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While macroeconomic factors caused deal volume to slow, insurance dealmaking remained active in the last 6 months, driven by 4 announced megadeals.
For the six-month period from mid-November 2023 through April 2024, there was steady activity in the insurance deals market relative to other sectors despite a decrease in insurance deal volume. Lower deal volume resulted from a slight cooling in insurance brokerage deal activity because of interest rate uncertainty.
In this period, there were 145 announced insurance transactions with over $34 billion in announced deal value. This represents a decrease in deal volume but an increase in deal value compared to 318 announced insurance transactions and $11.2 billion in deal value from mid-May 2023 through mid-November 2023.
Highlights include four announced insurance brokerage megadeals. Aon plc’s acquisition of NFP Corp. for $13.6 billion, announced on April 25, was the largest. The acquisition expands Aon’s footprint in the middle-market segment, adding P&C brokerage, benefits consulting, wealth management and retirement advisory capabilities. Additionally, in April, Arch Insurance North America agreed to acquire Allianz’s US MidCorp and Entertainment insurance businesses for $1.4 billion, which expands Arch’s presence in the middle market and includes select specialty insurance programs. The deal is expected to close in the second half of 2024.
The primary trends we’ve seen include:
- Interest rate uncertainty has impacted the insurance brokerage deal market. The relatively high cost of borrowing has changed the return profile of brokerage targets and slowed deal activity while buyers wait on the direction of the interest rate environment. Conversely, a high interest rate environment benefits carriers, who rely on spread income generated on investment portfolios to increase overall profitability.
- Private equity (PE) has growing interest in support service providers for insurance distribution, including third-party administrators (TPAs) for claims, fronting carriers, and membership model aggregators. Given longstanding deal activity in insurance distribution, the expansion into support service providers allows buyers to expand their footprint in the market.
- In the life and annuities (L&A) market, dealmaking has shifted from large acquisitions to an increase in reinsurance via alternative transaction structures. These include reinsurance into sidecars, which are largely funded by third-party capital. (Reinsurance transactions are generally excluded from the results in the chart to the right.)
Note: The primary M&A data source used in the midyear outlook is S&P Capital IQ.
How market conditions are impacting M&A strategy
The recent economic environment has generally been favorable to the insurance industry. Significant premium rate increases across P&C lines, coupled with higher spread on investments, have led to healthy profits. However, higher carrier profitability comes with rising valuations, which in some instances have led to downward pressure on M&A activity.
Of note, carriers continue to prioritize specialization, resulting in their outsourcing of underwriting niche risks to managing general agents (MGAs.) This has given the specialized MGA market a significant growth opportunity and acted as a catalyst for deals. We expect MGA deals will continue to increase, led by private equity-backed consolidators seeking underwriting expertise in products with significant growth potential. Importantly, market participants also will be able to create a more comprehensive insurance model. As a result, we anticipate correlated demand for insurance service providers such as TPAs and fronting carriers.
“The insurance industry has earned record profits over the last year. Investors have taken note by deploying more capital to the insurance sector.”
The bottom line
Thanks to higher investment yields and higher premiums, the insurance industry has recently outperformed most other sectors. Accordingly, there’s been steady activity in the insurance deals market, which shows no signs of slowing. In particular, as insurers focus on specialization and consolidators seek to create a more comprehensive insurance model, we anticipate ongoing demand for service providers such as TPAs and fronting carriers.
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