Mergers and acquisitions in the insurance sector were strong despite 2020 despite COVID-19 and are expected to remain robust in 2021 as rising commercial insurance rates strengthen their revenues, making insurers attractive targets and "distributable capital" remains plentiful, analysts and others say.
Investments in insurance technology have also grown, providing another opportunity to enter the sector. In addition, special purpose companies, whose use has increased in many sectors over the past year, are used in the insurance sector as a way to potentially make companies public.
Another indication of this year's strong M&A market is Chubb Ltd .:'s offer at the end of March to buy rival Hartford Financial Services Inc.
“The merger and acquisition market in general, not just insurance, has passed from the list from June to today, and we do not see anything right now that says will slow down anytime soon, "said Mark Purowitz, senior partner in mergers and acquisitions of Deloitte Consulting LLP in New York.
Some in the insurance industry was "surprised at how much business activity there ended up being last year," despite market outages in the spring due to the coronavirus pandemic, said Vikram Sidhu, New York-based partner at law firm Clyde & Co.
Deal advisers expected COVID-19 to cool shares, but 2020 proved to be a hectic M&A year for the global sector, he said.
Similarly, the brokerage business only briefly paused, says John Marra, a business partner with PricewaterhouseCoopers LLP in New York.
"The distribution space continues to be very attractive," he said. Brokers M&A "saw a bit of a break in the second quarter of last year when these companies focused on themselves and how they could adapt to working from home" and other manifestations of the pandemic.
Some offers put on hold due to Pandemic-related issues are likely to be completed in the first half of this year, Purowitz said.
A total of 407 mergers and acquisitions made worldwide in the insurance sector in 2020 decreased slightly from 419 the previous year, according to a report from the end of February from Clyde & Co. The number of transactions completed in the second half of 2020 was slightly higher than in the first half of the year, with 206 transactions compared to 201.
Although "business activity in the insurance sector slowed in the spring of 2020," it "erupted in the second half of the year", said PwC in a report at the end of January. "We expect strong M&A activity to continue as we enter 2021," which is encouraged by the "hardening of specialized markets (real estate / accidents) and significant levels of distributable capital."
As the insurance industry sees rising prices, buyers seeking returns in a low interest rate environment may be more attracted to the sector, says J. Paul Newsome Jr., Chicago-based chief investment officer Piper Sandler Cos.
The low interest rate environment also contributes to the availability of capital, which in combination with the search for returns helps drive M&A activity, he said.
On the other hand, rising interest rates and premiums can dull M&A activities because insurance companies focus on organic growth as opposed to growth through acquisitions, says Meyer Shields, Baltimore-based CEO of Keefe, Bruyette & Woods Inc.
"There are enough growth opportunities for companies not looking for more complicated growth through acquisitions," which car integrates and reserves risks, he said.
Technology investments also continue to grow in the insurance sector.
Investors "come in very strongly" to the insurtech space, says Sidhu from Clyde & Co. The sector has seen significant investment over the past five to seven years, he said.
Major investment activity in the insurtech sector last year included Aon PLC's acquisition of Coverwallet Inc. for an undisclosed amount and Duck Creek Technologies Inc's successful IPO, which raised $ 405 million and valued the company at approximately $ 5.2 billion. . In addition, "several investments" in insurer Hippo Enterprises Inc. have pushed their valuation to more than $ 1 billion, according to the report from Clyde & Co.
KBW's Shields said that although insurtech business has been largely smaller so far, "we are beginning to see some very prominent insurtech companies with, in many cases, very impressive values."
An insurtech, Integrated Specialty Coverages LLC, a Carlsbad, California-based program administrator, received a majority stake in KKR. & Co. Inc. in March. KKR bought the share from Sightway Capital, which will continue to hold a minority interest in the company.
KKR, which made its investment through its Americas XII Fund, also holds investments in USI Insurance Services Inc., Alliant Insurance Services Inc. and Sedgwick Claims Management Services Inc.
Founded in 2017 by CEO Matt Grossberg, Integrated Specialty writes about $ 300 million in special premiums annually.
KKR provides "a depth and wealth of knowledge in the insurance space, and they have many relationships, which will be beneficial from an acquisition perspective," Grossberg said.
In addition to insurtech M & As, several established insurtech companies have raised significant funds in recent weeks, including the San Francisco-based cyber-management agent Coalition Inc., which raised an additional $ 175 million in capital, and Boston-based cyber-management general insurer Corvus Insurance Holdings Inc. ., which raised $ 100 million.
Growth in SPACs
Special acquisition companies, shell companies formed to raise capital without the need for a traditional IPO, have increased enormously in popularity.
At the end of March 2021, $ 89.8 billion had been collected across 276 SPAC offers, compared to $ 83.4 billion in 248 stores throughout 2020, according to industry tracker SPAC Research. In 2019, only $ 13.9 billion was collected in 59 stores, which shows how fast the market has grown.
Personal line insurance company Hippo Enterprises, based in Palo Alto, California, is announced through a merger with Reinvent Technology Partners Z, a SPAC launched last year, in a $ 5 billion Hippo deal.
The growing popularity of SPAC should provide another opportunity for insurtech investments, according to Martha Notaras, managing partner at Brewer Lane Management LLC, a venture capital firm in Los Angeles.
"The market for mergers and acquisitions continues to heat up," says Grossberg of Integrated Specialty.
“It is incredibly active right now, especially considering that many participants still do not meet face to face. The acquirers may not meet in person with most of the candidates they buy. There is a lot of willing and excited capital out there who want to get into space.