Mergers and acquisitions (M&A) activity in the insurance sector shows no signs of slowing over the next 12 months. Given the optimistic forecast, executives should evaluate market opportunities that can safeguard future enterprise value now. Discover the insurance M&A trends and drivers that can help identify profitable moves and shape M&A strategies to ride the wave of growth in 2022.
After a record-breaking year, conditions for insurance M&A continue to evolve in 2022 as inflation and interest rates shift. Our midyear update presents five trends and drivers to consider in the months ahead.
Is the insurance M&A market on course for further correction from its historical high? At the beginning of the year, inflation and interest rates were on the radar of both strategic and financial buyers. At that point, we expected inflation to be transitory, and while the Federal Reserve (the “Fed”) may soon increase interest rates to control inflation, expectations at the top of the year were that any increase would be measured. Conditions for the insurance M&A environment have shifted rapidly in the first half of 2022, and the future remains uncertain. If the start of the year is any indication, M&A volume in 2022 is expected to hit a low point compared to outlooks of the recent past. So far, the number of deals year-to-date has decreased by approximately 30%.
In this dynamic market, the execution of transactions is more challenging—increasing financing costs, stock market volatility, and a multitude of other factors. However, our advice to management teams? Stick with your M&A strategy. While there may be opportunities to acquire entities at favorable prices—or enter new alliances—it’s hard to ignore the economic elephant in the room. That is, of course, how long will investor confidence hold in the face of the increasing speculation surrounding a near-term economic downturn, and who will emerge winners from a potential recession.
Download our full report to explore the trends and drivers to stay ahead of in the second half of 2022: macroeconomic factors and their impacts, portfolio repositioning, private equity activity, digital acceleration, and M&A strategy resets.
Total deal volume across underwriters and brokers increased 40% year over year (YoY) through December 31, 2021—869 deals versus 620 in 2020. Aggregate deal value climbed 165% YoY—$57.5 billion in 2021 compared to $21.6 billion in 2020.
2021 deal volume at the underwriter level increased a modest 3% YoY (67 deals in 2021 versus 65 in 2020). But aggregate deal value jumped 164% YoY, from $17.6 billion to $46.5 billion. 2021 average deal value, meanwhile, cracked the billion-dollar threshold: it grew 121% YoY, from $841 million in 2020 to $1.9 billion.
The life and annuity (L&A) sector led the underwriter field in number of 2021 M&A deals, as sustained low interest rates hobbled profitability of interest-rate-sensitive products and numerous insurers pursued inorganic sources of growth. Through December 31, L&A nearly doubled its YoY total, from 13 to 24 transactions. It also recorded the biggest increase in aggregate deal value—up 234% YoY, from $7.3 billion to $24.5 billion. Average deal value climbed 100% YoY, from $1.2 billion to $2.5 billion.
Meanwhile, the property and casualty (P&C) sector experienced a 17% decrease in deal volume YoY, which is likely due to the current rate-hardening environment and a demand-supply imbalance arising from a lack of attractive acquisition targets. But decreased volume didn’t get in the way of P&C posting a substantial 114% increase YoY in aggregate deal value—climbing from $10.3 billion to $22 billion—and topping L&A in average deal value, at 114% YoY.
The broker sector bounced back from a 2020 dip in transaction volume to record a 45% YoY increase (802 deals as of December 31, compared with 555 in 2020). Brokers’ aggregate and average deal value increased 170% and 136%, respectively.
Read more about 2021’s mergers and acquisitions activity in the insurance sector across underwriting, life and health, property and casualty, insurance brokers, and InsurTech—and see our full insurance M&A outlook for 2022.
2020 and 2021 deal metrics set several records, and signs point to 2022 being another strong year. Strategic investors have ample available capital, the stock market appears to be supportive, and there are few anticipated economic, regulatory, or tax headwinds. Cross-border M&A should also contribute to 2022 deal totals, particularly in specialty insurance segments. Potential insurance industry M&A impediments—and these likely are not deal-breakers—are high valuations and a demand-supply imbalance for sought-after products and capabilities.
Insurance finance executives responding to Deloitte’s 2021 global outlook survey expect more active M&A in 2022, with over one-third anticipating heightened takeover activity to be very likely. The appetite appears to be stronger on the L&A side, with 44% of respondents citing increased dealmaking as very likely, versus non-life at 32%. Expanding geographic reach was the top motivating factor across respondents, followed by increasing scale and adding new technology capabilities.
How can growth-minded insurance organizations extend their ride on the insurance M&A wave? As part of their strategic M&A planning process, executives should consider how to address the following trends. Download the full outlook to explore all the important insights.
Moving forward on 2022 insurance M&A opportunitiesThe deal marketplace is replete with abundant capital and willing buyers for asset classes that provide a rate of return commensurate with the risk, even though the competition for high-value targets may be fierce and inflationary concerns may complicate the valuation process. Both factors are likely to drive up prices—potential buyers in 2022 should be prepared to write a big check relative to the opportunity.
As insurance executives continue to examine how M&A can help safeguard future enterprise value by establishing more resilience in what they do today, it offers them ways to strategically consider options to extend, expand, and move into new markets.
If you’d like to talk more about insurance M&A activity and how your organization can thrive in 2022, let’s set up a conversation. And visit our Insurance industry page for broader industry insights, analysis, and resources.