Guy Carpenter says there were 22 announced and closed transactions for the 2011 first half, at a deal value of close to $3.4 billion. The pace is on track to match 2009 and 2010.

The broker says there were 15 other transactions announced early this year that have not been closed. If those deals were closed it would add an additional $1.8 billion to the 2011 total.

According to Highline Data's M&A Weekly, among the largest deals announced by insurers were:

• Intact Financial Corp.'s acquisition of AXA's Canadian operations for around $2.7 billion.
• Zurich Financial Services acquisition of Banco Santander S.A. insurance business for $1.67 billion.
• Allstate Corp. acquisition of Esurance and Answer Financial from White Mountain for $700 million.

Highline Data is owned by Summit Business Media Co., which also owns National Underwriter and PC360.

Guy Carpenter cited two reasons for the subdued M&A market.

The combination of economic growth and equity-market rise last year and early this year led to higher insurance-company valuation, says Guy Carpenter. While stocks were still on the upside, they were used as acquisition currency with the increase in equity values.

The second reason for the subdued M&A environment is recent economic developments that include the European debt crisis and continued high unemployment and debt situation in the United States that place “continued strain on the current macroeconomic environment.”

Over the next 12 months, M&A activity in the P&C sector will be affected by Solvency II regulatory changes in Europe. Companies will focus on cleaning up their balance sheets, focusing on non-core reinsurance and insurance operations through alternative M&A transactions, such as runoff sales.

With reinsurers' budgets for catastrophes exhausted by the first-half run of natural disasters this year, another major catastrophe could prove to be the “tipping point from earnings event to capital event,” which would cause rates to increase.

“A hardening of the market would likely change insurers' focus away from growth via acquisition and back to organic growth,” Guy Carpenter says.

Mutuals are receiving downward pressure on their financial-strength ratings, giving them difficulty on both “the capital raising and divestiture fronts.”

While not predicting what direction M&A activity will take in the coming months for P&C companies, Guy Carpenter says the current volatility in the financial markets “has reinforced the cautious mood in the sector.”

“A key factor in determining future M&A activity will be whether the recent financial volatility is a temporary blip or confirmation of a double-dip recession,” Guy Carpenter says.