the event, we hosted informative discussions with industry leaders around leveraged finance, the rate environment, private capital, themes shaping the insurance distribution market, and more. 

It was encouraging to hear leveraged finance leaders have a sense of optimism for the year ahead. Throughout 2023, high levels of volatility in the credit market, tied to inflationary pressure, rising rates, and ongoing geopolitical tension, led to limited primary market issuances last year. But based on the improved market tone in recent weeks, we are cautiously optimistic that 2024 is unlikely to see a repeat of these decade lows as there has already been a slight pick-up in activity led predominantly by opportunistic refinancing and repricing transactions. 

Looking at the rate environment, if the Fed can start normalizing rates in the second quarter without a spike in the unemployment rate, without any material deterioration of risk assets, then the path to return to neutral without a major dislocation becomes a lot clearer and a lot more achievable.  

In one of the panels I moderated, we heard from two leading executives who also believe the economic environment is creating opportunities for the sector as it looks to meet the rising demand from some of the world’s largest investors, particularly for alternative credit and private equity.  

Part of our discussion was around investors turning to private markets to access the capital they need to complete deals. And while I understand the appeal of that part of the market, the decline of the syndicated deals at the hands of private capital might be premature. There’s a small handful of firms that can really speak for a deal or lead a transaction, but we are seeing a proliferation of smaller firms coming to us looking for sourcing of opportunities. Our view is three to five years from now, the syndicated market and the private market are going to look exactly the same.  

When it comes to themes that will shape the insurance distribution market in 2024, no matter how you look at it, there are a few truths we know as they relate to the sector.  

• The global economy needs insurance to function.  

• The world is only becoming more complex and, therefore, in need of the technical expertise of insurance brokers.  

• The insurance brokerage sector remains as resilient as ever. 

The insurance industry is an incredibly vital sector to BMO. We have a specialized team of 30+ professionals and a market-leading equity research analyst in the space. Working with our clients to drive collective solutions is an important part of our framework, and we are proud to say 2024 will be an exciting year.  

We invite you to tap into more of our insights on Financial Institutions and Insurance here.