Insurance M&As drop in 2023, but expected to rise again this year

Insurance company merger and acquisition deals fell off the table in 2023, hampered by the rising cost of capital and other negative macroeconomic factors. But industry executives, analysts and others say the M&A market will bounce back this year, and most are bracing for announcements of deals they believe are already in the pipeline.

“As increases in interest rates and inflation ease, pent-up activity may drive an upsurge in deals later into 2024,” said a report from Deloitte Financial Services. “Insurance technology companies (insurtechs) remain front and center of acquisition activity as carriers increasingly look to these capabilities for point solutions across the value chain to power transformation efforts.”

Overall, insurance M&As were down 24% in the first half of 2023 from the same period in 2022, the lowest first-half tally of deals since 2020, according to Brown and Brown Insurance. The drop continued into the third quarter, with 34% fewer deals year-over-year. The total  insurance M&A deal count for 2023 was an anticipated 750 transactions, fewer than any year in the post-pandemic bubble.

Insurtechs mays see M&A activity

There is a growing consensus that the insurtech sector, which was battered by venture capital drying up, Wall Street displeasure, and exploding loss ratios, is the place to watch, at least initially, for new M&A deals. But legacy insurers may also join the game.

“I do think there is going to eventually be some consolidation on the legacy carrier side
of things,” said Bryan Davis, executive vice president and Head of VIU by HUB, a digital brokerage platform. “It’ll probably have little longer tail with some of those regional companies getting a little bit more squeezed. But it will take off once you see a lot more of those system transformations wrap up.”

Davis said he sees some opportunities for legacy company entrants into the insurance M&A arena, as well.

“Whether it be on the broker side or carrier side, I do think you're going to see, in fact, I know you're going to see some SaaS players get into managing general agent space.”

Technology needs may drive acquisitions

Davis said the need to bring an ease of technology to a “hard supply market” is what is driving the urge to merge and acquire, including within his own company.

“One, we have capital,” he says. “Two, we’re not paying claims like the carriers are, and we’ve invested in a fundamental full stack brokerage already. So you can see us looking to make acquisitions.”

He declined to identify companies he said he knows are in the insurance M&A pipeline.

Others expect to see deal activity in the insurance sector remain active in 2024.
“We continue to see a trend in specialty and small commercial lines where carriers are shifting from in-house underwriting to rely more on specialized managing general agents and managing general underwriters to drive enhanced underwriting results,” said a recent PwC report. “As a result, we have seen an increase in deal activity targeting MGAs by private equity-backed consolidators. Furthermore, we expect insurance companies to continue to focus on simplifying their portfolios by divesting assets that are deemed non-core to their strategy.”

The PwC report cites four announced insurance mega-deals since the middle of last year. The largest was Brookfield Reinsurance’s announced acquisition of American Equity Investment Life Holding Company, which valued American Equity Life at $4.3 billion. The acquisition expands Brookfield’s distribution footprint and market share in the fixed annuity space. The deal is expected to close this year. Also, National Western Life Group, Inc. announced the signing of a definitive merger agreement with S. USA Life Insurance Company, an affiliate of Prosperity Life Group, which values National Western Life at $1.9 billion.

Travelers deal may signal future

More recently, Davis points to Travelers agreement to acquire cyber MGA Corvus Insurance in a $435 million deal that was closed last month as indicative of what’s to come.

“We have forged a strong strategic partnership with the talented team at Corvus over the past year,” said Alan Schnitzer, Chairman and Chief Executive Officer of Travelers. “With a proven platform and deep cyber underwriting and risk management expertise, Corvus brings to Travelers important cyber capabilities.”

Corvus has developed an industry-leading suite of integrated cyber sales, underwriting, service and support capabilities, Travelers said. Through its platform, Corvus effectively identifies vulnerabilities throughout the policy period to reduce customers’ exposure to cyber events. Corvus’ platform also delivers distribution efficiencies to insurance agents and brokers.

“Now why would Travelers buy a brokerage,” Davis asked. “I mean, they're already an independent writing company. But they picked up on some of the trends we’re seeing. It's about choice and neutrality, particularly choice. And so, the more they can bring a brokerage choice
closer to the consumer it’s good for the customer. Now, I don’t think Travelers is really neutral. Do you really think it wants to sell Progressive? No. But they understand the importance of
choice playing out with the customer.”

Truist recently announced it agreed to sell a 20% stake in Truist Insurance Holdings, Inc., a subsidiary of Truist, for $1.95 billion to private equity firm Stone Point Capital. Truist Insurance Holdings, Inc. is the sixth-largest insurance brokerage in the U.S..

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].