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Insurance deals insights: 2021 midyear outlook

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2:40

What's driving deals in 2021

PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for the rest of 2021.

Insurance dealmaking remained active in the first half of 2021 as interest remained high in a variety of sectors

Deal activity picked up where it left off at the end of 2020 with an active first half of 2021, highlighted by five megadeals. In the first five months of 2021, there were 215 announced transactions, with $24.6 billion in announced deal value. Deal volume was driven primarily by announced M&A in the insurance brokerage space, continuing a long-term trend of consolidation among distributors. Announced acquisitions of life and annuity carriers drove the majority of announced deal value, as we continue to see large-scale realignment among carriers affected by the persistent low-interest rate environment. Standouts included megadeal announcements of Apollo Global Management Inc.’s acquisition of Athene Holding Ltd. for $11 billion, Arthur J. Gallagher & Co. acquisition of WillisRe and other Willis Towers Watson assets (WTW) for $3.7 billion, and MassMutual’s acquisition of Great American Life Insurance Company for $3.5 billion. 


Insurance deals outlook

We expect continued strong M&A activity in the insurance sector as we head into the second half of 2021, driven by record levels of deployable capital and continued interest in insurance carriers and distribution. In fact, the flurry of activity through the first half of 2021 has led to a constraint on deal advisor resources.

We expect private equity firms and asset managers to continue their push into the insurance sector, specifically in the life insurance and annuity space. As we note in the summary overview, we’ve seen several large private equity players acquire on balance sheet insurance platforms over the last few years. Going forward, we expect those platforms to be active while other private equity and asset managers also enter the space with acquisitions of insurance carriers or blocks of business to increase assets under management. The entries of these investors will collide with strong sell-side interest from carriers looking to divest non-core assets. We’ve also seen an increased interest in acquisitions from mutual insurers, who are strategically deploying capital to acquire blocks of business as they seek to grow and offer new products.

That said, the active insurance deal market may face regulatory headwinds from uncertainty surrounding potential corporate income tax rate increases and other changes, and the development of global minimum tax rules in response to Pillar Two of the Organisation for Economic Co-operation and Development (OECD) / G20 Base Erosion and Profit Shifting (BEPS) Project. In addition, there is uncertainty about how long the low-interest rate environment will persist. If interest rates do increase, it may drive interest in insurance carrier targets and attract more buyers in the space.

We’ve also seen increased attention from regulators, both in the US and globally, on the consolidation in the insurance brokerage space and the risk of concentration with top brokers and agents (e.g., the recent Gallagher and WTW deal).


“The pace and magnitude of insurance dealmaking continued to accelerate in the first half of the year as sellers look to capitalize on the high valuations driven by strong demand for insurance businesses.”

Mark Friedman, PwC insurance deals leader

Key deal drivers

The nature of capital

Private equity investors remain in active competition for life insurance targets as they expand their foothold in the insurance market. In the past year, Carlyle acquired Fortitude Group and KKR acquired Global Atlantic. The trend continued in the first half of 2021 with Apollo’s announced acquisition of Athene Holding Inc. and Blackstone’s announced acquisition of Allstate Life Insurance Company for $3.1 billion. Valuations of life and annuity blocks remain high as these asset managers compete to establish platforms and grow assets under management. We expect continued activity by private equity and other asset managers that look to increase assets under management in a cost effective way.

In the first quarter of 2021, we began to see an uptick in activity from mutual insurance buyers; of note, MassMutual announced its acquisition of Great American Life Insurance Company, and CUNA Mutual Holding Company announced its acquisition of Assurant’s Global Preneed for $1.3 billion. Life insurance targets present an attractive opportunity to deploy capital that has been building up on balance sheets. Additionally, US domestic mutual insurers may not be as sensitive to potential tax changes (other than statutory rate changes) compared with multinational insurers, making them attractive partners for other domestic insurers. 

Geopolitical and regulatory shifts

After many years in a low-interest rate environment, the anticipated inflationary effects of stimulus in the US and other macroeconomic factors may result in interest rate increases going forward. While a period of increasing interest rates may benefit insurers’ investment returns and profitability, it is still unknown how pronounced or long-lasting any future rise in rates will be. Some market participants are signaling that an interest rate bottom was reached during the first half of the year.

Following the inauguration of the Biden administration, uncertainty surrounding future tax proposals may lead to an uptick in activity — or at least closings — in the coming months. The Biden administration has proposed to replace the BEAT (Base Erosion and Anti-Abuse Tax) with SHIELD (Stopping Harmful Inversions and Ending Low-tax Developments) to deny deductions for cross-border payments to affiliates with a low effective tax rate. In addition, there may also be a change in the future of transaction structures as companies seek to offset any potential corporate income tax rate increases.

Anticipating the development of global minimum tax rules in response to OECD Pillar Two, uncertainty about legislative changes in various potential jurisdictions may impact the structure and type of transaction with foreign counterparties to manage potential exposure. 

Hardening market

We continue to see a hardening rate environment in property and casualty (P&C) markets, which has driven increased underwriting profits at P&C carriers. This also has led to downstream impacts on distribution, including insurance brokerage, as access and entry to hardening markets has contributed to the historically active brokerage subsector. Insurance brokerage deals continued to drive the majority of insurance M&A volume, as has been the case for the last several years. Of the 215 announced transactions during the first five months of the year, 190 (over 85%) were insurance brokerage transactions.

The first half of 2021 was highlighted by Gallagher’s announced acquisition of WillisRe and other Willis Towers Watson assets for $3.8 billion. The transaction was intended to alleviate antitrust pressure from regulators for WTW, specifically in the EU, who have been closely following the implications of the announced merger between WTW and Aon.

Going forward, we expect continuing activity in the coming years for small to mid-sized brokerage targets as sellers capitalize on the active market from big market consolidators in the space (i.e. Gallagher, Marsh & McLennan).

Innovation and transformation

We continued to see significant interest and investment in the InsurTech space in the first half of 2021. In addition to acquisition, partnerships and investments, InsurTech activity included traditional IPOs and mergers with special purpose acquisition companies (SPAC). Highlights from the first half of the year include the initial public offering of Oscar Health, Inc., a technology focused health insurance company, that implied a market cap of $7-8 billion at their offering price. Hippo Enterprises Inc., a home protection and insurance platform, announced its intent to go public through a SPAC. Doma, formerly known as States Title, also announced SPAC plans. The title insurance technology startup deal is expected to be valued at approximately $3 billion.

Corporate venture capital has been a quiet but important part of the InsurTech boom, as carriers have moved to gain access to promising technologies and development teams. Still, insurers that invest in tech companies can face particular challenges because attitudes toward risk are so different; post-deal integration work around culture can influence how successful a transaction is over the long term. 

Contact us

John Marra

Partner, Deals Practice, PwC US

Mark Friedman

Partner, Deals Practice, PwC US

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