Insurance deals insights: 2021 outlook

Insurance dealmaking rebounded to near pre-COVID levels in an active second half

Deal activity in the insurance sector slowed in the Spring of 2020, but came roaring back in the second half of the year. From the end of June to mid-November, there were 222 announced transactions, with $10.9 billion in announced deal value. Standouts included mega-deal announcements of KKR’s acquisition for Global Atlantic for $4.0 billion, Allstate, Inc,’s acquisition of National General Holdings Corporation for $3.7 billion and Great-West Lifeco Inc.’s acquisition of MassMutual’s retirement services business.

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021. Explore national deals trends

Insurance deals outlook

We expect strong M&A activity to continue as we head into 2021, driven by divestitures of non-core businesses, continued competition for distribution targets, the hardening of specialty P&C markets and significant levels of deployable capital.

A “lower for longer” interest rate environment will continue to put pressure on investment returns and profits, especially for carriers managing capital intensive segments or blocks of business. As these companies re-assess their core portfolios, we expect further divestitures, particularly within the life and annuity sub-sector.

Transaction multiples in the brokerage space continue to be an indicator of the level of competition among private equity firms and other would-be acquirers. We expect distribution deals to dominate the sector’s announced transaction volumes in the coming year.

“Dealmaking roared back to life in the second half of 2020, signaling more activity in the year ahead.”

John Marra, US Insurance Deals Leader

Key deal drivers

New ways of being

Historically low interest rates aren’t going away any time soon. Markets now assume this situation will continue for an extended period, driven by the COVID-19 pandemic and its economic repercussions, and reinforced by financial regulators. The life insurance and annuity sub-sector may continue to feel the pressure from this low rate environment, which has crimped investment returns and profitability. As a result, we expect sector participants will continue to assess their portfolios. A number of firms may be actively pursuing opportunities to exit their non-core businesses through restructurings, divestitures, and other deal activity. We have already seen some clear examples of this approach: AIG’s announced intention to separate its life & retirement business; Venerable’s agreement with Equitable Financial Life Insurance Company to reinsure $12 billion of legacy annuity business and acquire Corporate Solutions Life Reinsurance Company; and American Financial’s deal to cede $5.7 billion of fixed annuity business to Global Atlantic.

At the same time, asset managers circle the sector with interest in expanding their assets under management through deals or partnerships with life and annuity businesses. This trend is driven by two key factors: 1) asset managers are generally able to generate a higher risk-adjusted return on assets and 2) they increase their assets under management, which drives additional fee income. Brookfield’s announced deal with American Equity Life in October was the latest such agreement. Brookfield acquired a stake in the company and reinsure annuity liabilities while providing alternative asset management strategies to American Equity Life.

We expect these trends to extend beyond annuities into other capital intensive, interest sensitive blocks of business. Long-term care insurance is one area where this could be felt, though it could take some time before dealmaking in the sub-sector reaches meaningful levels.

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.

Contact us

John Marra

Insurance Deals Leader, PwC US

Gregory McGahan

Financial Services Deals Leader, PwC US

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Insurance deals insights: 2021 outlook

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Insurance dealmaking rebounded to near pre-COVID levels in an active second half

Insurance deals outlook