The commercial lines insurance premium finance industry offers an attractive investment opportunity for commercial banks, in particular. The asset class has a track record of consistently delivering strong risk-adjusted returns with low credit losses. In a challenging macroeconomic environment, borrowers are likely to leverage premium financing to better manage cash flow and liquidity, accelerating growth for premium finance lenders.

Two decades of industry consolidation has resulted in a limited inventory of insurance premium finance operations available for acquisition. AFCO’s recent acquisition of BankDirect has further consolidated the industry but has also given smaller players a significant opportunity to capture additional market share.

Despite liquidity challenges and macro factors, banks remain highly interested in the asset class. While we anticipate several smaller bank owned properties may be sold in this economic downturn, banks overall are buyers of this asset class.