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AssuredPartners positioned to handle 'either end' of economic cycle, CEO says

➤ AssuredPartners is tracking escalating valuations for businesses, but has the ability to "go downstream" when it comes to M&A.

➤ The company sees the need for insurers to hike premium rates in certain areas and thinks it is in a position to advocate for those increases.

AssuredPartners Inc. saw its private equity backing change hands, but revert to a familiar place when original investor GTCR LLC struck a deal to purchase a controlling stake in the company from Apax Partners LLP. GTCR co-founded Assured in 2011 before selling its stake to Apax in 2015.

Jim Henderson, AssuredPartners' chairman and CEO, expects the brokerage to benefit from the new-but-old partnership. The company plans to maintain its pace of growth toward the goal of breaking into the top 10 brokers, Henderson said after the deal was announced. AssuredPartners' annual revenues are about $1.2 billion; Henderson wants that to rise to $1.5 billion.

During an interview with S&P Global Market Intelligence, Henderson discussed the P&C marketplace, the overall deal environment and why he thinks it is important for AssuredPartners to become one of the largest brokerages in the world. The following is an edited transcript of his remarks.

S&P Global Market Intelligence: Will the GTCR return investment change anything for AssuredPartners' growth strategy?

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Jim Henderson, chairman and CEO of AssuredPartners

Source: AssuredPartners

Jim Henderson: It doesn't, because they know us.

We feel like we can continue at our pace. There is no re-acclimation to our gameplan needed. We're very pleased with the progress we made with Apax. We invested in a number of initiatives to build out a very good operating company and will continue to do that.

GTCR has the same understanding and commitment as we invest in people, technology and new agencies. There's a very deep understanding on the M&A side about what we're looking for, what really fits our crosshairs when it comes to valuation and implementation and so forth.

Deals in the broker space have really picked up in recent years. Are you concerned about valuation?

Yes they have escalated, and yes we are [concerned]. But we've built a company that we feel like can go downstream into the smaller deals that don't have the double-digit price tags. We've built a company that can integrate those effectively.

We've made more than 240 transactions. That's under $5 million per transaction. If you take [Keenan & Associates Inc.] as one of the larger deals, the median would be less than that.

That's really the crosshairs of the middle-market agency distribution system out there. There's an ample supply of those. They are not as easy to acquire, but delivering value to them, where we and they both win, takes a unique company. We are built around doing that and building verticals to deliver value to small agencies in communities north of 100,000 to 150,000 in population.

Any worries about the economic cycle turning and how it might affect your strategy, or do you think you can maintain what you have been doing through a downturn?

We feel like we can. Several of us have been in this business for four-plus cycles. For me it's 40 years.

In the underwriting cycle, for the best of brokers, it presents opportunities for them. In the economic cycle as well, you've got companies that are more astute about looking at their [insurance and risk] programs. We feel very good in either end of the cycle. The cycle could impact the value of the agencies themselves, frankly, in a helpful way to us.

There could also be rising interest rates. There is an impact but ... we've hedged around that issue. It may impact private equity's play in this market. It certainly would increase the cost of capital that they and we would deploy.

What is your outlook on the insurance space as a whole and where do you fit in?

We are seeing carriers needing some rate relief for their underwriting, and we have to go out and help tell that story about getting additional premium on their behalf. I think we are well positioned to do that. We don't take that lightly, to go out there and take an increase in a renewal. We want to be well prepared about options and communication to the buyer. But we try to help them understand that the market does need rate out there, and they likely are better off where they are as opposed to going some place they don't know as well as the company they are already with.

Why is it so important to be among the largest insurance brokerages?

Size is important when it comes to having the capabilities to go out and make a difference for clients. The larger ones are better equipped with knowledge, with products and understanding the business.

For example, look at employee benefits. Today it's big data, pharmacy carve-outs. It's health practices. It's no longer a spreadsheet game between Blue Cross Blue Shield, Aetna Inc. and Prudential Financial Inc. It's a totally new ballgame, and it's really a fee-based value-delivered [business].