2023 Insurance M&A: Navigating Uncertainty with Optimism
Mergers and acquisitions (M&A) activity declined dramatically in the second half of 2022 after a remarkable record year in 2021. In the face of continued economic uncertainty and private equity (PE) pressure, how can insurers seek promising deal opportunities to stay afloat? profitable next year? Our outlook to 2023 reveals the latest trends and drivers to help your company navigate the evolving insurance M&A landscape.
M&A Insurance Update 2023
The number of deals this year to date has been relatively flat compared to the same period in 2022. However, in the first half of 2023, the total value of deals was about half compared to the same period in 2022. This mid-year update examines four separate general trends and how related M&A activity has progressed in 2023 with two other trends worth watching.
First, our data source suggests that demand in the broker segment remains consistent year-on-year. In P&C, it is expected that in this rate environment, reinsurers may focus on business management as a growth mechanism and increase shareholder returns.
Additionally, recent loss experiences have caused several traditional hedging methods to retreat as companies recalibrate their risk appetite. Growth in demand, in turn, has made the P&C reinsurance sector attractive for alternative forms of capital.
Two trends worth watching moving forward focus on industry convergence and the incorporation of automated coverage. Although industry convergence may slow in 2023 as some companies seek to strategically rebalance their portfolios, this trend is not expected to impede continued forward movement. On the other hand, even though embedded insurance has taken a bit of a backseat in early 2023, the outlook remains strong.
Read the latest update to better understand where these trends are headed and how you can keep up with them.
Insurance M&A Update 2023: Balancing Uncertainty with Optimism Download the report.
What’s new in insurance mergers and acquisitions for 2023?
Not surprisingly, the two strongest drivers of M&A in 2023 are inflation and interest rates. The Federal Reserve Board (Fed) has indicated that it expects to continue raising rates, but in smaller increments than in 2022. As rates stabilize, we expect companies to begin freeing up capital for acquisitions. M&A will occur, but with a muted frequency and at lower prices compared to higher valuations in 2021.
We expect insurance brokerage to be the first sector to recover. Due to high deal volume and PE appeal, distribution is likely to be a leading indicator for M&A insurance overall. The fact that PE interest fell only slightly last year suggests that financial buyers are positive about brokerages despite rising interest rates and believe that longer-term growth will offset any increase in transaction costs. In the interim, however, brokerage appears to be affected overall by the rate of insurance mergers and acquisitions.
When M&A insurance starts to recover will depend on the length and depth of the economic slowdown. However, based on current economist forecasts, we believe that the insurance M&A market may begin to recover in late 2023 or 2024.