New Presidential Nominee, Same Questions

As if there isn’t enough happening in the insurance brokerage world amid hardening rates, a volatile stock market, and extreme weather, now Vice President Kamala Harris’s nomination as the Democratic presidential candidate has added more drama to an already dramatic year.

Financial analysts and political pundits had laid out the possible tax implications for individuals, businesses, and the overall economy of the campaign pitting President Joe Biden against former President Donald Trump. Now they must consider how that might change after Biden withdrew from the race and Harris took over as her party’s flag bearer.

Squarely in the middle of the table are concerns around Biden’s proposed capital gains tax increases and the pending expiration of key elements of Trump’s Tax Cuts and Jobs Act (TCJA) of 2017.

Much of the analysis of Harris’s positioning on taxes dates to her previous presidential candidacy in the 2020 primaries. Harris is labeled as more progressive than Biden, based on her record as California’s attorney general and then a U.S. senator. Since officially being nominated for president on Aug. 5, Harris has yet to outline a specific tax strategy, but her proposed fiscal policies from 2020 are close to the 2025 budget originally proposed by the Biden-Harris administration, with subtle differences.

Harris supported raising the income tax rate on the top 1% of earners from 37% to 39.5%. But she had proposed returning the federal corporate income tax rate from its post-TCJA 21% to 35%, versus the Biden-Harris FY 2025 proposed rate of 28%. Harris also supported taxing capital gains as ordinary income tax but had not specified whether that would only be for high earners or all earners. (The Biden-Harris FY 2025 budget specifies this would apply only to those making $1 million or more.)

Trump has vowed to make the TCJA’s tax changes permanent. In 2017, as a senator, Harris voted against the TCJA and has been on record suggesting repealing the law for the highest 1% of earners and large corporations. However, as a Democratic presidential candidate in 2020, she supported Biden’s current concept of protecting households making $400,000 or less from any tax hikes in 2025—essentially 98% of American taxpayers and beneficiaries of the TCJA.

Of course, all of these tax-reform scenarios are highly dependent on the results of the House and Senate races—both of which are projected to be close in the Nov. 5 General Election.

For many firm owners, the rest of 2024 could be an inflection point as they consider the impact of any tax changes on the sale of their business and their personal net gain. Just as in 2021, when a record number of firms sold believing that they might be negatively impacted by a potential federal capital gains tax increase in 2022, owners may ramp up their timelines to get ahead of any possible tax changes in 2025. While most firms aspire to remain independent, the concern about valuation could push some to explore their options in the M&A marketplace.

M&A MARKET UPDATE

As of July 31, 2024, there were 371 announced M&A transactions in the United States. Activity through July trended higher than in the same period of 2023, during which 338 transactions were announced.

Private capital-backed buyers accounted for 280 of the 371 transactions (75.5%) through July. This represents a substantial increase since 2019 when private capital-backed buyers accounted for 59.3% of all transactions.

Independent agencies were buyers in 48 deals during the first seven months of 2024, representing 12.9% of the market; that was a slight decrease from 2023, when independent agency acquisitions represented 15.6% of the market. Transactions in which banks were buyers continued to fall, from 18 in 2022 to nine in 2023—an all-time low. So far in 2024, bank buyers have completed three acquisitions.

The top 10 buyers through July accounted for 53.1% of all announced transactions, while the top three (BroadStreet Partners, Inszone Insurance, and Hub International) represented 28.3% of the 371 deals.

NOTABLE TRANSACTIONS

July 10: Monarch E&S Insurance Services, a division of Specialty Program Group, acquired the assets of Commercial Sector Insurance Brokers (CSIB), an E&S wholesale broker based in Birmingham, Alabama. Specialty Program Group is a specialty division of Hub International. CSIB specializes in contract binding, the mining industry, and coastal property placements. This acquisition includes CSIB’s contract binding division, which handles risks such as contractors, lessors’ risk, and hospitality. The integration of CSIB will enable Monarch E&S to offer a more comprehensive contract binding solution nationwide and expand its service offerings, particularly in the mining sector.

July 18: IMA Financial Group announced the acquisition of Michigan-based FC Underwriters and its four divisions (Grand River Insurance Agency, Grand River Services, Stone Falls Insurance, and Bridge Excess Solutions) as its newest strategic partner. FC Underwriters, a managing general agent (MGA) with a specialty in small- to medium-sized businesses, will join Eydent Insurance Services, an IMA company focused on providing commercial property and casualty alternative risk solutions. The acquisition aligns with IMA’s strategy to expand its program administration capabilities and further solidify its commitment to industry-specific risk solutions.

August 2: NSM Insurance Group acquired GIG Insurance Group (GIG) and Gifford Wells Insurance (GWI). GIG, based in Fort Lauderdale, Florida, is a leading MGA in the community association management liability and lawyers’ professional liability markets, while GWI specializes in professional liability insurance for various professionals, including lawyers, CPAs, doctors, and engineers. The acquisition strengthens NSM’s presence in the directors and officers (D&O) liability and crime insurance sectors and provides opportunities for cross-selling with NSM’s existing niche insurance programs.