E&S carriers in the M&A crosshairs? 

By David Bull

(The Insurer) - Through the long hard run the E&S sector has enjoyed in recent years, there has been limited M&A activity among carriers. Perhaps more surprisingly, there have also been very few true new balance sheet entrants, despite the attractive market conditions.

The doubling in size of the market has been accompanied by a large number of startup MGAs targeting the space, as well as the establishment of dedicated wholesale or E&S divisions by many insurers – although the majority of these had already been writers of surplus lines business.

Rather than look to grow through M&A, balance sheet businesses have focused their resources to benefit from the strong organic growth opportunities on their existing platforms.

However, heading towards the last quarter of 2025, there are signs that trade buyers are eyeing the U.S. specialty market, including E&S carriers, for inorganic opportunities.

At the same time, the opening of the IPO markets has highlighted the appetite of institutional investors and the public markets for the right kind of specialty insurance businesses.

News of Sompo’s $37.50 per share move for Aspen brought together these two dynamics.

The announced acquisition is unanimously supported by the boards of both companies, and Aspen’s long-awaited IPO three months ago.

There was a view that the level Aspen was valued at then was likely below the expectations of investment giant Apollo, which had taken it private back in 2019.

Sompo is set to pay a premium of 1.3x Aspen’s reported book value per share of $28.81 is a 25% premium to its IPO price.

At that level, the valuation is still below that which some of the sector’s best-regarded U.S. specialty-focused insurers trade at (e.g. Kinsale and RLI at more than 4x and 6x book respectively), likely reflecting Aspen’s less focused platform and turnaround story.

Of course, Aspen is not a pure-play E&S insurer. Its U.S. E&S book accounts for less than 20% of its overall written premium, with Bermuda, London and reinsurance operations also on the platform.

But the transaction so soon after its IPO demonstrates the appetite of a number of global insurers for acquiring balance sheet assets with a specialty focus.

CAPITAL TO DEPLOY

Sompo, along with its Japanese big three peers MS&AD and Tokio Marine, presents a set of circumstances that are unique compared to other potential trade buyers.

The companies are expected to pursue further international M&A as they look to deploy as much as $60 billion of capital forecast to eventually be freed up by the unwinding of cross-shareholdings.

In March this year MS&AD announced an agreement to build a 15% stake in WR Berkley, the U.S. insurer that has a strong specialty focus including dedicated E&S subsidiaries.

Analysts have predicted there will be more acquisitions to come as the Japanese insurers deploy their capital to build out areas of their international operations, including in the U.S. specialty market.

Citizens analyst Matt Carletti said that Sompo should have around $12 billion of proceeds, including funds to be allocated to its Aspen acquisition, with Tokio Marine and MS&AD each having around $24 billion to deploy.

KBW analyst Meyer Shields suggested investors will probably anticipate a few more Japanese acquisitions of small and medium-sized North American specialty insurers.

“We expect investors to focus on American Financial Group, Bowhead Specialty, Skyward Specialty and RLI,” he said.

The question is whether there will be broader appetite for M&A among global carriers and larger U.S. players, outside of the unique circumstances driving Japan’s big three.

With softening pressures in some areas of U.S. insurance, the organic opportunities look to be more limited. That could lead to more E&S carrier M&A activity as potential buyers reallocate capital to inorganic growth in a segment that is still projected to outperform the broader P&C industry.