P/C Insurance M&As: Deal Value Up, More to Come

By | April 6, 2015

Merger and acquisition activity in the property/casualty industry is increasing in deal value and will likely expand from reinsurers to primary carriers, according to two new industry reports.

Deloitte said that the average deal size in the sector grew more than 60 percent from 2013 to 2014. And while the spike has generally happened in P/C reinsurance, Assured Research also predicted a hike in deals among primary insurers as growth slows and returns decline.

Their findings follow similar conclusions in a February A.M. Best report noting reinsurance M&A will accelerate in the coming months as competition grows and returns continue to drop.

Deloitte, based on data from SNL Financial, counted 51 deals in 2014 versus 52 in 2013 and 58 in 2012. But the typical P/C deal was worth an average $217.7 million in 2014, up from $134.5 million in 2013 and $77.4 million in 2012. High-end deal sizes surpassed an average $1.7 billion in 2014, up from $1.1 billion in 2013 and $623 million in 2012, according to the report.

“While companies continue to look toward bolt-on transactions as a mechanism to drive growth, the price point is beginning to rise,” Deloitte said. “In the [property/casualty] market, buyers have been seeking scale, diversification and/or market access.”

Deloitte noted that P/C accounted for a few of the billion-dollar-plus insurance industry merger deals announced in 2014, including RenaissanceRe’s deal to buy Platinum Underwriter Holdings for $1.9 billion. In addition, Deloitte also noted evidence of more consolidation in certain specialty lines, such as crop insurance. Deere & Co. announced it would sell its crop insurance segment to Farmers Mutual Hail Insurance Co. of Iowa, leaving behind a business that generated years of losses.

Assured Research, in its March 2015 briefing, pointed out that returns on investment in P/C insurance can be boosted by measures such as share buybacks, which carriers have pursued aggressively in recent years. But “these are short-term fixes that can’t be sustained over the long term, particularly if valuations rise.” That leaves M&A as the next logical step, it said.

“We believe companies are going to have to pay more attention to mergers as a profit and growth enhancement strategy,” Assured Research said.

Topics Mergers & Acquisitions Property Casualty

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