Although merger and acquisition activity slowed in 2016, that doesn't appear to be the same picture for 2017. According to the most recent report from PwC, "US Insurance Deals Insights 1H2017," M&A activity in the insurance sector more than tripled to $10 billion in the first half of 2017 compared to $2.9 billion the same time period last year.
The largest announced deal in the first half of 2017 came from the brokerage section with the acquisition of USI by an investor group that included private equity firm KKR and Canadian pension fund CDPQ. The price tag? $4.3 billion.
Two other deals in the early part of the year were also valued at more than $1 billion:
- In May of 2017, a special purpose acquisition company, CF Corporation, including funds affiliated with Blackstone and Fidelity National Financial, announced $1.8 billion acquisition of annuities and life insurer Fidelity & Guaranty Life.
- Canada's largest P&C insurer, Intact Financial, acquired specialty insurer OneBeacon from White Mountains for $1.7 billion.
Insurance brokers most active
In the property & casualty sector, deal activity declined for the first half of the year, but PwC sees opportunities for small to medium size companies to build the scale they need through continued consolidation. The report also found that insurance brokers were the most active industry section in terms of deal volume for the period, accounting for 90%. The most activity came from larger firms buying regional brokers, adding to the consolidation in the market. The five most active acquirers were Hub International, NFP, Arthur J. Gallagher, AssuredPartners and Acrisure.
PwC noted that insurers have been slower to adopt new technologies when compared with other financial services companies, including banks. The recent acquisition of UK-based Simply Business by Travelers indicates that large carriers are interested in insurtech, but they might be more willing to buy than build. Simply Business was described by Travelers as "a leading U.K. distributor of small business insurance policies, offering products online on behalf of a broad panel of carriers in its statement announcing the deal."
Divestitures, alternative capital on the horizon?
The low growth environment in the U.S. has frustrated many businesses and PwC has seen several major global insurers with significant divestitures or restructuring. For example, MetLife spun off its U.S. retail business, the new BrighthouseFinancial in August. AXA announced in May that it intends to spin off its U.S. operations in an initial public offering in 2018. PwC also notes market speculation that other large insurance companies have similar plans.
Alternative capital is still looking for investments in the insurance sector. Although insurance brokerage was the most likely subsector for private equity, firms have been entering the life & annuity market, apparently in the belief that they are better investment managers.
PwC believes that the healthy appetite for deals demonstrated in the first half of the year should continue in the second half of 2017. PwC sees insurers continuing to divest capital-intensive or underperforming businesses, and newly funded private equity-backed insurers continue to pursue U.S. insurance sector assets.
For more information, or to obtain a copy of the report, visit the PwC website.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.