Insurance deals outlook
We expect continued strong M&A activity in the insurance sector as we head into the second half of 2021, driven by record levels of deployable capital and continued interest in insurance carriers and distribution. In fact, the flurry of activity through the first half of 2021 has led to a constraint on deal advisor resources.
We expect private equity firms and asset managers to continue their push into the insurance sector, specifically in the life insurance and annuity space. As we note in the summary overview, we’ve seen several large private equity players acquire on balance sheet insurance platforms over the last few years. Going forward, we expect those platforms to be active while other private equity and asset managers also enter the space with acquisitions of insurance carriers or blocks of business to increase assets under management. The entries of these investors will collide with strong sell-side interest from carriers looking to divest non-core assets. We’ve also seen an increased interest in acquisitions from mutual insurers, who are strategically deploying capital to acquire blocks of business as they seek to grow and offer new products.
That said, the active insurance deal market may face regulatory headwinds from uncertainty surrounding potential corporate income tax rate increases and other changes, and the development of global minimum tax rules in response to Pillar Two of the Organisation for Economic Co-operation and Development (OECD) / G20 Base Erosion and Profit Shifting (BEPS) Project. In addition, there is uncertainty about how long the low-interest rate environment will persist. If interest rates do increase, it may drive interest in insurance carrier targets and attract more buyers in the space.
We’ve also seen increased attention from regulators, both in the US and globally, on the consolidation in the insurance brokerage space and the risk of concentration with top brokers and agents (e.g., the recent Gallagher and WTW deal).
The nature of capital
Private equity investors remain in active competition for life insurance targets as they expand their foothold in the insurance market. In the past year, Carlyle acquired Fortitude Group and KKR acquired Global Atlantic. The trend continued in the first half of 2021 with Apollo’s announced acquisition of Athene Holding Inc. and Blackstone’s announced acquisition of Allstate Life Insurance Company for $3.1 billion. Valuations of life and annuity blocks remain high as these asset managers compete to establish platforms and grow assets under management. We expect continued activity by private equity and other asset managers that look to increase assets under management in a cost effective way.
In the first quarter of 2021, we began to see an uptick in activity from mutual insurance buyers; of note, MassMutual announced its acquisition of Great American Life Insurance Company, and CUNA Mutual Holding Company announced its acquisition of Assurant’s Global Preneed for $1.3 billion. Life insurance targets present an attractive opportunity to deploy capital that has been building up on balance sheets. Additionally, US domestic mutual insurers may not be as sensitive to potential tax changes (other than statutory rate changes) compared with multinational insurers, making them attractive partners for other domestic insurers.