PwC: Economic uncertainty curtails insurance deal activity
Insurance-industry deals slowed in late 2022, but the outlook for 2023 isn't all bad.
Inflation and rising interest rates slowed the buying and selling of insurance businesses during the second half of 2022, according to PwC’s newly released Insurance: U.S. Deals 2023 Outlook, but the news isn’t all bad, analysts added.
“While insurance deals have declined from the record levels of 2021,” Mark Friedman, PwC’s Insurance deals practice in the U.S. said in a prepared statement, “we continue to see healthy demand from private equity for high-quality insurance brokerage and life and annuity blocks.”
The report said that for the six-month period from mid-May 2022 through mid-November 2022, there were 205 announced transactions, with $2 billion in announced deal value and no megadeals, compared to 343 announced transactions with $15.4 billion in deal value announced in the previous six-month period from mid-November 2021 through mid-May 2022.
Late 2022, however, revealed the impact of rising inflation and interest rates as deal activity slows, PwC said. There were only 29 insurance deals from the end of September through mid-November.
Some the year’s notable deals include:
- Mitsui Sumitomo Insurance Company’s agreement to acquire Transverse Insurance Group from Virgo Investment Group for $550 million.
- Blackstone Inc. and Resolution Life announced a partnership in October. Blackstone’s investment is $500 million and will help raise roughly an additional $2.5 billion in new equity capital commitments, bringing Resolution Life’s total equity capital base to more than $8 billion.
- In November, Voya announced a $570 million acquisition of Benefitfocus, Inc., a benefits administrator, demonstrating a continued interest among insurers in acquiring benefit administration capabilities that supplement their group benefit offerings.
PwC noted that deals announced late in 2022 are not yet part of its overall market analysis.
Friedman also said the insurance industry is weathering the current economic uncertainly better than many other sectors.
“While we have recently seen several high-profile announcements about workforce reductions in many sectors, the overall labor market remains strong, with unemployment at near record lows,” Friedman said in the report. “This is driving continued demand for employee benefits and many commercial lines products like workers compensation insurance. Accordingly, insurance brokerages that distribute these products have continued to experience organic revenue growth. This increased demand, coupled with premium rate increases driven by inflation, is likely to attract continued interest from prospective buyers.”
PwC analysts expect tough economic headwinds to continue into early 2023. However, private equity demand for healthy insurance businesses should remain strong, despite the fact that valuations are likely to fall in response to rising interest rates and more expensive debt. This could ultimately spur interest in continued deal activity from corporate buyers.
One final factor to continue in the insurance deal landscape: The impact of costly natural disasters on property & casualty carriers.
“Carriers in catastrophe heavy areas and companies with a large portfolio of cyber risk have indicated that incurred losses and reserve increases could be significant,” the PwC report concluded. “While we have seen these specialty insurance underwriters counteract rising claims costs with premium rate hikes, some may turn to the M&A market to sell portfolios or raise capital. The increase in specialty premium rates and related commissions will also have a favorable impact on brokers and MGAs writing specialty business.”
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