PwC sees big increase in US insurance sector M&A in late 2020, with more in 2021

Insurance deal activity in the US insurance sector has bounced back to near pre-Covid levels, according to a report, Insurance deals insights: 2021 outlook, from PwC in the US. It says that while insurance dealmaking in the US sector slowed in the spring of 2020, the second half of the year saw a big increase in deals. From the end of June to mid-November 2020, there were 222 announced transactions, with $10.9bn in announced deal value. PwC says that standouts included KKR’s acquisition for Global Atlantic for $4.0bn, Allstate’s acquisition of National General Holdings for $3.7bn, and Great-West Lifeco’s acquisition of MassMutual’s retirement services business. “We expect strong M&A activity to continue as we head into 2021, driven by divestitures of non-core businesses, continued competition for distribution targets, the hardening of specialty P&C markets and significant levels of deployable capital,” states PwC. On the property and casualty (P&C) side, M&A was driven by the hardening rate environment in P&C specialty lines, the report states. “During the second half of 2020, capital from private equity, new entrants and corporate investors entered the market through acquisition and startups to take advantage of it. We expect this will continue with increased interest in acquisitions of specialty brokers, managing general agents and managing general underwriters as investors looking to capitalise on sectors experiencing rising rates… We continue to expect new players to enter the reinsurance market, keen on deploying available capital and finding targets that can deliver value,” it notes. According to PwC, distribution deals have driven the majority of insurance M&A volume for the last few years. “While some transactions are focused on expanding insurers’ distribution base, others expand expertise in distribution channels or products not currently a core competency of the acquirer. We expect the current trends to continue into 2021 with significant competition for targets as private equity and corporates look for opportunities to deploy capital in the sector. We expect distribution deals to dominate the sector’s announced transaction volumes in the coming year,” the report notes. The report also highlights the “lower for longer” interest rate environment, which it says will continue to put pressure on investment returns and profits: “As these companies reassess their core portfolios, we expect further divestitures, particularly within the life and annuity sub-sector… A number of firms may be actively pursuing opportunities to exit their non-core businesses through restructurings, divestitures and other deal activity.” Finally, the report expects to see M&A activity related to insurtech companies. “We’ve seen significant investment in insurtech companies in the third quarter of 2020, signalling strong demand in the sector. In addition to M&A and private capital raises, we expect insurtech companies to access capital markets through IPOs. We expect activity to continue to build in the insurtech space as competition forces insurance companies to adapt to the technological landscape and differentiate their product offerings to meet consumer demands,” the report says.

PwC sees big increase in US insurance sector M&A in late 2020, with more in 2021

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