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 high, analysts say others.
Investments in insurance technology have also increased, they said.
Some in the industry were "surprised at how much business activity it ended last year", despite market outages in the spring due to the coronavirus pandemic, says Vikram Sidhu, New York-based partner at law firm Clyde & Co.
Deal advisers expected COVID-19 to cool business activities, but 2020 proved to be a hectic M&A year for the sector globally, he said. 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 should adapt to working from home", and other manifestations of the pandemic.
A total of 407 mergers and acquisitions completed globally in the insurance sector in 2020 decreased slightly from 41
a late January report. "We expect strong M&A activity to continue as we enter 2021," upset by the 'hardening of specialty markets (real estate / accident markets) and significant levels of capital that can be used.'
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 at investment broker 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 may dull M&A activity as 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 to want more complicated growth through acquisitions," integration and reserve 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 and 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 US start-up insurance company Hippo Enterprises Inc. pushed their valuation to more than $ 1 billion, according to the report from Clyde & Co.
KBW's Shields said that while 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."