How Private Equity Can Succeed in a Margin-Constrained Market
24 February, 2026
Six investment theses for the soft insurance market
As we enter 2026, we expect the insurance market to become more challenging for investors and underwriters alike. Private equity investors will need to be more deliberate about their investment theses and target selection and can no longer rely on the tide lifting all boats.
In this note we have identified six themes that could play out in the next twelve months and provide opportunities for investors.
Corporate and Specialty
In our CEO Agenda published in November 2025, we set out that the global specialty market is softening (prices coming down). This takes away one of the potential tailwinds for private equity investors in the sector. Investors must look harder for market segments that will move counter-cyclically, or targets that are true outperformers or ‘trend busters’, significantly reducing the potential universe of targets. Furthermore, competition from trade will increase as carriers and brokers look for inorganic growth in a challenging organic environment.
1. The continued rise of augmented underwriting
We are seeing a surge in augmented underwriting, where algorithms support human decisions through risk scoring and triage. This shift moves beyond basic automation and represents a fundamental change in the underwriting ‘workbench’, where data ingestion and predictive modelling allow for faster, more accurate risk selection than traditional methods. To find out more about this theme, see our full report, The Growth of Enhanced Underwriting in the Lloyd’s Market.
For private equity, the opportunity lies in platforms that leverage standardised data to structurally lower the expense ratio – traditionally the London Market’s Achilles’ heel. Investors should look for ‘Smart Follow’ models that can scale premium volume without a linear increase in headcount, effectively manufacturing margin through operational efficiency even when rates are flat. An established example is Ki Insurance, the digital follow syndicate, which uses algorithmic underwriting to offer instant capacity, but several other less mature examples exist.
2. Side-cars – in the driving seat
The growth of third-party capital and fee-based income is allowing carriers to reduce balance sheet requirements while creating more predictable returns. While many private equity firms prefer the fee-based income of brokers, the 2026 soft market creates attractive entry points for taking risk capital via side-cars. With valuations for some traditional carriers potentially softening, investors can ‘buy the dip’ in syndicates that have digitised their underwriting workbenches.
BlackRock’s use of reinsurance side-cars demonstrates this trend, allowing them to provide flexible capacity and earn management fees while participating in the underwriting upside without the volatility of a full carrier balance sheet.
3. MGA consolidation in Continental Europe
While the UK market is highly consolidated, Continental Europe remains fragmented and ripe for a buy-and-build strategy. The ‘hybrid’ edge involves combining traditional broking with MGA capabilities, allowing PE-backed firms to capture more of the value chain and provide bespoke products for complex risks (e.g. renewable energy, cyber, or specialty casualty) that standard carriers are currently shying away from.
A prime example of this strategy is Optio Group. By acquiring niche specialists across the continent, such as S Insurance in Scandinavia and Circles Group in Luxembourg, they have built a diversified platform that is resilient to localised market softening. By centralising back-office functions while maintaining niche underwriting expertise, they create a platform that is greater than the sum of its parts.
UK retail
The UK personal lines market is going through a period of significant change following the Aviva-Direct Line and Ageas-esure transactions in 2025. Pricing is also coming under pressure in both Motor and Home after a period of strong price increases. The uncertainty within the market can bring challenges but also opportunities. Read our 2025 Motor and Home reports for a deeper analysis of these trends.
4. Mid-size consolidation
The personal lines market is increasingly bifurcating between scale players looking to serve the mass market customers as efficiently as possible and niche players picking off customers that require something a bit different. We expect there to be a ‘squeezed middle’ of players that are not firmly enough in either of these camps. There is an opportunity for private equity to roll up these mid-tier or niche carriers to create scale and drive efficiency. In many cases there are also opportunities to strip out legacy costs and implement a unified, modern tech stack to amplify the benefits of a consolidation strategy.
The evolution of A-Plan (previously backed by HG Capital) illustrates this. By utilising a high-touch, niche-focused model alongside a significant M&A programme, they became a dominant scale player with superior distribution and operational leanness before their eventual sale to Howden.
5. Driving AI value creation – one unique data set at a time
We have moved beyond AI experimentation into functional application, where the winners are those who own unique, proprietary datasets to drive an AI-driven operating model. For private equity, the lesson is clear: invest in businesses where technology is the core engine to drive a permanent competitive advantage in loss ratios.
Avantia (backed by ECI Partners) is a leading proponent of this trend. By using over 10 billion data points and targeting an AI-driven operating model, they have achieved seven consecutive years of double-digit growth. They prove that in a data-rich environment, technology can be the primary driver of margin, not just an administrative tool.
Trade sales in focus
With the market outlook more challenging in insurance it would be reasonable to assume this is not a time to sell assets. The next few years in specialty and personal lines are unlikely to show the same level of growth we have seen. However, we believe that educated insurance sector investors will look at ‘through the cycle’ results. This is particularly the case for trade buyers.
6. Record capital strength & solvency levels
In 2026, global insurers are sitting on record cash reserves and ‘fortress’ balance sheets. These insurers are also in a soft market where organic growth is harder. The combination of excess capital and limited organic growth is likely to promote more focus on M&A options.
While selling insurance assets to other private equity backers might require an element of timing the cycle, trade buyers are far more likely to be interested in the underlying quality of the business irrespective of where we are in the cycle. Private equity investors with maturing assets should strongly consider trade buyers in the next 12-24 months.
If you would like to speak to us about how you can use these themes to develop an investment thesis, identify targets or buyers, run a buy-side or sell-side due diligence process, reach out to your Oxbow Partners contact or any member of the team.
About the authors
Paul De’Ath, Head of Market Intelligence. Prior to joining Oxbow Partners Paul spent nine years as an equity research analyst covering all aspects of insurance across the UK and Europe. He started his career as an accountant and also spent time in industry at Standard Life.
Harry Schlote, Senior Consultant. Harry is a Senior Consultant at Oxbow Partners with experience across technology, strategy, and transformation. He previously worked on defining the Underwriting strategy for a leading London Market insurer, including an in-depth capability assessment and establishing strategic workstreams to execute on the strategy. He also has supported a large-scale Transformation initiative for a global (re)insurer, outlined the (Gen)AI strategy for a top quartile Lloyd’s syndicate, and has worked on financial benchmarking for a global Bermuda-based reinsurer.
Izak Vickers, Senior Consultant. Izak has worked on technology, operations and strategy projects with personal lines insurers, global reinsurers and specialty insurers across Lloyds & the London Market. Most recently, Izak has worked with a Lloyd’s carrier to develop their Underwriting Workbench across both process design and programme delivery.