2017 was a trail-blazing year for insurance distribution and services mergers & acquisitions (M&A) with the distribution space leading the way driven by the search for greater scale and efficiency, according to a recent Conning report.
Matt Sternat, Vice President, Insurance Research at Conning, said; “2017 global insurance distribution merger and acquisition transaction counts eclipsed both the prior year and the previous five-year average.
“Despite all-time highs in private valuations, retail agent and broker acquisitions still dominate, and private equity’s strong support of distribution acquisitions continues.”
Sternat said the trend of growth in the M&A insurance distribution space was driven by; “the desire for scale and efficiency in an expanding economy, coupled with a large supply of sellers and relatively low-cost debt.”
However, in the insurance services space, M&As transactions dropped from the prior year despite a strong technology focus, according to Conning.
“Global insurance services transactions cooled slightly in 2017,” said Steve Webersen, Head of Insurance Research at Conning.
“Technology transactions led the field, followed by claims and third-party administrators, pharmacy benefits managers, and risk management,” he said.
Webersen noted private equity’s growing presence in the property-casualty and life-health transaction space “more than two-thirds of the insurance services acquisitions were led by other insurance services companies, with financial services firms, mostly private equity, the next strongest buyer segment. As the global industry increases its focus and support for InsurTech initiatives and outsourced partnerships, we expect the services sector transaction count to remain strong for some time to come.”
A further trend impacting the M&A space was highlighted as the stronger role played by regulatory action in boosting M&A transactions in some regions while hindering them in other areas.
Numerous attempted acquisitions by Chinese buyers were aborted following heightened scrutiny by regulators in the U.S., China, and Israel, said Conning, while more stringent solvency standards in Asia and in post-Solvency II Europe led insurers to shed capital-consuming, underperforming units.
Looking ahead to 2018 Conning analysts predict property-casualty insurer M&A activity targeting specialty insurers or niche business lines, as well as life insurers carving out or running off underperforming units, will remain strong themes.
As insurers avail themselves of richer data and analytics to provide products and services in line with customers’ rising expectations, Conning expects the trend of creating insurers with a sharper focus will continue beyond 2018.
Technology is expected to spur M&A as insurers seek to gain competitive advantage by acquiring insurers and InsurTech firms with advanced capabilities rather than develop technology in-house.
However, analysts expect the scarcity value of high-value specialty targets, reflected in rich multiples associated with acquiring such targets, will be a deterrent.
