Brochure / report title goes here| Section title goes hereContents
Overview and 2017 review1
2018 Outlook 7
Insurance M&A drivers and trends for 2018 8
Moving forward on 2018 insurance M&A opportunities18
2018 Insurance M&A outlook | The deal landscape continues to evolveAt the end of 2016, we correctly projected that 2017 insurance
merger and acquisition (M&A) activity would start slowly but gain
speed in the year’s second half. Indeed, the number of insurer
transactions announced during the second half of 2017 increased
signifcantly—50 percent over the frst half. The increase in broker
transactions was a notable 25 percent. Seven deals valued at
$1 billion or more were announced—the same number as all of
2016. Both aggregate deal volume and value for insurer deals were
down from 2016, 13 and 32 percent, respectively. This was the
product of fewer large deals, with no announced deals reaching the
$5 billion threshold.1
What’s noteworthy about 2016 and 2017 is an evolving industry and
M&A landscape that is setting the stage for a positive deal-making
environment in 2018. Investor and consumer confdence is high; the
US and global economies are improving in a synchronized manner;
US tax reform has been signed into law; interest rates are moving
in the right direction; organic growth remains elusive; and available
capital remains at an all-time high. And while sources of uncertainty
remain, they are not currently impeding M&A activity in a material
way. Given these conditions, we expect 2018 deal volume and value
to be largely consistent with 2016 and 2017. And although we don’t
anticipate any blockbuster deals along the lines of the ACE/Chubb
transaction, we could see numerous smaller deals ($1 billion to
$3 billion) as well as a handful of $5+ billion deals as companies look
to utilize M&A to achieve their strategic objectives.
This report looks back at 2017 and examines 2018 key trends to help
insurance executives pinpoint M&A drivers and challenges, and plan
their strategy accordingly.
Overview and 2017 review
2017 in review
Investor uncertainty leading up to and following the 2016 US election
seemed to signifcantly restrain M&A through the frst half of 2017
as insurers waited to see how policy and the economy would play
out under the Trump administration and Republican-led Congress.
Improved insurer stock prices as well as a scarcity of acquisition
targets were additional factors that may have put a damper on the
M&A market.2
July proved to be a noteworthy infection point and the pace of M&A
picked up. Despite the second-half surge, the number of insurance
underwriter deals fell by 13 percent (from 97 to 84) YOY compared
to 2016. Aggregate deal value was down even more—32 percent
(from $21.7 billion to $14.8 billion). Average deal value increased 11
percent, from $380 million in 2016 to $422 million in 2017 (fgure
1).3 Brokerage deal volume set a new record with 537 recorded
transactions and a 53 percent increase in average deal value.
Aggregate brokerage deal value was down, however, due to fewer
$1+ billion transactions versus 2016.
Figure 1. Insurance sector M&A activity, 2016-2017
Number of dealsAggregate deal valueAverage deal value
20162017YOY change20162017YOY change20162017YOY change
Underwriters9784(13%)$21.7b$14.8b(32%)$380m$422m11%
L&H273115%$4.1b$6.6b61%$291m$505m74%
P&C7053(24%)$17.6b$8.2b(53%)$409m$372m(9%)
Brokers45753718%$7.3b$5.4b(26%)$127m$194m53%
Total55462112%$29.0b$20.2b(30%)
Source: Deloitte analysis utilizing SNL Financial M&A database
2018 Insurance M&A outlook | The deal landscape continues to evolveIn terms of aggregate value and volume, insurance M&A in 2017
remained largely consistent with most years since the fnancial crisis,
with the exception of 2015. Most of 2017’s transactions were on the
smaller side, with only two exceeding $2.5 billion in value. One of the
year’s biggest deals took place in the insurance broker space, when
private equity (PE) frm KKR and Canadian pension fund Caisse de
dépt et placement du Québec acquired USI Insurance Services for
$4.3 billion.4 Other notable deals included Assurant’s acquisition
of The Warranty Group for $2.5 billion;5 CF Corporation’s $1.8
billion acquisition of Fidelity & Guaranty Life;6 and Canada’s Intact
Financial Corporation‘s $1.7 billion purchase of US specialty insurer
OneBeacon Insurance Group. Notably, two deals in the frst month
of 2018—AIG’s announced purchase of Validus Holdings Ltd. for
$5.56 billion7 and Lincoln Financial Group’s announced acquisition
of Liberty Life Assurance Company of Boston for about $3.3 billion
from Liberty Mutual8—have enabled the industry to match the total
number of $2.5+ billion deals for all of 2017.
Which factors and trends infuenced industry M&A—for better or
worse—in 2017
An increase in uncertainty dampened investor confdence
early in the year. Lack of clarity about the direction of regulatory
change, prolonged uncertainty around tax and health care reform,
global geopolitical unrest, and general uneasiness about the
implications of November 2016 election results on the economy
and fscal and monetary policy made companies more cautious
about engaging in M&A during 2017’s frst half.
Foreign buyers remained largely sidelined, especially the
Chinese. While Chinese companies remained active shoppers in
2017, increasing deal scrutiny by US and Chinese regulators made
it more difcult to construct and close deals than in previous years,
a situation that is likely to persist in 2018.
New forms of institutional capital emerged. Sovereign wealth
funds, pension funds, and newly created closed-block (run-of)
specialists that have materially lower cost of capital began to make
their presence known as buyers in the US insurance space.
New types of noncontrol investors emerged. Wealthy
individual investors, PE frms, and venture capital (VC) funds,
sometimes working individually and sometimes as an investor
consortium, emerged prominently as willing providers
of capital—but without the need to obtain operational control of
the target.
The efciency of global capital deployment continued to
improve. Relevant to insurance and across industries, the global
low yield environment combined with the widespread availability of
information and the improved means to deploy capital globally to
its highest use made it less likely to have “lazy” capital languishing
on balance sheets.
InsurTech minority investments and acquisitions
continued to increase in strategic signifcance, if not
deal value. Insurance companies, PE frms, and VC funds
continued to strategize about how to buy, partner, or invest in
digital technologies—with the primary goal of enhancing the
performance of their core businesses.
Valuations were viewed as rich. Insurance companies were
more fully valued in 2017 than in 2016. While richer valuations
are good news for sellers, they also may make it more difcult to
demonstrate to an acquiring company’s board of directors that an
acceptable ROI is feasible.
The US dollar declined in value by approximately 10 percent
versus a basket of foreign currencies, efectively lowering
prices for non-US buyers. A decrease in the value of the dollar
relative to select foreign currencies increased the attractiveness of
US insurance properties as potential acquisition targets.。。。