PwC: Q2 2019 saw rise in disclosed deal value, decline in deal volume

2019 has been a wildly transformative year for the insurance industry — and there’s still time left on the clock for even more change. Mergers and acquisitions have moved at breakneck speed, interest rates have reversed course, cannabis is at the top of mind for more insurers and much more.

To get a better read on the industry’s pulse, PwC examined deals in the world of insurance during the second quarter of 2019. Notably, disclosed deal value among insurance companies rose to $2.9 billion during the second quarter, fueled primarily by divestitures of non-core businesses announced by Ameriprise Financial, Wells Fargo and AmTrust Financial Services. Deals involving insurance brokers comprised more than 93% of deal volume during the second quarter.

However, deal volume declined, with transactions involving insurance brokers accounting for 119 of the 129 deals during the second quarter. Deal volume fell 22% compared with the first quarter of 2019 but was similar to the level during the second quarter of 2018. PwC expects divestitures and private equity interest will continue to prompt activity during the second half of 2019.

Related: Insurance mergers and acquisitions in first half of 2019 break record

Significant transactions

• American Family Insurance agreed to acquire Ameriprise Financial’s auto and home insurance business (AAH). The $1.05 billion deal is expected to increase the company’s scale and geographic reach while providing distribution through AAH’s relationship with Costco.
• Principal Financial Group reported the largest deal of the second quarter, announcing a $1.35 billion acquisition of Wells Fargo’s institutional retirement and trust business. The deal will help double the size of Principal’s current retirement business, and it is aimed at helping to address competitive pressures on its top line and profit margin.
• Liberty Mutual Insurance agreed to acquire the global surety and credit reinsurance operations of AmTrust Financial Services at an undisclosed value. The U.S. component of the transaction closed in June.

While the sellers freed up capital, the buyers gained opportunities to expand underwriting capabilities, generate additional scale, enter new regions and double down on existing lines of business. PwC expects that a focus on legacy business optimization will continue to drive divestitures during coming quarters.

“Although financial services tapped the brakes in deal activity, we still see many attractive opportunities, especially as industry definitions blur. The current round of payment processor deals, for example, affects banking and technology, too,” Greg Peterson, PwC’s U.S. financial services deal leader, said in a statement. “Leaders are finding ways to consolidate their areas of strength — and shed assets that no longer make strategic sense.”

Related: Why partnership is the future of insurance industry growth