The Future of Insurance from 2025

by Rod Giess

Private equity investors are neither strangers to risk nor to the intricate world of insurance. In fact, their history is punctuated by landmark, high-stakes deals—none more iconic for its time than KKR’s leveraged buyout of RJR Nabisco, a deal that, while outside of insurance, became the very blueprint for the debt-fueled, aggressive takeovers of the 1980s. That era was defined by firms piling immense debt onto acquired companies, a risky strategy that either produced spectacular returns or dramatic failures.

Decades later, the private equity playbook has undergone a fundamental transformation. While PE investors maintain a ferocious appetite for risk, today’s deals are built on a different model, relying much less on the massive debt that defined that earlier era.

Instead, many modern private equity firms are deploying deals with significantly more equity than their predecessors, a move that introduces greater stability to the model. This refined strategy is now targeting a risky yet promising segment of the insurance sector – nonstandard insurance – where fragmentation and the need for operational expertise offer a new frontier for value creation.

A common way for PE investors to gain entry into the nonstandard insurance segment is through Managing General Agents, or MGAs. These operators have less intensive balance sheets than the major carriers and give PE investors a back door in without having to build from the ground up. In this market realm, there are also delegated Underwriting Authority Enterprises (DUAEs), which have been granted underwriting power by insurance carriers.

A significant investment trend is reshaping the insurance landscape, as private equity firms are deploying increasing amounts of capital into DUAEs, a segment that includes MGAs that are active in nonstandard insurance. These entities, which often focus on niche or complex risks, are attracting billions in investment and have become a primary target for private capital.

While PE has evolved over the years, so too have DUAEs. They are much more stable today than they were several decades ago, when many were considered questionable operators. Today, they are more institutionalized, with greater management teams, expertise, risk management capabilities, and liquidity than before, making them a more attractive option for PE investors, according to Acrisure’s Adrian Jones cited by AM Best.

The sector is also highly fragmented, with a wide array of smaller, regional players. This provides private equity firms with a blueprint to consolidate the market, leverage operational expertise to improve efficiency, and implement emerging technologies to drive profitability.

According to an early 2025 analysis by AM Best, the premiums generated by DUAEs reached a staggering $81.4 billion in 2023, representing a nearly 15% increase from the previous year. This robust growth has helped fuel dramatic increases in valuations for these enterprises. In late 2023, major DUAE Amwins Group secured a $1 billion recapitalization transaction with its backers, an impressive lineup that extended to Dragoneer Investment Group, Genstar Capital and SkyKnight Capital, underscoring the massive scale of private equity capital being committed to this market.

In the same AM Best report, Acrisure’s Jones likened the relationship between PE and DUAEs to a couple of entities “building great ships together.” He further explained, “It’s not just, ‘Let’s go buy a small MGA or two and hope that it does well.’ The bigger players are trying to build great big ships by putting smaller DUAEs onto platforms and growing organically, as well as by acquisition.”

At their core, DUAEs offer a compelling investment thesis. They are generally asset-light businesses that provide high margins, steady cash flow and recurring revenue streams through their commissions and fees. Besides, things are looking up, at least for U.S. nonstandard auto insurance providers.

After two straight years of suffering losses, green shoots of profitability have begun to emerge. According to the latest data from AM Best, nonstandard auto providers in the credit rating firm’s coverage universe produced underwriting revenue of $13 million in H1 2024, a substantial reversal from a steep $457 million loss in the year-ago period.

While the market outlook is favorable, the industry is not without its challenges. DUAEs face headwinds such as capacity constraints, execution risk and recent turmoil in the fronting market, which can impact their ability to secure the necessary backing from carriers.

Nevertheless, AM Best maintains a “positive outlook” for the global DUAE segment, citing the industry’s increasing sophistication in leveraging proprietary technology and specialized expertise to develop tailored solutions for complex insurance risk. Private equity’s role extends beyond capital injections and is transforming the operational core of these underwriting businesses, making them a more influential force in the insurance world.