Posted: 05 / 01 / 2022

Article by Hannah Anderton, Corporate Finance Associate at Sedulo

The concept of insurance as a cover for the risk of loss has existed for centuries, with some historians tracing its roots back as far as Ancient Babylon, to cover a merchant’s shipment of goods if a ship were to sink.

Today, insurers cover a vast range of areas where customers are at risk, including travel, health, motor and property, in addition to other specialist categories. In recent times, Insurtech – the use of technology to generate a strategic advantage – has disrupted the industry and has attracted a high volume of investment from both strategic and financial sponsors. This trend looks set to continue, and we expect both strong deal flow and wider adoption to be evident in 2022.

We have worked with a selection of companies in the sector over the past year, providing both deal advisory guidance and transaction services support, in the form of business valuations for both traditional insurers and brokerages and insurtech SMEs.



How do we determine value?

Essentially, an insurance company’s value lies in the difference between the premiums earned and the claims that are paid and the returns that the company is able to generate on the investment of premium proceeds. Whereas, insurance brokers primarily drive profits based on commissions as a percentage of premiums and consultancy fees.

A discounted cash flow (DCF) method can be used to value an insurance firm. However, forecasting cash flows from the investment portfolio can be inherently complex and difficult to gauge, which in turn makes the valuation extremely sensitive to the assumptions used. As a result, this approach is often less valuable and should be supported with a market-based approach.

Where possible, one method should not be used in isolation, and it is useful to benchmark valuations against that derived under alternative methods. A market-based approach assigns value by examining the valuation of a basket of comparable companies. From the basket of comparable quoted companies and recent transactions, an appropriate multiple is derived. Typically, a multiple of EV/EBITDA is applied to adjusted EBITDA to arrive at a valuation.

For brokers, The Insurance Journal [1] reported that 2021 multiples for high performing companies have been around eight to nine times EBITDA. However, successful Insurtechs can expect higher multiples, and recent transactions have seen multiples of up to 29X. Given the high quantity of deals in this space, it is justifiable for insurance brokerages to be valued based on a comparable technique.



Why are investors willing to pay a premium for insurtechs?

Ultimately the innovation that is driving efficiency in the insurance sector is coming from software and data analytics tools. Digital platforms are reducing time consumption with regards to claims handling and policy selections and process simplification is attracting a young and growing customer market. These efficiencies are increasingly attractive to traditional parties with capability gaps, acquiring to stay competitive and in line with evolving consumer demand in the space.

The difference between a high multiple and low multiple valuations in the insurance space is driven by key performance indicators such as:

  • High growth
  • Effective technology
  • Uniquely positioned offering in the market
  • Strong cross-selling capability
  • Strong customer retention and acquisition


What can we help you with?

If you are considering issuing an EMI Scheme or growth shares and would therefore benefit from a business valuation, need an expert opinion in restructuring or shareholder disputes, need advice around a share purchase or sale, or are interested in receiving investment – we are here to offer transparent and instructive guidance based on our industry expertise.



[1] The Insurance Journal
[2] Finerva
[3] GCA Global
[4] Stout