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Insurance: Deals 2022 midyear outlook

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Insurance dealmaking slows down in the first half of 2022

After an active year of dealmaking in 2021, insurance deal activity cooled off near the end of the year and in early 2022 amid geopolitical instability, rising interest rates and inflation. For the six-month period from mid-November through mid-May, there were 343 announced transactions, with $15.4 billion in announced deal value and two megadeals. This compares to 476 announced transactions and $31.4 billion in deal value in the previous six-month period, representing a 28% decline in transaction volume. Deal activity slowed even further in the second quarter of 2022, with only 27 announced deals from the end of March through mid-May.

The largest megadeal was Berkshire Hathaway’s announced acquisition of Alleghany Corporation for $11.6 billion, 1.26 times Alleghany’s December 31, 2021, book value. This acquisition will help Berkshire scale its specialty insurance and reinsurance business at a time when market conditions remain attractive due to healthy demand for specialty insurance products. The second megadeal of 2022 was signed in May when The Carlyle Group announced its acquisition of NSM Insurance Group for $1.8 billion.

In a related development in the first half of 2022, the Canadian Pension Plan Investment Board (CPPIB) engaged buyers about the potential sale of Wilton Re. Reports state the CPPIB ultimately ended the sale process because of a significant discrepancy between its own valuation of Wilton Re and the submitted bids. This indicates a potential repricing of life and annuity businesses to reflect the current market environment. However, as we note below, we think deal activity in this space is likely to remain very active considering the number of interested buyers and availability of corporate-held runoff blocks.


Insurance outlook

Although deal activity slowed in the first half of 2022 due to the overall economic environment, we expect deal activity to rebound in the second half of the year driven by strong interest in the sector from PE backed buyers. We also expect to see steady competition for available insurance assets from willing, well-capitalized acquirers. Specifically, life and long duration property and casualty businesses that have struggled to generate investment returns in a low interest rate environment may be able to rebalance portfolios and generate more sustainable earnings, making the blocks more appealing for acquisition. Furthermore, we expect to see renewed interest in sectors such as insurtech that have underperformed overall equity markets.

We also anticipate continued interest in insurance brokerage targets, specifically within managing general agents (MGAs) and underwriters in specialty lines. In fact, insurance brokerage transactions have continued to drive the majority of announced M&A activity, further increasing distributor consolidation. Of the 343 announced insurance deals, 313 (91%) were brokerage target companies, with the remaining 30 deals in the underwriting space.

In line with this trend, there has been consistent private equity interest in the brokerage space. The Carlyle Group was the most active acquirer, accounting for 11 of the 19 private equity-backed acquisitions, of which ten were brokers, including the NSM Insurance Group acquisition. The Hilb Group LLC was Carlyle's most active portfolio company in the insurance space and accounted for eight of the broker acquisitions.

Lastly, ongoing global legislative developments are a potentially complicating factor for deals, requiring dealmakers to take into account the expected, complex impacts of global minimum tax rules and recent US tax regulations on crediting non-US tax payments against US tax liabilities.


“While M&A activity in the insurance sector declined in first half of 2022 as a result of the overall economic environment, we expect deal activity to increase in the 2nd half of the year driven by strong interest in the sector from PE backed platforms.”

— Mark Friedman, PwC Insurance Deals Leader

Key deal drivers

Competition for assets and capital efficiency

Private equity firms and asset managers are continuing to explore opportunities to enter or expand their footprint in the insurance market, from distribution to underwriting and beyond. Although geopolitical uncertainty, volatile equity markets and rising interest rates may pause activity as valuations recalibrate, we expect competition for insurance carrier targets and run-off blocks to remain strong as private equity firms and asset managers look to grow their assets under management. In The Carlyle Group’s aforementioned May acquisition of NSM Insurance Group, it acquired over $1 billion in annual premiums from over one million clients, according to NSM’s company website. In addition, Carlyle’s FortitudeRe acquired Rx Life Insurance Company, which will serve as Fortitude’s US reinsurance platform. 

Navigating uncertainty of rising inflation and interest rates

In the near term, rising inflation and interest rates may reduce insurance deal activity because rising financing costs for acquirers and increasing liability claims at targets will almost certainly reset valuations. Rising rates and inflation present an especially pronounced threat in the short-tail P&C carrier market, with premiums lagging behind the rate of inflation and claims costs rising month-over-month. These developments will compel carriers to rely more heavily on underwriting efficiency, which could further slow P&C deals.

On the other hand, rising interest rates may increase life insurance and long duration P&C target profitability. Rising rates are likely to result in better investment returns at long duration businesses and help insurers rebalance portfolios toward more traditional investments and away from alternative asset classes. This could increase life insurance target valuations — which, in fact, are already seeing significant interest from private equity and asset managers. 

Insurtech struggles could be incumbents’ gains

Although the first half of 2021 saw an active Insurtech market, Insurtechs have struggled to gain meaningful gross written premium market share. This has resulted in fewer IPOs and lower valuations. We’ve seen several planned SPAC deals falter and ultimately terminate in the first half of 2022. Some notable Insurtech IPOs have significantly underperformed the S&P, with valuations declining by more than half since their initial offering. As Insurtech valuations lag the broader market, acquisitions may appeal to incumbents looking to increase their technological capabilities, as well as to private equity looking to invest in early stage Insurtechs.

Ongoing global tax developments bring heightened focus to tax on deal pricing and operating models

Global legislative developments have the potential to further complicate the deals market. It’s likely that legislation in response to the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) will impose a 15% minimum tax (computed on book profits) on multinational enterprises with revenues above EUR 750 million. Deal pricing models and due diligence will have to consider the potential impacts of these minimum tax proposals, including enterprises that were previously out-of-scope falling within the scope of new rules, the creation of new legal relationships triggering the application of minimum tax top-up rules, and the corresponding impact on cash tax and capital profiles.

In addition, recent US tax regulations call into question US multinationals’ ability to offset their US tax burden with foreign tax credits. Enterprises will need to contend with these regulations’ implications as US authorities release clarifying guidance over the course of the calendar year.

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Mark Friedman

PwC Insurance Deals Leader, PwC US

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