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.
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.”
PwC Insurance Deals Leader, PwC US