Insurance coverage M&A prepared for ‘roaring’ yr after fast restoration
PwC’s “Insurance Deals Insights: 2021 Outlook” describes a “roaring” return from M&A in the second half of 2020, with 222 deals announced from late June to mid-November, valued at $ 10.9 billion Have dollars. Notable deals include KKR’s acquisition of Global Atlantic for $ 4 billion, Allstate Inc’s acquisition of National General Holdings Corporation for $ 3.7 billion, and Great-West LifeCo Inc.’s purchase of MassMutual’s retirement benefits business.
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“There were concerns in the spring of 2020 about the investment portfolio issues, but we didn’t really see that,” said Marra. “In fact, many insurance companies have weathered the storm on the investment portfolio side very well, and because of the interest losses, many have made really significant unrealized gains, which is always an interesting part of the insurance business.”
Greg McGahan, partner in PwC’s practice and US head of PwC’s alliance and joint venture practice, noted that the “longer term lower” interest rate environment will continue to put pressure on investment returns and profits. He commented: “The persistently low interest rate environment […] will put a lot of pressure on capital and how people feel about and how to manage them efficiently and effectively. Companies take a close look at their individual books of account to find out what is being managed efficiently and effectively, and how they are managing their capital base.
“I think the financial services market overall did a pretty good job weathering the storm. In the banking sector, for example, at the end of the first quarter, second and third quarters, there was great uncertainty about loan losses and some banks had significant reserves, but to date they have not played through the losses. Insurance companies felt the same way. They thought they would have significant losses in their asset portfolios, but they didn’t show up. “
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Despite a number of challenges, PwC’s business practice assumes that the “strong M&A activities” will continue in 2021, which is due to the sale of the non-core business and the hardening of the P&C specialty markets after access to new sales channels and a considerable amount is due to the deployable capital. New capital is particularly hot in specialty commercial insurance, according to Marra, with half a dozen significant announcements of fresh capital in new Lloyd’s vehicles.
“Around the middle of 2020, we saw a number of industry veterans teaming up with new capital to enter the commercial insurance space,” Marra told Insurance Business. “The idea is that these people don’t want to be associated with old liabilities. The industry is of the opinion that reserves are getting tighter. Many companies have released reserves from the previous year, and while their balance sheets look strong, they aren’t as strong as they were a few years ago and there are still plenty of legacy liabilities waiting to be paid off. As a result, a lot of new capital has come into space supporting new vehicles with a Lloyd’s connection, and I think it will definitely stay that way in 2021. “
In recent years, many businesses have been triggered by the desire for new sales channels. Marra added that insurance brokers, general agents and third-party administrators had “a lot of interest”, particularly through private equity.
“While there was a short break of around 60 days in spring 2020, the M&A market was open [for brokers, MGAs and TPAs] came back to life in the summer and it was very, very active, ”he said. “It’s probably as active now as it was before COVID, and that’s because we’re seeing a return of multiples back to mid-teens and a return in deal funding.”