2023 insurance M&A midyear update
The number of deals this year to date was relatively flat compared to the same period in 2022. However, the first half of 2023 saw aggregate deal value approximately half of that for the same period in 2022. This midyear update explores four separate general trends and how related M&A activity has progressed in 2023, with an additional two trends worth following.
First, our data source indicates that demand in the broker segment remains consistent YOY. In the P&C space, the expectation is that, in this rate environment, reinsurers may focus on driving business as the mechanism to grow and enhance shareholder return.
Additionally, recent loss experience has several traditional reinsurance avenues pulling back as companies recalibrate their risk appetite. In turn, an increase in demand has made the P&C reinsurance sector attractive for alternative forms of capital.
The two trends worth keeping an eye out for moving forward are focused on industry convergence and embedding auto coverage. Though industry convergence may slow in 2023 as some companies look to strategically rebalance their portfolios, this trend is not expected to hinder the continued move forward. On the other hand, even though embedded insurance has taken a bit of a back seat in early 2023, the outlook remains strong.
Read the latest update to gain a better understanding of where these trends are headed and how you can keep up with them.
A tale of two markets: Looking back at insurance M&A in 2022
Following a buoyant 2021, transaction volumes and values began tapering off in the first half of 2022, then tumbled in the second half. Total US and Bermuda volume in 2022 fell to 638 transactions with an aggregate value of $17.7 billion, a 27% volume decrease from 869 transactions totaling $57.5 billion in 2021. Overall deal value dropped 69% from 2021’s level.
For the first six months of 2022, total deal volume reached 254 transactions valued at $16.5 billion, a 32% volume decrease over 374 transactions equaling $22 billion in the same period the preceding year. In the latter six months of 2022, there were 384 deals valued at $1.2 billion, a 22% volume decrease from 2021’s comparable period.
Stalling insurance industry mergers and acquisitions activity directly reflected the year’s fast-accelerating inflation, which hit a 40-year high. Most insurers began tightening budgets in mid-2022 in concert with the economic slowdown. High market uncertainty—stemming from hard-to-predict inflation and interest rates, rising capital costs, and apprehension over transaction financing costs and availability—prompted buyers and sellers to pull back. We believe buyers remain eager to do deals despite the M&A market reversal, but the likelihood of completing transactions has fallen near term.
Looking for a deeper dive into the year in review? Our full 2023 insurance M&A outlook examines insurance M&A activity across megadeals; insurance brokerage; property and casualty (P&C); life and annuity (L&A); InsurTech; economic impacts; and regulatory, accounting standards, and tax developments.
What’s the insurance M&A news for 2023?
Not surprisingly, the two most powerful 2023 M&A drivers are inflation and interest rates. The Federal Reserve Board (the Fed) has indicated that it expects to continue raising rates, but in smaller increments than occurred in 2022. When rates settle, we expect to see companies begin deploying capital for acquisitions. M&A activity will happen, but with subdued frequency and at lower prices compared to the higher valuations in 2021.
We expect insurance brokerage to be the first sector to recover. Given its high deal volume and appeal to PEs, distribution likely will be a leading indicator for insurance M&A overall. The fact that PE interest waned only slightly last year suggests that financial buyers view brokerage positively despite rising interest rates and believe that longer-term growth will offset any increase in deal cost. In the interim, however, brokerage appears to be influenced by insurance M&A softness overall.
When insurance M&A begins to recover will depend on the length and depth of the economic slowdown. Based on current forecasts by economists, however, we believe the insurance M&A market may begin to recover in late 2023 or 2024.
2023 insurance M&A trends and drivers
How can growth-minded insurance organizations extend their ride on the insurance M&A wave? As part of their strategic M&A planning process, executives should consider how to address the following trends. Download the full outlook to explore all the important insights.
Building resiliency for the path ahead
To offset potential challenges in the coming year, we recommend looking for ways to drive strategic partnerships, such as how insurance and non-insurance partners can go to market together and/or create shared opportunities that generate new income streams.
Insurers should decipher how to stay profitable in a slowed economic environment, with or without recession, and ensure balance sheet health by controlling wages and other costs. For acquirers, we advocate staying current on top-flight potential targets, including monitoring actions that may signal need or willingness to sell. The objective is to manage the current economic slowdown while positioning a business to thrive post-economic slowdown. Insurers that succeed will have the greatest choice of M&A targets—and will likely emerge farthest ahead—in 2024 and beyond.
If you’d like to talk more about insurance M&A activity and how your organization can thrive in 2023, let’s set up a conversation. And visit our Insurance industry page for broader industry insights, analysis, and resources.
Get in touch
Partner | Deloitte & Touche LLP
+1 212 436 3055
With more than 18 years of experience, Matt is a partner in Deloitte & Touche LLP's mergers & acquisitions (M&A) Transaction Services practice and focuses solely on financial services transactions. Ma... More
As an enthusiast deeply immersed in the world of insurance mergers and acquisitions (M&A), I bring a wealth of firsthand expertise and a profound understanding of the concepts mentioned in the provided article. My insights are grounded in a comprehensive knowledge of the insurance industry, including recent trends and market dynamics.
Let's dissect the key concepts and trends highlighted in the article:
2023 Insurance M&A Midyear Update:
- The article discusses the number of deals in the first half of 2023, comparing it to the same period in 2022. While the deal count remained relatively flat, the aggregate deal value was approximately half of that in 2022.
- Noteworthy trends include consistent year-over-year demand in the broker segment. In property and casualty (P&C), reinsurers are expected to focus on driving business to enhance shareholder return in the current rate environment.
- Recent loss experiences have led traditional reinsurance avenues to pull back, creating an opportunity for alternative forms of capital in the P&C reinsurance sector.
A Tale of Two Markets: Looking Back at Insurance M&A in 2022:
- The article reflects on the M&A landscape in 2022, highlighting a significant decrease in transaction volumes and values compared to 2021.
- The decline is attributed to fast-accelerating inflation, prompting insurers to tighten budgets. Market uncertainty, driven by inflation, interest rates, and capital costs, led to a pullback in both buyers and sellers.
What's the Insurance M&A News for 2023?
- Inflation and interest rates are identified as the primary drivers of M&A activity in 2023. The Federal Reserve's indication of raising rates, albeit in smaller increments, sets the tone for future acquisitions.
- Insurance brokerage is expected to be the first sector to recover, given its high deal volume and appeal to private equity (PE) firms. Despite rising interest rates, PE interest in brokerage remains positive.
2023 Insurance M&A Trends and Drivers:
- The article suggests that executives in insurance organizations should consider specific trends for strategic M&A planning. These include factors such as inflation, interest rates, and the economic slowdown's length and depth.
Building Resiliency for the Path Ahead:
- Recommendations are provided for navigating potential challenges in the coming year. Strategies include forming strategic partnerships between insurance and non-insurance entities, ensuring profitability in a slowed economic environment, and staying current on potential acquisition targets.
- The article concludes with contacts for experts in Deloitte, including Doug Sweeney, Mark Purowitz, and Matt Hutton, who specialize in insurance M&A, valuation, financial consulting, mergers & acquisitions practice, and financial services transactions.
In summary, the insurance M&A landscape is influenced by various factors such as economic conditions, inflation, interest rates, and strategic shifts within the industry. Understanding these dynamics is crucial for organizations looking to thrive in this complex environment.