Carrier mergers and acquisitions could reach historic levels in 2021 based on early indications from a robust first quarter, according to a new Standard & Poor’s report.
U.S. and Bermuda-based acquirers or acquisition targets achieved an aggregate deal value of nearly $21.2 billion, the S&P Global Market Intelligence report found. That result exceeded the full year tallies from 2019 ($19.6 billion) and 2020 ($19.4 billion).
Early data suggests insurance carrier M&A activity could double for all of 2021 compared to previous years to more than $40 billion, and the report suggests it “could mark one of the strongest years in the last quarter century.”
Two companies could shape that final 2021 deal value number: The Hartford and AIG.
Chubb made a failed $23 billion takeover offer for The Hartford, in March, but industry observers expect the insurer to remain an enticing target. The S&P report notes that The Hartford’s future independence is in doubt, and its acquisition could spike the M&A deal-making total considerably higher.
Another factor that could push the insurance industry M&A deal total even higher: When and how AIG plans to separate its life and retirement business. Potential options include an initial public offering, but the insurer has signaled it is open to a private sale of a nearly 20 percent stake in the business.
If The Hartford is sold and AIG finds a partner to invest in its life and retirement business, S&P said aggregate M&A deal value could surpass $71.6 billion – a level surpassed twice in the last 24 years with inflation factored in.
P/C Versus Life
Deal value for the life, annuity, accident and health insurance sector in 2021 could hit between $29 billion and $32 billion, depending on whether AIG’s plans to sell part of its life and retirement business go through. This is a high point life insurance hasn’t reached since 2001, S&P noted, when AIG beat out Prudential to acquire American General.
On the other hand, deal value for P/C carrier transactions are as low as they’ve been for a first quarter since 2013, S&P said, hitting at just $923.5 million. S&P predicts P/C deal value for the year will ultimately hit around $10.5 billion. This figure factors in median inflation-adjusted activity for the final three quarters of the previous 10 years added to the Q1 total. That number will surpass $38.9 billion, S&P said, if The Hartford is sold, “at a price that approximates the tangible book multiples that ACE Ltd. agreed to pay in its 2016 acquisition of Chubb Corp…”
There’s at least one factor that could affect the ultimate M&A deal value for carriers: Biden increasing the corporate tax rate from 21 percent to 28 percent as proposed.
“Anticipation that a Biden administration and a Democratic Congress would raise the top individual tax bracket led to a surge of broker/agency deal making in December 2020,” the S&P report notes. “Whether history repeats itself in 2021 may ultimately depend on the contents, timing and legislative manifestation of those ideas.”
Source: S&P Global Market Intelligence