3 Factors that Influence M&A Activity

In the first half of 2017, merger & acquisition deals in the U.S. insurance sector reached $10 billion—more than triple the $2.9 billion total deals in the first half of 2016, according to Pricewaterhouse Coopers (PwC).

But keep in mind: A dollar amount isn’t necessarily an indicator of a robust market, points out John Marra, U.S. insurance deals leader at PwC.

“What’s not reflected is clients that don’t get to the altar for one reason or another,” Marra explains. “If you had asked me a year ago if I predicted that the first half of 2017 would be as active as it was, I would have said, ‘It depends on who’s going to sell.’”

When it comes to carrier sales, “there’s less going on there because there’s less for sale,” Marra says. Although the life‑health sector led the market in terms of volume, property‑casualty contributed the highest deal value. “If you have something to sell, there are a lot of potential buyers,” Marra notes.

And the agency/brokerage space remains the most active. According to PwC’s report, insurance broker deals comprised 90% of deal volume in the first half of the year.

So what affects p‑c M&A activity the most? Marra points to three factors that aren’t always considered:

1) Technology. “When we talk to clients about M&A planning, they talk more about an investment in technology than acquiring an insurance company,” Marra says. “Insurance companies are working on finding the next great technology.”

2) Weather events. Marra points out that disasters like Hurricanes Harvey, Irma and Maria may create financial distress for some within the insurance industry—“those with no choice but to seek capital or sell,” he says. “It also remains to be seen whether losses associated with the hurricane activity will lead to premium increases and, possibly, greater interest in the sector.”

3) Regulatory environment. Although legislation like the Department of Labor’s fiduciary rule tends to affect M&A deals more in the life‑health sector, tax reform plays a role on the p‑c side—albeit a dwindling one. “If you talked to people six months ago, they were waiting on tax reform. Now, I don’t think as many people are holding up from selling or buying because of it,” Marra says. “When you ask, clients say it’s business as usual.”

Looking ahead to 2018, will the upward trend in deal amounts continue? “Again,” Marra says, “we should be asking, ‘Who will sell in the next six to nine months?’”

Jordan Reabold is former IA assistant editor.