Insurance: Deals 2022 outlook

Committing capital to growth

Significant amounts of deployable capital remain available, with both corporate and private equity clients looking for investment opportunities. The competition for available assets has led to high multiples across the industry, both for carriers and brokerage targets. The increased interest in the sector means target companies have several kinds of potential buyers, both corporate and private equity.

Highlights in 2021 were Prudential’s sale of its full services retirement business to Great-Life and Global Atlantic’s announcement of an $8 billion annuity reinsurance transaction with Ameriprise Financial, which primarily comprises fixed-rate and income annuities. 

InsurTech struggles could be incumbents’ gains

In the first half of 2021, we saw significant IPO and special purpose acquisition company (SPAC) activity in the InsurTech industry. However, enthusiasm in the InsurTech space abated in the second half of 2021 because many of the IPOs lagged behind the S&P. Lemonade Inc. has been a notable exception. It has performed well and recently announced the acquisition of Metromile Inc, a pay-per-mile car insurance company that went public via a SPAC in February 2021 but experienced a significant decline in its stock price over the year (down about 70% from its IPO price by November 2021). Lemonade leveraged its increased stock price to acquire Metromile in an all-stock transaction in which Metromile shareholders will receive Lemonade common shares at a ratio of 19 to 1.

The lagging InsurTech space is highlighting the difficulty some of these companies have had generating the kind of operating profits that justified the high market cap that their underlying technology and data-collection afforded them. We expect insurance carriers will view these lagging InsurTechs as potential targets that can help them expand their technological capabilities at a discount.

Navigating policy uncertainty

We’ve recently seen several global efforts to reform tax rules, including:

• The autumn 2021 Organisation for Economic Co-operation and Development (OECD) inclusive framework agreement.
  
• Expected late-2021 model language and an EU directive to implement Pillar II of the OECD base erosion and profit shifting (BEPS) project, which would impose a global minimum tax, as well as a limitation on certain intercompany payments to low tax jurisdictions. Changes to the US Base Erosion and Anti-Abuse Tax (BEAT) regime could also impact these transactions.
• US lawmakers’ attempts to enact tax code changes by the end of 2021. (Current draft legislation includes a number of deferred effective dates.)

In addition to changes in taxation, the active insurance deal market may face regulatory headwinds from a more interventionist US Congress and executive branch . Moreover, there’s also uncertainty about market fluctuations if interest rates increase and the effects of inflation. Higher interest rates could result in carrier portfolios being more attractive to buyers.