Deloitte: Insurance M&A Developments to Watch in 2024

Join us for an insightful discussion about the evolving dynamics of insurance mergers and acquisitions for 2024, driven by economic and regulatory changes

In this deep dive, we speak to Barry Chen and Mark Purowitz, both Principals at Deloitte Consulting, LLP, about anticipated trends in insurance mergers and acquisitions for 2024, focusing on how economic, regulatory, and strategic factors might shape the future.

"Banking woes and rising interest rates accompanied a dip in insurance mergers and acquisitions last year. But as interest rates settle and sellers make peace with the passing of pandemic-era valuations, some of the variability around valuations seems poised to stabilize, encouraging an uptick in transaction interest," say Chen and Purowitz.

So, what developments should dealmakers keep an eye on in 2024?

"Let’s start with life and annuity (L&A). A slowdown in premium sales, paired with a premium outflow issue, means insurers should think about how they reposition themselves. Some may go on the offensive to acquire some scale

"However, more insurers may shed L&A products in favour of selling through investment management and wealth management."

Strategic Shifts in the Insurance Landscape

Public insurance companies might choose to sell off parts of their business (divestitures) to reduce the financial impact caused by new accounting standards called "long-duration targeted improvements." These new rules likely affect how companies account for long-term insurance contracts. By selling off these parts of their business, and these companies might manage their finances more effectively under the new rules. Consequently, this situation could present an opportunity for other entities to buy these portions of the insurance business (blocks of Life and Annuity, or L&A business) at lower prices, potentially offering good economic returns or a chance to increase their market presence.

"In addition, some L&A companies have been offering pension buyouts or pension risk transfers, taking over the management of longevity risk associated with other companies’ defined benefit pension plans. The resulting asset mix may make these insurers more attractive for acquisition.

"Turning to the property and casualty (P&C) market, property catastrophe rates have been going up. That may prompt some companies to look for scale in the reinsurance market while others decide to reap the rewards of the high-rate interest environment. There’s also the chance that some will exit the market altogether."

This trend is particularly concerning as, if climate-related perils become more severe and frequent, P&C insurers may face additional capital requirements from regulators. This regulatory pressure could necessitate even further consolidation in the industry as insurers seek to strengthen their balance sheets and strategically decide where to do business in the future, adapting to the escalating risks and financial demands.

"As the broader market pulls away from certain risk classes, expect some carriers with creative, flexible solutions tailored to specific risk profiles. This may draw interest from private equity investors looking for opportunities that are capital light and bring less risk than traditional lines."

Competitive Dynamics and Regulatory Influences

What about insurance brokers? The insurance brokerage market is likely to remain fiercely competitive, with private equity firms and corporate buyers actively vying for acquisitions.

"Expect the market to stay competitive as private equity goes head-to-head with corporate buyers looking to grow through M&A with brokerages in the middle market," says Barry Chen and Mark Purowitz.

"Many private equity investors will likely continue to aggregate smaller brokerages. Meanwhile, large brokerage houses will likely continue to see where they can consolidate and expand their footprint in the middle market."

Upcoming changes in regulations and economic optimism could significantly reshape the landscape for mergers and acquisitions (M&A) in the insurance industry in 2024.

"New regulations may change the M&A calculation. If proposed federal standards for fiduciary advice are adopted this year, life insurance companies may be encouraged to revisit the value of an independent sales force that can give advice across a range of products," they comment.

"With the economy looking up, the insurance M&A market is poised for a revival in 2024 as more buyers come off the sidelines. Either way, investors will likely look for insurers to get back to a narrative of growth, with innovation and competitive differentiation increasingly important in achieving that goal."


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