US insurance deals insights: Q4 2019

Megadeals fuel surge in insurance industry deals value during quarter

Insurance dealmakers announced $12.5 billion in transactions during Q4 2019, marking the strongest quarterly total in nearly two years. Four megadeals in the P&C, life, and reinsurance sub-sectors dominated industry headlines.

Despite the surge in disclosed deal value during the quarter, the 2019 annual total of $19.9 billion is only 51% of the record set in 2018. Two large M&A transactions in 2018, including the huge AXA/XL tie-up, skew the year-over-year comparison. 

We expect deal activity will be robust in 2020, driven by high levels of deployable capital among private equity and corporate buyers.

• Throughout 2019, industry deal volume fell steadily, and the fourth quarter continued the downward trend. In the brokerage subsector, high valuation multiples and intense competition for attractive assets pushed down deal volume to levels last seen in 1Q 2018. However, the overall impact of the decline was offset by renewed interest in P&C and life deals, which has risen since this past spring.  

• New York Life Insurance Company announced the largest acquisition during the fourth quarter with an agreement to buy Cigna Corp.’s group life and disability insurance business for approximately $6.3 billion. The deal will allow New York Life to expand its employee benefits insurance operations while Cigna divests a non-core business.

• Dealmaking in 2020 got off to a strong start in January as Thomas H. Lee Partners, L.P. announced the purchase of AmeriLife Group, LLC. The deal reportedly is worth more than $1 billion. AmeriLife provides life, health, and financial service products to retired or soon-to-retire customers.
  

• We anticipate insurance industry M&A will remain steady during 2020. Political and economic uncertainty may intensify scrutiny of steadily rising valuations. Still, high levels of deployable capital among corporate dealmakers and private equity firms will probably continue to generate a healthy transaction level.

• We expect insurers will continue to optimize their legacy businesses by divesting capital-intensive business such as legacy blocks and focusing on capital- light, nimble businesses. In turn, demand for legacy blocks will probably continue to grow, especially among private equity firms and industry participants that specialize in managing legacy risks and seek to boost investment returns. 

• We anticipate the brokerage sub-segment—which accounted for approximately 85% of deal activity last year—will continue as the focal point for most insurance deal volume. At the same time, total deal volume may decline. Buyers of large insurance brokers may grow more selective as valuation multiples have risen. Interest in small- to mid-sized brokers will probably remain high as larger industry participants compete for smaller targets to consolidate at more favorable transaction multiples.