Overview – why a cold 2023 talent market looks set to thaw in Q4
The Executive Search market as a whole is emerging from a period of slumber. The sector was distinctly cold in Q1 and little better in Q2, but Q3 has been much better and the outlook for Q4 is good. Our insurance team and other parts of our organisation – we as well as some of our competitors – are anticipating a livelier 2024.
Looking at the economics of the insurance market one might have expected 2023 to be a blockbuster for Search with insurers and brokers alike turning in excellent results. Logic suggests that this releases capital to make investments in key individuals who will drive company growth, and thereby help to grow the market. However, this is has not happened and the questions are ‘why not?’, and why we believe this will change going forward.
Insurers are enjoying a hard market that (with the exception of some lines including D&O and Cyber) still has some way to go. Esteemed individuals say this will continue into next year if not beyond. So what is deterring them from investing in talent? The first thing is that there are just as many risks to insure, they are just attracting larger premiums. This explains the lack of immediate need to build out teams.
Also, while there is some movement between insurers, that movement has been slow in most classes – with the notable exception of Marine – and there is no panicked need to backfill. There may also be a feeling that we are coming to the top of the cycle and that rates will weaken before long. Good investment returns are also hard to achieve and the spectre of recession remains. Perhaps insurers have simply decided it’s best to preserve capital and enjoy the moment.
The story is different in broking where a number of factors are impacting the market. Certainly, year on year growth approaching 10% suggests a buoyant market but there are reasons why this has not converted into a buoyant talent market. The first is that 2021 and 2022 saw extremely optimistically high hiring. The numbers of new hires into the large brokerages are staggering, and many of these people have yet to deliver. A number have yet to arrive.
Then there is the possible top of the market and the need to continue growth. This means brokers are aware of the need to keep a grip on costs. Another factor is margin. A company with a good margin is more attractive to investors because it is seen as efficient and well run, so brokers who don’t deliver on margin in a public company have to keep tightening their belts.
Another factor is the Covid hangover. With no client entertaining and business travel during lockdowns, brokerages could invest in headcount. With these costs returning, there is less liquidity.
Finally, private equity continues to make a significant impact on hiring. The large influxes of new capital have led to very large numbers of acquisitions. Brokers are effectively buying companies and getting new people through this process rather than through selective recruitment. As this PE works its way through the system and the acquisition carrousel slows, strategic hiring will return. We expect this to occur through Q4 and into next year.
Insurer – Marine still dominates the talent market
Q3 saw the usual senior moves between the big industry names. Taking those reported at the Insurance Insider as a proxy for the industry, we’re seeing key senior talent leaving Allianz, Liberty, Amlin, Chubb and Axis while Arch, Sompo, Berkshire Hathaway, Hardy and Sirius Point have all achieved net senior talent gains.
At Sheffield Haworth, we are seeing increased activity in the MGA sector. Investment capital is there, and we are working with a handful of new players looking to build out Specialty lines.
However, as has been the case for a year now, the big story is still Marine. As we seem to say each quarter, the merry-go-round must stop soon. But the sector remains interesting to insurers and the number of underwriter moves in this sector dwarfs all others.
Certainly, profitability has returned and there is growth potential as business that left the London market as a part of the Lloyd’s Decile 10 initiative returns. The class has also benefitted from Additional War Premiums, but still the number of moves in the sector seems extraordinary.
Other sectors seeing activity are Financial Lines, Property and Energy.
Looking at all hires (not just senior hires) at the 10 largest Syndicates and Company insurers, LinkedIn data suggests that Syndicates have not yet shifted gear towards increased hiring, but that the Companies market has firmed a little. (We must remember that LinkedIn data lags resignations by 3-6 months.)
Broker – hiring boost likely in early 2024
The top stories of the quarter most likely to impact the sector must be:
- Lucy Clarke’s move from Marsh to WTW and how she will develop the Specialty teams there when she arrives
- The fresh capital coming into Ardonagh from Markerstudy
- The fresh investment coming into BMS from Eurazeo
Acquisitions of smaller brokers will no doubt be part of the game plan but there’s a feeling in Search that expansion plans will begin to turn more towards strategic hiring and be less about acquisition.
The underlying figures, showing all staff movements, confirm our view that brokers are not going to be building out their teams until the new year.
As in previous quarters, activity in the largest 3 brokers remains muted.
InsurTech – bright spots in a calmer market
This sector’s remarkable growth in 2021 is increasingly being seen as an anomaly for a sector that has been growing at a more steady pace since. We know that investment is down and investors have become more circumspect. Valuations have dropped and the market has corrected. We are also keenly aware of Vestoo’s bankruptcy.
But there are bright spots. This was well articulated in a FinTLV report. In brief, where companies can show:
- Strong fundamentals and a pathway to profitability
- Differentiated offerings
- Solutions addressing the needs of incumbent insurers
- Companies bringing value to a specific sector
the investment revenue is available. We are still seeing investment in the sector and the more robust players are hiring.
One of the particular bright spots is Cyber Insurance where InsurTechs have stormed the SME sector. The total market is growing at 18% a year and these tech companies have established themselves as sector leaders.
Established insurance entities are also becoming increasingly aware that they need to expand their data and data science teams. As outlined in the Financial Services Skills Commission (FSSC) Report 2023, they are looking to bring more technical skills in house.