Uncertainty and risk aversion trumped other, more favorable mergers and acquisitions factors present in 2013 to drive U.S. property and casualty M&A activity to its lowest level since 2008-09.
Conning's recent "Global Insurance Mergers & Acquisitions in 2013: A Tale of Two Markets" reveals U.S. insurance M&A activity declined in volume and value from 2012 to 2013, with activity particularly weak among underwriters. The insurance-distribution and insurance-services sectors saw more robust activity, Conning says.
The report notes, "Many of the ingredients for a robust U.S. insurance M&A market were present in 2013," pointing to signs of life in the job market, recovering consumer confidence, publicly traded insurers achieving stock prices above book value for the first time in several years, attractive lending conditions and active purchasing among sophisticated private-equity investors.
Despite these factors, uncertainty muted M&A activity within the U.S. "Attractive international acquisition opportunities, reserving issues at home, changing U.S. and European statutory capital requirements and rating downgrades all had some influence on the tone of the market," the report states. "Thus, without a reasonable degree of certainty surrounding future growth prospects, inactivity in insurance M&A prevailed."
For the insurance-distribution sector, the M&A market was robust for both buyers and sellers.
Commissions increased due to more insurable exposures in a recovering economy and favorable P&C pricing trends in 2013. The health care law also drove M&A activity: "Reporting and servicing requirements resulting from the implementation of the [Affordable Care Act] are driving many smaller employee benefits brokers to seek refuge in the arms of their larger competitors," Conning says.
The most active aggregators continue to be Arthur J. Gallagher, Hub International, Confie Seguros, Assured Partners, BroadStreet Partners and Digital Insurance, each completing at least 10 acquisitions in 2013.
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