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Insurance M&A deals keep rolling in

Posted On: Mar. 2, 2021 7:00 AM CST


Mergers and acquisitions activity in the insurance sector was strong in 2020 despite COVID-19 and is expected to remain robust in 2021 as rising commercial insurance rates bolster earnings, making insurers attractive targets, and “deployable capital” remains abundant, analysts and others say.

Insurance technology investing has also grown, they said. 

Some in the industry were “surprised at how much deal activity there ended up being last year,” despite the interruption to markets in the spring due to the coronavirus pandemic, said Vikram Sidhu, New York-based partner at law firm Clyde & Co.

Deal advisors expected COVID-19 to chill deal activity, but 2020 proved to be a busy M&A year for the sector globally, he said.

Similarly, deal activity in the broker sector paused only briefly, said John Marra, a deals partner with PricewaterhouseCoopers LLP in New York.

“The distribution space continues to be very attractive,” he said. Broker M&A “saw a bit of a pause in the second quarter last year as those businesses were focusing on themselves and how to adapt to working from home,” and other manifestations of the pandemic.

The total of 407 mergers and acquisitions completed worldwide in the insurance sector in 2020 was down slightly from 419 the previous year, according to a late February report from Clyde & Co. The number of deals completed in the second half of 2020 was slightly higher than the first half with 206 deals compared with 201.

Although “deal activity in the insurance sector slowed in the spring of 2020,” it came “roaring back in the second half of the year,” PwC said in a late January deals report. “We expect strong M&A activity to continue as we head into 2021,” buoyed by “the hardening of specialty (property/casualty) markets and significant levels of deployable capital.”

As the insurance industry sees increased rates, buyers in search of returns in a low interest rate environment may be more attracted to the sector, said J. Paul Newsome Jr., Chicago-based managing director at investment brokerage Piper Sandler Cos.

The low interest rate environment also contributes to the availability of capital, which combined with the search for returns, helps drive M&A activity, he said.

On the other hand, rising rates and premiums could blunt M&A activity as insurers focus on organic growth as opposed to growth via acquisition, said Meyer Shields, Baltimore-based managing director at Keefe, Bruyette & Woods Inc.

“There are enough opportunities for growth that companies are not looking for more complicated growth available through acquisition,” which carries integration and reserve risks, he said. 

Technology investing also continues to grow in the insurance sector.

Investors are “very solidly coming in” to the insurtech space, said Mr. Sidhu of Clyde and Co. The sector has seen significant investment over the past five to seven years, he said.  

Major investment activity in the insurtech sector last year included Aon PLC’s purchase of Coverwallet Inc. for an undisclosed sum and Duck Creek Technologies Inc.’s successful initial public offering, which raised $405 million and valued the company at about $5.2 billion. In addition, “multiple investments” into U.S. start-up insurer Hippo Enterprises Inc. propelled its valuation to more than $1 billion, according to the report by Clyde & Co.

KBW’s Mr. Shields said that while insurtech deals have largely been smaller thus far, “we’re starting to see some very prominent insurtech companies with, in many cases, very impressive valuations.”