Disclosed deal value among insurance companies rose to $2.9 billion during the second quarter, a significant jump from the first quarter of 2019 and second quarter of 2018.
"Although financial services tapped the brakes in deal activity, we still see many attractive opportunities, especially as industry definitions blur. The current round of payment processor deals, for example, affects banking and technology, too. Leaders are finding ways to consolidate their areas of strength—and shed assets that no longer make strategic sense.”
Insurance companies faced headwinds during the second quarter of 2019 as interest rates reversed course and declined toward multi-year lows. Insurers—like other financial institutions—are reassessing their core capabilities and capital allocation strategies as they weigh potential divestitures of non-core businesses. These transactions can free up capital for reinvestment in growth and operational optimization. Ultimately, they can help improve ROE and meet shareholder expectations.The divestitures of non-core businesses announced by Ameriprise Financial, Wells Fargo, and AmTrust Financial Services follow this playbook. While the sellers freed up capital, the buyers—American Family Insurance, Principal Financial Group, and Liberty Mutual, respectively—gained opportunities to expand underwriting capabilities, generate additional scale, enter new regions, and double down on existing lines of business. We expect that a focus on legacy business optimization will continue to drive divestitures during coming quarters.
The second-quarter data do not reflect discussions among insurers about possible deals focused on blocks of legacy annuity and other long-duration risks. We expect such activity to pick up during the second half of 2019. Investors, including firms backed by private equity, continue to offer opportunities for insurers to exit legacy holdings that are capital intensive or outside their primary lines of business. Publicly-traded insurers with legacy blocks of business may face rising pressure to consider divestitures. Coming changes in US GAAP accounting for long-duration contracts are expected to increase financial statement volatility and require meaningful investment in software, systems, and related processes. Insurers may seek to reduce such risks and costs through divestiture.
Consolidation of distribution and insurance intermediaries continued to fuel deal-making during the second quarter, pushing up transaction volume. Private equity backed firms such as Acrisure, AssuredPartners, Hub International, and The Hilb Group, were most actively involved in transactions, with each averaging nine announced deals during the quarter. Talk of a potential merger of AON and Willis Towers Watson was confirmed and abandoned during the first half of the year. Marsh & McLennan Companies, Brown & Brown, and Arthur J. Gallagher & Co. also pursued acquisitions, seeking to extend market reach and gain in specialization. Consolidation of insurance brokers will probably fuel deal volume for the foreseeable future.
A recent PwC survey of CEOs at 140 global insurance companies indicated that optimism is overtaking initial wariness about digital transformation and the disruption from start-up firms. Top executives increasingly view InsurTech as a contributor to the value chain rather than a threat. We expect that interest in InsurTech will remain steady, and that insurance companies will continue to partner with firms in this innovative sub-sector.
Looking ahead to third-quarter results, Sedgwick in July agreed to acquire York Risk Services Group at an undisclosed value, and Ares Management announced the acquisition of Pavonia Life Insurance Company of Michigan for $75 million.
Financial Services Deals Leader, PwC US
Insurance Deals Leader, PwC US