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PE firms to drive strong insurance M&A activity in 2022

Deloitte says private equity firms have an estimated $2.5trn ready to be invested in insurance M&A opportunities

Deloitte predicts an active year for M&A activity in the US and Bermuda due to ample available capital, a supportive stock market and few anticipated economic, regulatory or tax headwinds

Insurance sector merger and acquisition (M&A) activity in the US and Bermuda is expected to be strong this year as a result of ample available capital, a supportive stock market and few anticipated economic, regulatory or tax headwinds, consultancy Deloitte has predicted. 

Private equity firms, which have been buying businesses in anticipation of increasing valuations, are expected to drive more deals into the second half of the year, Deloitte said. 

“The recent property/casualty [P&C] sector rate hardening has sharpened private equity interest in pursuing select opportunities in the commercial P&C sector, particularly the specialty segment, as it is expected to experience the biggest uptick in pricing,” Deloitte said. “This is likely to drive this space at a pace we have not seen previously, although it is unclear how this may change if interest rates go up.”

Last year P&C aggregate deal value increased 114% year-on-year from $10.3bn to $22bn, even though transaction volume decreased 17%. Deloitte said this is most likely due to the current rate hardening environment and a demand-supply imbalance stemming from a lack of attractive acquisition targets.

The P&C markets specifically offer opportunities for growth in several areas that could spark meaningful merger and acquisition activity into 2022, Deloitte said. 

Private equity firms have an estimated $2.5trn ready to be invested in insurance M&A opportunities, which some private equity companies view as a more reliable investment than other, more volatile financial service sectors.

Managing general agents are also seen as attractive targets for private equity firm as they generally experience better margin accretion and have a deeper reach into the insurance ecosystem. One such example of a deal that went public was Hagerty’s acquisition by Alden Financial in a $3bn transaction.

Another driving force for M&A activity during 2022, according to Deloitte, will be the continuing popularity of the mutual holding company structure, which creates more options for capital deployment and strategic expansion.

Deloitte said high valuations and a demand-supply imbalance for sought-after products and capabilities, could act as impediments to M&A, but added they are not likely to be deal-breakers.

Deloitte predicted little will change for broker M&A activity from year to year as many will continue to acquire other brokers to build to scale and keep up with other companies.

Deloitte said sector consolidation, particularly in the lower and middle aggregation market up to $200m, would be a trend to watch this year.

Driving activity is private equity firms’ attraction to insurance broker M&As because the acquisitions are easier to sell compared with blocks of insurance businesses.

In 2021 there were 802 broker transactions in the US and Bermuda, according to Deloitte's analysis, which represented a 45% year-on-year increase compared. The aggregate deal value was up 170% to $10.9bn, which exceeded the 10-year average.


Looking ahead, Deloitte said the challenge for company leaders is figuring out which markets they want to be in and which customers they wish to target.

“If a company can rid its portfolio of underperforming or non-essential assets, unlock and redeploy the capital and obtain higher returns from alternative investments, its leaders will do a deal,” Deloitte said.

“P&C insurers with an expanding strategic appetite for fee-based businesses and technology-enabled plays may contemplate M&A in adjacencies to improve their balance sheets and strengthen core competencies.”

The consultancy added that despite “historical inertia”, insurance companies may need to redesign their operating models to take full advantage of newly streamlined and prioritised portfolios.

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