The North American insurance coverage underwriting sector bucked an general downward pattern in mergers and acquisitions final 12 months.

Whereas the extent of deal exercise amongst insurers inched down 2% final 12 months (96 transactions in comparison with 98 in 2022), the combination transaction worth shot up 16.8%, from $13.89 billion in 2022 to $16.23 billion in 2023, in line with an evaluation by S&P International Market Intelligence.

In distinction, North American M&A exercise throughout all industries tumbled final 12 months, with the variety of transactions plummeting 23.7% and complete transaction worth falling 15.3%, S&P reported.

Dorree Ebner (pictured), EY Americas Technique and Transactions insurance coverage chief, instructed Insurance coverage Enterprise that there have been a number of drivers behind the M&A drop.

“A number of geopolitical and macroeconomic tendencies – inflation, rates of interest, regulatory elements, provide chain disruptions – created widespread uncertainty for M&A in 2023,” Ebner mentioned.

Ebner mentioned {that a} current EY Financial Outlook predicted that the US financial system was set to enter a “transition section marked by softer progress, decrease inflation and declining rates of interest.”

“This units the stage for what I consider is a pivotal inflection level within the M&A market,” Ebner mentioned. “There are undoubtedly macroeconomic headwinds, but additionally alternatives as each corporates and personal fairness restructure their portfolios and place themselves for progress, anticipating an improved financial outlook via 2024 and past.”

This prediction appears to be supported by current knowledge from Marsh, which reported 2023 as its third-busiest 12 months on document for transactional threat insurance coverage regardless of the downward M&A pattern.

Insurance coverage M&A drivers

So why did the insurance coverage sector so decisively outperform different industries’ M&A exercise final 12 months?

“M&A exercise within the insurance coverage sector via 2023 and persevering with into 2024 is pushed by a lot of elements – pursuit of progress, specialization, and non-public fairness’s focus available on the market – particularly on the broader insurance coverage worth chain comparable to distribution and back-office expertise,” Ebner instructed Insurance coverage Enterprise. “Already, within the first couple of months of 2024, we’ve seen a multibillion-dollar deal by non-public fairness on the distribution aspect, and, with the financial outlook bettering, the stage is ready for an energetic 12 months for M&A within the sector.”

The most important deal in 2023 was Brookfield Reinsurance’s deliberate $3.59 billion acquisition of American Fairness Funding Life Holding Co., in line with S&P. Different mega offers included KKR & Co.’s $2.7 billion stake acquisition of International Atlantic Monetary Group and S.USA Life Insurance coverage’s pending $1.91 billion swoop for Nationwide Western Life Group.

Ebner anticipated the insurance coverage sector to maintain the tempo in 2024.

“The insurance coverage sector’s resiliency towards the broader M&A headwinds has been supported by a continued focus by the trade on creating stronger and extra capital-efficient companies targeted on strengthening core underwriting capabilities, divesting non-core companies, modern use of other capital, convergence with various asset administration and personal fairness’s attraction to a sector that has decrease correlation with the broader macroeconomic setting,” she mentioned.

Ebner additionally shared her forecast for M&A deal drivers in 2024:

Life insurance coverage

“Deal exercise is predicted to extend in 2024 because the trade continues to dump legacy long-duration blocks and permits for brand spanking new product innovation and gross sales,” she mentioned. “The elevated demand for these belongings and the formation of run-off platforms which have been primarily backed by various asset managers is driving competitors for belongings that are wanted to successfully scale their platforms.”

P&C

Ebner mentioned that P&C confronted “important headwinds in prior years (inflation, excessive climate occasions), however we at the moment are seeing indicators of a shift in the direction of progress alternatives and a continued laborious price market with elevated reinsurance capability (inorganic and natural).” She mentioned there was potential for progress in gross sales of embedded insurance coverage over the following few years.

“Multi-line insurers ought to proceed trying to rebalance their portfolios and offload non-core companies,” Ebner mentioned.

Brokerage

“Monetary patrons proceed to be extremely energetic within the area, and are anticipated to play a big position in elevated exercise all through 2024,” Ebner mentioned.

MGAs/MGUs

Carriers with cyber packages are struggling to adequately worth their exposures – which can result in elevated M&A exercise from carriers trying to exit the area and specialised insurers and MGAs/MGUs, particularly ones with a monitor document of worthwhile underwriting, trying to develop their market share,” Ebner mentioned.

Have one thing to say about this story? Tell us within the feedback beneath.