How Longer Private Equity Holding Periods May Lower Your Insurance Expense

The combination of market uncertainty, elevated interest rates, and persistently high valuation multiples can have the effect of extending an investment’s holding period. The average holding period for U.S. and Canadian private equity investments in 2023 increased to its highest level since 2000; 7.1 years [1]. While not an optimal environment, this does open new risk management strategies for portfolio companies.

During times of shorter holding periods, the risk management strategy tends to favor structures that provide predictable expenses and frictionless exits. To be sure, owners will opt for a fixed-cost (no deductible) insurance structure that is more expensive than a high-deductible structure that has lower premiums but is subject to less predictable variable expenses and insurer collateral requirements. A projected holding period longer than five years could change this calculus.

The longer period allows a business to enjoy lower fixed costs while also establishing a more predictable pattern of variable claims expense. High deductible plans and captive insurance programs are back on the table. The M&A professionals at AssuredPartners appreciate the landscape facing private equity business owners and seek out the opportunities they provide.

For more insights on managing insurance expenses in the private equity industry, reach out to AssuredPartners' M&A professionals.

[1] Karl Angelo Vidal, Annie Sabater, Explore S&P Global, “Private equity buyout funds show longest holding periods in 2 decades”, November 22, 2023, S&P Global.