Insurance M&A deals rebounded from COVID-19 challenges in the second half of 2020. The trend should continue well into 2021 as companies unload non-core assets and purse cost-effective advancements in technology, PwC said in a new report.
The firm noted 222 announced transactions from the end of June through mid-November worth nearly $11 billion in total. Among one of the more noteworthy deals: Allstate’s $3.7 billion acquisition of National General Holdings Corp.
The report also tracked life insurance acquisitions, including Great-West Lifeco’s acquisition of MassMutual’s retirement services business.
Expectations are that the M&A trend will continue into 2021 as carriers divest non-core business and compete for distribution targets, PwC said in its report. Another driver: the hardening of specialty P&C markets and “significant levels of deployable capital.”
Low interest rates are a key element that PwC said will keep the M&A train running strong.
“A ‘lower for longer’ interest rate environment will continue to put pressure on investment returns and profits, especially for carriers managing capital intensive segments or blocks of business,” PwC said. “As these companies re-assess their core portfolios, we expect further divestitures, particularly within the life and annuity sub-sector.”
The InsurTech Factor
Beyond divesting non-core assets, carriers are increasingly seeking to digitize their operations. Rather than do it themselves, acquiring an InsurTech is a viable option that will fuel another leg of M&A activity in the months ahead, according to PwC.
“Opportunities in innovation InsurTech continues to present attractive investment and acquisition targets for large insurance companies, particularly for those without the technological expertise or agility to develop their own digital platforms,” PwC said.
PwC noted “significant investment” in InsurTech companies in the 2020 third quarter, which it said pointed to strong demand for both M&A and ownership stakes in the sector.
InsurTechs have other options too – particularly the IPO market, which PwC said will be an option for the sector too, continuing a trend by Duck Creek Technologies and others.
PwC’s full report is “Insurance deals insights: 2021 outlook.”