US insurance deals insights: Q3 2019
Insurance M&A closed an active 3rd quarter with $4.4 billion in announced deal value.
Deal volume across the sector remained strong with an uptick in activity from life and P&C carriers as they look for opportunities to digitize their organizations and expand into niche or specialty lines of business. Deal activity early in the 4th quarter is fueling expectations for a strong end to the year.
“Third quarter activity was highlighted by meaningful InsurTech transactions, while significant capital, strategic and private equity continued to circle the sector.”
Trends and highlights
Announced deal value was up 54% over 2Q19. Still, we note that this is a pullback from the $8.1 billion in announced deal value in 3Q18, driven by three insurance mega-deals.
Prudential Financial, Inc. announced the largest industry acquisition of the quarter with its agreement to pick up Assurance IQ, Inc., an InsurTech platform providing health and wellness solutions, for approximately $3.5 billion in upfront and contingent consideration.
The largest portion of 3rd quarter deal volume by far (87%) occurred in the insurance broker sub-sector, where continued interest in consolidation is fueling competition among publicly-traded and private equity backed players. As usual, many details of these transactions were kept private, without disclosing terms.
Highlights of deal activity
Other significant deal activity
Sedgwick Claims Management Services, Inc. (“Sedgwick”) announced the acquisition of York Risk Services Group, Inc in July for an undisclosed amount. The transaction expands Sedgwick’s claim solutions and services while adding scale and reach.
CopperPoint Insurance Company (“CopperPoint”) announced their agreement to acquire Alaska National Corp. for an undisclosed sum in September. The deal expands CopperPoint’s commercial insurance footprint in the western United States.
GoldenTree Asset Management acquired Syncora Guarantee for $429 million in August. Syncora provides financial guarantee insurance on the debt obligations of issuers.
Fidelity National Financial’s $1.2b merger with Stewart Title Insurance Group was blocked by the Federal Trade Commission in September. As a result, the deal was officially terminated by the parties.
IPO activity returned to the sector in July with ProSight Global Inc. filing a $140 million initial public offering with the U.S. Securities and Exchange Commission. In addition, Baldwin Risk Partners filed a $100 million IPO in September.
Insurance deals outlook
Mega-deal activity is off to a strong start early in the 4th quarter with Tokio Marine Holdings Inc. agreeing to acquire Privilege Underwriters Inc. and its specialty subsidiaries, known as Pure Group, for $3.1b. Pure Group is a U.S. based P&C high net worth insurer. The transaction is still subject to regulatory approvals.
Current deal volume statistics may mislead the casual observer. In our practice, we see a tremendous amount of interest among insurers and private equity considering potential tie-ups and spinoffs. We expect continued activity around divestitures of non-core businesses or run-off blocks as insurers continue to evaluate core competencies and consider options. This includes companies looking for opportunities to exit capital intensive businesses such as legacy holdings and annuity blocks of business.
Consolidation in the insurance broker sub-sector will likely continue to drive deal volume as insurers and brokers look for opportunities to consolidate and find new distribution channels for their products.
InsurTech investments year-to-date reached record levels with insurers placing larger bets through recent capital raises and M&A. In October, MunichRe announced a $250m investment in Next Insurance, a small business insurtech provider that valued the business at over $1b. We expect continued interest in InsurTech targets that provide differentiated customer experience, artificial intelligence and cost efficient distribution models. Transaction structures will continue to evolve as insurers and potential targets weigh the benefits of partnering and outright M&A.
About the data
We define M&A activity as mergers and acquisitions in which targets are US or Bermuda-based insurance companies acquired by US or Bermuda-based insurance companies. We define mega deals as transactions with deal value greater than $1 billion. We define divestitures as the sale of a portion of a company (not a whole entity) by a US-based seller. We have based our findings on data provided by industry-recognized sources. Specifically, values and volumes used throughout this report are based on announcement date for transactions with a disclosed deal value, as provided by Capital IQ, as of September 30, 2019, and supplemented by additional independent research.
Information related to previous periods is updated periodically based on new data collected by Capital IQ for deals closed during previous periods but not reflected in previous data sets. Deal information was sourced from Capital IQ and includes deals for which buyers or targets fall into one of the insurance industry sub-sectors: life & health, property & casualty, insurance brokers, insurtech, or other (such as title, financial guaranty or multiline insurance). Certain adjustments have been made to the information to correct for transactions which our data sources classify as financial services but which we assign to technology and other sectors, or vice versa.
