Global merger and acquisition (M&A) activity remained robust through 2021, with 418 completed deals in the insurance sector, up from 407 in 2020.
- Largely due to lingering economic uncertainties, activity involving insurance underwriters slowed in the first quarter of 2022 with a total of 30 deals at an aggregate value of US$12.09 billion compared to 46 transactions at a combined value of US$22.72 billion in the first quarter of 2021.
- Deal volume involving insurance agents and brokers, however, rose to 427 in the first half of 2022
- A 16% increase over the same period last year and 13% above the first-half five-year average, as brokers looked beyond traditional M&A targets.
- Going into 2023, insurers should be strategic in deciding which markets, products, and customers will be most beneficial to target and reposition portfolios to unlock and redeploy capital
Aggregators and PE firms continue to be some of the most active players as brokers tend to be easier to acquire, scale up, and sell in comparison to blocks of insurance business.
Consolidation was highest among small-and middle-market players in the highly competitive market, commonly with low bargaining power when dealing with insurers and less talent to support diverse market needs.
Going forward, instability and uncertainty in the global economic and political landscape is expected to drive the volume of cross-border deals lower, making 2022 forecasts more challenging to predict.
Persistent high inflation this year is pressuring nonlife insurer profitability, which may prompt more carriers to expand via M&A into nonstandard lines. In that same vein, M&A prospects will likely continue to include managing general agents (MGAs), which are being pursued by both PE investors and strategic players, as an MGA generally experiences margin accretion and has deeper reach into the insurance ecosystem.
In the life insurance segment, players across all regions are expected to continue to divest noncore books of business to redirect funds and bridge gaps in core product offerings or upgrade technology capabilities.
Moreover, volatile markets are prompting sales of market-linked assets such as variable annuities. Prudential sold a US$31 billion block of legacy variable annuities to Fortitude Re for US$2.2 billion to help derisk its portfolio.
PE-backed aggregators are increasingly investing in life insurer businesses to grow their assets under management. For example, since July 2021, Blackstone announced the US$2.8 billion acquisition of Allstate’s life insurance unit, as well as a strategic partnership with American International Group (AIG) for a 9.9% equity stake in its life and retirement business for US$2.2 billion.
Despite a slowdown in investment, InsurTechs are likely to remain sought-after as investment vehicles, partners, and for acquisitions.
Life insurers challenged by legacy technologies may look to acquire or align with InsurTech companies to accelerate digitization.
In April 2022, Munich Re US agreed to acquire Clareto, a medical record retrieval company to optimize life insurance underwriting.
Going into 2023, insurers should be strategic in deciding which markets, products, and customers will be most beneficial to target and reposition portfolios to unlock and redeploy capital, particularly in the turbulent economic environment.
In addition to pure acquisitions or divestures, inorganic growth will potentially include other forms of alliances.
For example, as digitization shifts from “nice to have” to “must have,” insurers still challenged with implementation may consider partnerships and acquisitions outside of insurance to create a platform for their solutions.
This may align with new or renewed interest by adjacent financial services and technology giants with data analytics capabilities to partner with insurance incumbents and extend or expand their presence in the marketplace.