Q1 Activity Signals Record Insurer M&A Deals Ahead in 2021: S&P

April 19, 2021

Insurance carrier mergers and acquisitions could reach historic levels in 2021 based on early indications from a robust first quarter, according to a new Standard & Poor’s report.

U.S. and/or Bermuda based acquirers or acquisition targets achieved an aggregate deal value of nearly $21.2 billion, the S&P Global Market Intelligence report found. That result exceeded the full year tallies from 2019 ($19.6 billion) and 2020 ($19.4 billion).

Early data suggests insurance carrier M&A activity could double for all of 2021 compared to previous years to more than $40 billion, and the report suggests it “could mark one of the strongest years in the last quarter century.”

Two companies could shape that final 2021 deal value number: The Hartford and AIG.

Chubb made a failed $23 billion takeover offer for The Hartford, in March, but industry observers expect the insurer to remain an enticing target. The S&P report notes that The Hartford’s future independence is in doubt, and its acquisition could spike the M&A deal-making total considerably higher.

Another factor that could push the insurance industry M&A deal total even higher: When and how AIG plans to separate its life and retirement business. Potential options include an initial public offering, but the insurer has signaled it is open to a private sale of a nearly 20% stake in the business.

If The Hartford is sold and AIG finds a partner to invest in its life and retirement business, S&P said aggregate M&A deal value could surpass $71.6 billion – a level surpassed twice in the last 24 years with inflation factored in.

P/C Versus Life

Deal value for the life, annuity, accident and health insurance sector in 2021 could hit between $29 billion and $32 billion, depending on whether AIG’s plans to sell part of its life and retirement business go through. This is a high point life insurance hasn’t reached since 2001, S&P noted, when AIG beat out Prudential to acquire American General.

On the other hand, deal value for P/C carrier transactions are as low as they’ve been for a first quarter since 2013, S&P said, hitting at just $923.5 million. S&P predicts P/C deal value for the year will ultimately hit around $10.5 billion. This figure factors in median inflation-adjusted activity for the final three quarters of the previous 10 years added to the Q1 total.

That number will surpass $38.9 billion, S&P said, if The Hartford is sold, “at price that approximates the tangible book multiples that ACE Ltd. agreed to pay in its 2016 acquisition of Chubb Corp…”

There’s at least one factor that could affect the ultimate M&A deal value for carriers: Biden increasing the corporate tax rate from 21% to 28% as proposed.

“Anticipation that a Biden administration and a Democratic Congress would raise the top individual tax bracket led to a surge of broker/agency deal making in December 2020,” the S&P report notes. “Whether history repeats itself in 2021 may ultimately depend on the contents, timing and legislative manifestation of those ideas.”

Topics Carriers Mergers

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