2024 insurance M&A outlook: Climbing the leaderboard

Life and annuity

Insurance M&A deal activity in the life and annuity (L&A) market remained subdued in 2023. Carriers saw higher returns on their investments due to elevated interest rates. That made them more attractive to dealmakers interested in spread-based businesses. But there was a mismatch between those with capital to deploy on the one hand and available assets with uncomplicated balance sheets on the other. 

In 2024, we’re expecting to see an ongoing influx of private equity money, as well as a pickup in external investment. Market activity among the L&A aggregators seems to have cooled off for now, but it’s likely to bounce back in the upcoming year. 

More public insurance companies are expected to turn to divestiture as a strategy for mitigating the impact of LDTI, while some L&A companies have been offering pension buyouts or pension risk transfers. Overall, a slowdown in premium sales, paired with a premium outflow issue, means insurers should think about how they reposition themselves.

Property and casualty

From social inflation to third-party litigation, a confluence of ongoing trends contributed to dampened M&A activity in the property and casualty (P&C) market this year. One of these trends, social inflation, caused retained losses—and the initial estimates that actuaries make on losses—to go up. That affected not only companies in the insurance M&A space, but corporations that retain significant risk under large deductible and self-insured retentions as well. 

In 2024, we’re expecting a slow reinsurance market given how property catastrophe rates have risen. Some companies may look for scale in the reinsurance market, but others could decide to reap the rewards of the high interest environment. 

On top of that, 2024 could see climate-related perils like extreme weather, flooding, and wildfires trigger additional legislation in response. This could lead to more consolidation as insurers strengthen their balance sheet and decide where to do business in the future. However, as the broader market pulls away from certain risk classes, expect some carriers to expand their footprint with creative, flexible solutions tailored to specific risk profiles.

Insurance brokers

Many insurance brokers have long expected insurance technology (InsurTech) to enter the mainstream conversation and serve as a major disruption. But so far, that hasn’t been the case. The adage that insurance is bought, not sold, is reflected in many customers’ ongoing need for expert guidance in a complex market. 

2024 is expected to bring more acquisition opportunities, as many private equity investors will be undeterred by higher premiums and will continue to pursue a strategy of aggregating smaller brokerages. Additionally, although pricing pressures may continue, expect the market to stay competitive as private equity goes head-to-head with corporate buyers looking to grow through M&A in the middle market. 

Finally, the Department of Labor proposed legislation in October that aims to improve the quality and fairness of the investment recommendations that professional advisers provide. If adopted, it may encourage life insurance companies to revisit the value of an independent sales force that can give advice across a range of products.

Taking a proactive stance

By the end of 2023, the insurance M&A market was approaching a two-year slowdown. However, the market may rev up in 2024 as more buyers come off the sidelines. Moving into 2024, expect more acquisition opportunities and continued competition across the market. 

To set yourself up for success, assess your existing book of business to better understand the levels of capital you’re currently required to hold. Plus, it’s a good idea to button up your growth strategy and clean up your data for a more modern approach to financial analysis and reporting. 

Now is also the time to identify and collect the data you’ll need, consider the due diligence questions to ask a potential target, and set up models to weigh alternative scenarios. Even if you decide that 2024 may not be the year to take risks, a well-thought-out growth strategy can position you to move on opportunities as they arise.

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