Insurance deals insights: 2021 outlook

Opportunities in innovation

InsurTech continues to present attractive investment and acquisition targets for large insurance companies, particularly for those without the technological expertise or agility to develop their own digital platforms. We’ve seen significant investment in InsurTech companies in the third quarter of 2020 signaling strong demand in the sector. In addition to M&A and private capital raises, we expect InsurTech companies to access capital markets through IPOs, as with the recent IPO by Duck Creek Technologies, a P&C software-as-a-service company that allows insurance carriers to deploy and manage products.

We expect activity to continue to build in the InsurTech space as competition forces insurance companies to adapt to the technological landscape and differentiate their product offerings to meet consumer demands.

Driving growth and scale through distribution

Distribution deals have driven the majority of insurance M&A volume for the last number of years. While some transactions are focused on expanding insurers’ distribution base, others expand expertise in distribution channels or products not currently a core competency of the acquirer. We expect the current trends to continue into 2021 with significant competition for targets as private equity and corporates look for opportunities to deploy capital in the sector.

Distribution deals highlighted the second half of 2020 with 199 announced transactions through November 15, 2020.  Headline distribution deals included:

• In July, Allstate acquired National General Holdings Corporation for $3.7 billion. The transaction makes Allstate a top five personal line carrier in the independent agent distribution channel.
• In August, Madison Dearborn Partners, LLC, took Benefytt Technologies, Inc., private for $420 million in cash. Benefytt Technologies Inc. is a health insurance technology company and distributor of Medicare-related health insurance plans.
• In November, Kemper Corporation announced a definitive agreement to acquire American Access Casualty Company and its related captive insurance agency, Newin Insurance Agency Holdings, LLC and its subsidiaries (collectively “AAC”) for $370 million. AAC provides specialty private passenger auto insurance in 5 states and has a network of ~500 independent agents and 110 captive agents. The transaction is intended to strengthen Kemper’s distribution capabilities and better serve niche markets.

Future of capital

There's a hardening rate environment in P&C specialty lines. During the second half of 2020, capital from private equity, new entrants and corporate investors entered the market through acquisition and start-ups to take advantage of it. We expect this will continue with increased interest in acquisitions of specialty brokers, managing general agents (“MGA”) and managing general underwriters (“MGU”) as investors looking to capitalize on sectors experiencing rising rates. Recent examples include Inigo Ltd.’s acquisition of Starstone’s Lloyds Management Agency and Pelican Ventures and J.C. Flowers announced acquisition of Ariel Re. We continue to expect new players to enter the reinsurance market, keen on deploying available capital and finding targets that can deliver value.