Insurance sector poised for robust M&A activity in 2021

All signs are pointing to a new year rife with M&A opportunities despite the pandemic's economic fallout.

“After a year during which the U.S. insurance industry has had to grapple with the global pandemic, the severe economic downturn and other factors such as political uncertainty, insurance deal activity in 2021 will be robust due to several factors,” said Clyde & Co.’s Vikram Sidhu, partner, and Jared Wilner, senior counsel. (Photo: Shutterstock)

The COVID-19 pandemic and resulting economic fallout have done little to damper insurance mergers & acquisition (M&A) activity in 2020, according to a new analysis from S&P Global Market Intelligence.

The market intelligence platform projects the aggregate full-year deal value for insurance carrier transactions involving buyers or targets in the U.S. or Bermuda this year will slightly exceed that in 2019.

On the other hand, agency and broker activity has slowed compared to the past two record-setting years. There were 649 agency deals reported in the U.S. and Canada last year, surpassing the 643 deals closed in 2018, according to OPTIS Partners’ 2019 Year-end Merger & Acquisition Update.

Despite the slow down, S&P is confident agencies and brokers will soon make up for lost ground. With a Democratic president-elect, there may be greater urgency for potential sellers to complete deals before the year’s end, says S&P.

2020 activity at a glance

Total insurance carrier deal value reached $13.20 billion for the first nine months of 2020, an 107.6% increase from the same period in 2019, S&P reported.

(Source: S&P Global Market Intelligence)

With a few developments hanging in the balance, including reports of Zurich potentially acquiring MetLife’s home and auto insurance units, carriers’ M&A deals this year could exceed 2019′s $20.17 billion total.

(Source: S&P Global Market Intelligence)

Although agency M&A activity is currently lagging behind 2019, with significant drops in April and May amidst the pandemic, capital gains tax-related worries could influence some year-end deals, S&P reported J. Powell Brown, president and CEO of Brown & Brown, said during an October conference call.

M&A in the new year

Vikram Sidhu and Jared Wilner of Clyde & Co. LLP predict a robust year for insurance M&A activity in 2021.

“Increasing premium rates and a more optimistic outlook for most lines of business will make stronger market players more likely to look for growth opportunities through acquisitions, some of which may have been put on hold in 2020 due to the pandemic,” said Sidhu and Wilner, who serve as partner and senior counsel, respectively, in Clyde & Co.’s New York office.

Improving market conditions for insurers is also attracting more capital into the industry, which will help fund more deals, the pair told PropertyCasualty360.com. Also, as the economy stabilizes as a result of the potential dissemination of COVID-19 vaccines, insurers can then focus on long-term strategy and deal-making without the commercial uncertainty associated with the pandemic.

“In 2021, insurers will target acquisitions of InsurTech startups as a means of accessing novel technology platforms and new distribution channels; InsurTech startups will be willing to consider being acquired by or partnering with large incumbents after having experienced the uncertainties of the pandemic and due to the need to allow for exits by early investors,” noted Sidhu and Wilner.

Related: 

Recommended Stories