By James Thaler

March 14 - (The Insurer) Arch is expected to spin out subsidiary MGA McNeil & Company in a deal that could be valued at as much as $500 million.

According to four senior industry sources spanning both underwriting and broking, Arch will kick off a sales process for the business in the next two months.

Sources said that a sale of the Cortland, New York-based distribution business would represent one of a number of potential transactions involving carriers looking to divest of MGA operations to capitalise on continued strong valuation multiples for the businesses.

McNeil's current premium figures could not be confirmed, but when the MGA was acquired in 2018 Arch said it generated $154 million in premium for the carrier in 2017.

Multiple senior underwriting sources suggested that its current premium figure could be somewhere in the region of $300 million.

Assuming McNeil writes around that level premium and factoring in average industry commissions, margins and Ebitda multiples in recent transactions for distribution businesses, a deal by Arch for McNeil could value the MGA somewhere around $500 million.

McNeil has a broad array of programs, which include those covering the outdoor recreation and hospitality industry, organisations involved in preventing animal cruelty, animal shelters and welfare organizations, private ambulance and emergency transport services, and volunteer firefighter and EMS organizations.

Other programs include those focused on environmental and restoration contractors, workers comp covering the New York cannabis industry, products insuring the home medical industry, accident insurance for independent contractors, and wildland firefighting contractors.

Arch divested of its UK-based Castel Underwriting Agencies last year in a sale to Ryan Specialty for around $250 million. The MGU platform had been acquired as part of its deal to buy Lloyd’s insurer Barbican in 2019.

It also completed a $1.4 billion deal to acquire Allianz’s Midcorp and Entertainment insurance business.

Sector M&A momentum

A sale of McNeil would add to the growing momentum of M&A in the MGA space and broader insurance distribution landscape.

Ryan Specialty has been especially active in the MGA space in the last two years, having acquired Innovisk Capital Partners, US Assure, Velocity Risk Underwriters, and Ethos’ property and casualty business from Ascot in the last nine months, in addition to Castel and others.

The firm’s rival CRC Group has signalled its ambition to be an active acquirer, including in the MGA space, while Amwins has also made select acquisitions in recent years.

In the wholesale brokerage space, The Insurer reported that newly-independent CRC Group is in active talks to acquire its fellow Stone Point-backed intermediary ARC Excess & Surplus.

Last year saw a slow-down in total North American agent and broker M&A deal flow but a pick-up in large-scale transactions.

In its most recent report on the sector, Optis Partners predicted further activity in the next 12 to 24 months involving larger-scale M&A deals.

There has been a wave of major consolidation among retail firms. The Insurer broke the news last month that Arthur J Gallagher was close to a deal for Woodruff Sawyer, which was subsequently announced as a $1.2 billion transaction earlier this month.

In addition to Arthur J Gallagher’s $13.5 billion deal for AssuredPartners, The Insurer reported in December 2023 that Aon would be acquiring middle market specialist NFP and was the first to report that TIH Insurance was entertaining offers for retail intermediary McGriff.

McGriff was ultimately sold to Marsh in November in a $7.75 billion deal.

Howden also remains in active deal talks for its long-expected entry into US retail broking, with Boston-based Risk Strategies parent Accession Risk Management Group among the parties with which it is currently engaged.

A spokesperson for Arch declined to comment.