New M&A trends in the global insurance market in 2024
Deloitte presented the New Trends in Insurance M&A study on new M&A trends in the insurance market for 2024-2025, focusing on how economic, regulatory and strategic factors could shape the future of the market.
Problems with the banking system and rising interest rates accompanied a decline in interest in insurance mergers and acquisitions last year. But when interest rates resume their trend and sellers become more accommodating, the M&A market stabilizes, contributing to increased interest in new transactions.
What events should M&A participants pay attention to in 2024?
Slowing sales in the life insurance and annuity market, combined with the problem of premium outflows, means that insurers need to think about how they can maintain their market share.
However, more insurers may be moving away from L&A products in favor of sales through investment management and wealth management.
Public insurers may decide to sell parts of their businesses to reduce the financial impact caused by the new accounting standards, which are called “long-term target improvements.”
These new rules are likely to affect how companies account for long-term insurance contracts. By selling these parts of their businesses, companies could manage their finances more efficiently under the new rules.
This situation could create an opportunity for other market participants to acquire these parts of the insurance business at lower prices, potentially offering good economic returns or a chance to increase their presence in the life insurance market, Deloitte said.
Some life insurance companies offer pension portfolio buyouts or pension risk transfers, taking over the management of the longevity risk associated with other companies’ defined benefit pension plans.
The resulting mix of assets can make insurers more attractive for acquisitions.
The number of M&A deals in the global mergers and acquisitions market achieved moderate growth in the first quarter of 2024 compared to the same period last year, according to data from the Quarterly M&A Deal Performance Monitor by insurance broker WTW.
The data shows that during the first quarter of 2024, there were 166 deals worth more than $100 million each worldwide. This compares with 150 deals in the same period in 2023, representing an 11% increase in volume.
After four consecutive quarters of decline, the volume of large M&A deals (over $1 billion) may also stabilize. With 34 major deals completed in the first quarter of 2024, this is the second consecutive quarterly increase, following 33 deals completed in the fourth quarter of 2023 and 32 in the previous quarter.
In addition, five mega deals (over $10 billion) were closed in the first quarter of 2024, compared to just one in the first three months of 2023.
Property insurance market
Turning to the property and casualty (P&C) market, property casualty losses are on the rise. This may prompt some companies to seek new capacity in the reinsurance market, while others will wait for high interest rates. There is also the possibility that some insurers will leave the market altogether.
This trend is of particular concern because if climate-related risks become more severe and frequent, insurers may face additional capital requirements from regulators.
Regulatory pressures may require even more consolidation in the insurance industry as insurers look to strengthen their balance sheets and strategically decide where to do business in the future as they adapt to growing risks and financial demands.
Private equity investors are looking for new opportunities in the insurance market
As the insurance market moves away from certain risk classes, some insurers are expected to offer more creative, flexible solutions tailored to specific risk profiles. This could attract the interest of private equity investors looking for new opportunities that have little capital and carry less risk than traditional types of insurance.
According to a study by ACORD Carrier Mergers & Acquisitions, only 52% of the largest M&A deals in the insurance market over the past decade were successful and created long-term value for the companies.
The new study is based on nearly 15,000 M&A transactions, focusing on publicly disclosed transactions valued at $1 billion or more. The amount of transactions was almost 290 billion dollars, which is more than a third of the value of all M&A transactions of insurance market participants in the world.
According to the published results, medium-sized deals were more effective than the largest or smallest deals studied in the insurance market.
Insurers must carefully consider their ability to manage existing operations without disruption while effectively integratingor the benefits they hoped to gain from the operation.
Overall, property insurers achieved above-average returns following M&A transactions in all four categories, with 70% of P&C deals creating value during the analysis period. Diversification was the most common deal objective among P&C insurers, but was less successful in other areas of the business.
Insurance brokers
Reinsurance and insurance brokers are likely to remain a highly competitive market, with private equity firms and corporate buyers actively competing to acquire small and mid-sized brokers.
Analysts at Deloitte believe the market will remain competitive as private equity battles corporate buyers looking to grow through M&A with brokerages in the market.
Many private equity investors will likely continue to incorporate smaller brokerages. Large brokerage groups will likely continue to look for where they can consolidate and expand their portfolio in the market.
Future regulatory changes will reshape the insurance M&A landscape
Upcoming regulatory changes and economic optimism could significantly alter the insurance mergers and acquisitions (M&A) landscape in 2024.
New rules can change the market. As the economy develops, the insurance M&A market is poised to rebound in 2024 as more buyers lose interest in the insurance market. Either way, investors will likely look to underwriters and brokers, with innovation and competitive differentiation becoming more important to that end.