With 2018 set to be one of the most active years for M&A deals in the insurance space, a recent analysis by S&P Global Market Intelligence suggests that the boom in mergers and acquisitions could spill over to next year.
According to the report, the first nine months of 2018 saw $39.1 billion in aggregate transaction value – making this year the most active year for insurance M&A since 2015. This year is also considered the second most-active full calendar year since 2005, after adjusting for inflation, as well as the second busiest year in terms of unadjusted aggregate deal value since 1998.
S&P Global projected that the deal value for the entire year of 2018 will increase by about 150% from 2017 to over $4 billion.
“We are in a period where insurance carriers are reevaluating what is core to their franchise and pushing for greater efficiency in both expenses and capital utilization, which in turn is driving deal volume close to record highs,” commented S&P Global Market Intelligence senior insurance analyst Tim Zawacki. “With a continued push for consolidation even after one of the most active years for P&C and life insurance M&A, a variety of factors will continue to drive transaction deal value beyond 2018.”
The report suggested that federal tax reform and continued interest from international acquirers were key drivers of M&A appetite growth for this year – despite protectionist political rhetoric, excess capitalization, and strong interest by private equity-backed buyers, S&P Global noted.
The renewed prominence of AIG as a consolidator, as well as strategic investment in insurtech startups by major carriers, also contributed to M&A growth for this year, the report noted.
S&P Global believes the auto industry could play a role in fueling M&A growth next year.
“Uncertainty about the future of the auto insurance business may be a driver of consolidation in the near term,” said Zawacki. “We project that the private and commercial auto business will account for 43.3% of the US P&C industry’s total premium writings in 2018.”
The reported also noted that factors such as increasing interest in the sharing economy, autonomous vehicle technology, and the adoption of advanced vehicle safety technology could put into question the sustainability of M&As. Some carriers, S&P Global noted, have started to respond to these disruptions by using M&As to broaden the scope of their products and to enhance their specialization in select niches.