• Why Insurance M&A remains buoyant despite global turmoil and uncertainty

Why Insurance M&A remains buoyant despite global turmoil and uncertainty

03 November 2021

The general M&A market has proven to be highly resilient over recent months as deal volumes and pricing multiples in many sectors have returned to pre-pandemic levels. The continuing strength of the M&A market has been particularly evident when looking at the insurance sector and specifically the intermediary market of brokers, Managing General Agents (“MGA’s) and other distributors.

Indeed, the appetite for high quality businesses is arguably stronger than ever with the demand for suitable investment opportunities being fuelled by both corporate consolidators and institutional or private equity funded platforms.

Drivers of value in insurance M&A

Despite the challenging trading environment faced by many brokers and the searing pace of consolidation strategies that led to record high levels of M&A in recent years, the insurance sector fundamentals that have driven much of the transactional activity remain.

Ageing demographics throughout the intermediary channels, the increasing cost of complying with changing regulation and compliance and an advantageous capital gains tax regime all continue to influence business owners when considering a potential equity realisation. 

The attraction of M&A for corporate acquirers and investors has been long established. The ability to enhance revenues through scale, save duplicated back-office costs and to offer an extended product range to an established client base have been proven to deliver results.

Resilience and value in M&A

However, if the last 18 months has had any positive impact at all, it has been the opportunity for many brokers and intermediaries to further demonstrate the strength of their business and the quality of their people.

Despite market volatility, many brokers have shown the resilience of their business model, the strength of relationships held with their clients and the ability to adapt to a changing risk environment in an increasingly complex world. The strength of this performance has been recognised in not only recent pricing multiples paid but also ambitious deal structures as acquirers and investors jostle for prime position in a highly competitive market. 

The opportunity for Insurtech

The pandemic has also certainly accelerated changes in consumer behaviour when it comes to insurance. Traditional distribution methods and levels of cover are now challenged by tech-savvy consumers. Technology-enabled brokers can differentiate themselves by offering flexible policies that meet the needs of demanding consumers. In line with its more traditional intermediary counterparts, the Insurtech sector has seen huge levels of institutional and corporate investment, and this shows no signs of slowing.

While it is difficult to be unwaveringly confident about anything given what we have all experienced over the last 18 months, the strength of the insurance M&A market would appear to be here to stay.  

If you would like to discuss any further issues, please contact Adam Whistance