We see several factors influencing dealmaking in the coming months:
Record-low interest rates. The Federal Reserve, seeking to spur a recovery, may hold down interest rates for an extended period. Low rates would crimp yields across the insurance industry, especially for life insurers and annuities that hold long-dated assets. Companies seeking to sustain shareholder value will probably explore alternative strategies, including M&A. Some insurers may consider divesting capital-heavy, long-tail blocks of business that they no longer see as core to their strategy.
Ample dry powder. Record levels of deployable capital among private equity and corporate buyers will likely fuel a rebound of M&A during the second half of 2020. The low interest rate environment is expected to attract new investors and capital looking for an initial entry into the insurance market.
Rising insurance rates. Expectations that rates will rise in property/casualty, reinsurance, and specialty lines will probably spur investment and drive M&A.
InsurTech. COVID-19 has changed the way policyholders interact with insurers, brokers, and agents, accelerating the need for digital solutions. After reassessing their internal capabilities, some companies may try to close any service or product gaps through dealmaking with InsurTech firms.