Mergers and acquisitions in the insurance sector: anticipating a resurge in 2024

After a record-breaking year in 2021, insurance M&A activity saw a significant decline in the second half of 2022, which continued into 2023. This decline was primarily attributed to ongoing economic uncertainty and pressures from private equity (PE) sectors. However, the insurance sector demonstrated resilience compared to the broader deals slowdown observed in other sectors.

In the first half of 2023, the insurance sector witnessed considerable activity, with 194 announced transactions representing over $7 billion in deal value. This was a notable change from the previous six-month period, which had 263 transactions but a lower total deal value of $2 billion. The decline in transaction volumes was largely driven by lower-value insurance brokerage transactions.

There were several mega deals in the insurance sector in 2023. Notable examples include:

• Stone Point Capital LLC's 20% acquisition of Truist Insurance Holdings Inc. for $1.95 billion.
• Brookfield Reinsurance Ltd.'s acquisition of Argo Group International Holdings, Ltd. for $1.1 billion.
• RenaissanceRe Holdings, Ltd.'s $3 billion deal to acquire American International Group, Inc.’s treaty reinsurance business, including Validus Reinsurance Ltd​

The landscape of mergers and acquisitions (M&A) in the insurance sector is showing signs of a resurgence as we approach 2024. This anticipated increase in activity is influenced by various factors and trends, which are crucial to understand for anyone involved in or impacted by these developments.

Key factors influencing M&A activity

Global Risks and Insurance Industry's Role

The escalating frequency and severity of global risks, ranging from climate change to cybercrime, have intensified the focus on the insurance industry's capacity and readiness to react. Insurers are shifting towards a more proactive approach in preventing losses, requiring advancements in technology and changes in company culture.

Economic Factors and Tech Adoption

The decline in M&A activity since Q2 2022 has been attributed to macroeconomic factors. However, as interest rates and inflation stabilize, pent-up activity is expected to drive a resurgence in deals from late 2023 into 2024. Particularly noteworthy is the role of insurance technology companies (InsurTechs), which are increasingly targeted for acquisitions as carriers seek to integrate new technologies.

Resilience of Insurance M&A

Despite the overall slowdown in deal-making across various sectors, insurance M&A has remained resilient. Notably, there were significant insurance deal activities noted from late 2022 through early 2023, with major deals indicating a continued demand for insurance distribution assets and a focus on scaling property and casualty platforms.

Emerging Trends and Opportunities

The rise of generative AI has led many companies to prioritize deals that add tech capabilities, particularly in AI. Small to midsize M&A deals are also increasing as valuations reset. Additionally, private equity firms, with a record amount of dry powder, are expected to spur M&A opportunities in the near future. Cross-border M&A deals are gaining popularity for growth-focused companies,

Strategic Approaches to M&A

There was a notable focus on acquiring companies with advanced technological capabilities, particularly in AI and digital solutions. Smaller to midsize M&A deals were on the rise as valuations reset. Additionally, the industry saw a growing trend in cross-border M&A deals, driven by companies seeking growth opportunities.

Companies considering acquisitions are advised to target specific growth themes and boundary conditions that reflect a comprehensive self-assessment. This strategy is essential for identifying where a company can add value to targets and where M&A is needed to deliver its strategy. 

The M&A activity in the insurance sector during 2023 demonstrated a dynamic and resilient market, influenced by various economic and strategic factors. Here's a detailed overview of the key aspects of this activity.

Private Equity Involvement

Private equity buyers showed continued interest in insurance distribution assets, as evidenced by significant transactions like the Stone Point Capital deal. This trend reflects the steady stream of cash flows that insurance distribution assets can provide.

Outlook for 2024

The insurance M&A landscape in 2023 was characterized by resilience in the face of economic challenges, a focus on strategic growth through technology and digital transformation, and an active involvement of private equity in significant deals. The year's activities reflected a sector adapting to new market realities and positioning itself for future growth and competitiveness.

Insurers focused on transactions that aligned with their strategic goals, such as expanding digital capabilities, enhancing customer-centric approaches, and scaling operations in specific insurance lines. M&A was increasingly seen as a tool to adapt to changing market conditions and customer needs.

For instance, a personal lines property and casualty (P&C) carrier might focus on acquiring components of an integrated, direct-to-consumer platform to accelerate growth and support international expansion.

As we move towards 2024, the insurance sector's M&A activity is expected to grow steadily. The industry's shift towards customer-centricity, the integration of advanced technologies, and the focus on sustainability are likely to be significant drivers in this resurgence. Companies and investors in the insurance sector should stay informed of these trends and strategically plan their M&A activities to capitalize on the emerging opportunities.