2020 insurance M&A outlook has been saved
2020 insurance M&A outlook
Pursuing growth amid uncertainty
An uncertain economy, fluctuating financial markets, and a presidential election mark a year filled with uncertainty, but strong opportunities remain for insurance M&A. Organizations will continue to pursue strategic insurance acquisitions to grow their product portfolio, expand their digital capabilities, and improve customer experiences and their bottom line.
- COVID-19’s impact on insurance M&A
- What’s ahead
- Drivers and trends
- Moving forward
- Laying the groundwork for acquisitions
Special update: COVID-19’s impact on insurance M&A
At the beginning of 2020, no one could have imagined the degree of uncertainty and volatility that we’re experiencing in the economy more broadly. As one would expect, this has had a negative impact on mergers and acquisitions (M&A) activity in the insurance sector.
The post–COVID-19 world may unleash structural and systemic changes across multiple industries, and it’s widely expected that recovery will be highly asymmetric across regions and sectors. Most industries, including insurance, will need to reinvent themselves to thrive and insurance M&A activities are expected to have a strong influence in shaping the “next normal” environment.
In this update, we revisit some of the key factors we identified in our first outlook. We also consider additional factors which have risen over the past six months and provide a historical perspective. While transactions have closed in Q1 and Q2 2020, based on our perspective, most significant transactions that were in flight prior to the partial closing of the economy continued to close. Download our special update to learn more about the insurance trends we expect to have an impact on M&A activity in the second half of 2020 and into 2021.
What’s ahead: Insurance M&A deals may hit pause
In the year ahead, insurance companies contemplating M&A are expected to move cautiously. Economic, interest rate, and financial market uncertainty, along with the upcoming presidential election, are among the headwinds that may slow activity in the market. However, companies will continue to view alliances, investments, and acquisitions as attractive options when market factors make organic growth more difficult.
In 2019, insurance M&A aggregate deal volume was expected to remain consistent with the strong activity that took place in the previous year. However, deal volume, aggregate deal value, and average deal value varied by sector, with property and casualty, plus life and health, seeing declines. These results were possibly influenced by the lack of alignment between buyers and sellers and an increased focus on organic growth. Yet it was a record year for InsurTech investments; while new startup launches have slowed, funding continues to flow to support more proven players.
2020 insurance M&A volume and value levels may be similar to those of 2019, especially if the projected economic downturn gets pushed further out or if the political landscape stabilizes in the second half of the year. Organizations seeking targets that are accretive, synergistic, and consistent with their overall strategy should be favorably positioned to optimize M&A opportunities to boost their bottom line, broaden their product portfolio and/or geographic reach, get closer to the customer via digital technologies, and solidify their competitive positioning.
2020 insurance M&A drivers and trends
Insurance company executives who are considering opportunities to buy, sell, or partner in 2020 should consider these six trends that will influence the insurance M&A outlook.
Moving forward on 2020 insurance M&A opportunities
Disruption tends to create M&A opportunities, and we expect that to be the case in 2020. If a company pursuing a growth strategy amid today’s volatile conditions can’t get there organically, there are ways to get there inorganically through acquisitions, mergers, alliances, disposals, and investments. Deloitte’s survey of insurance industry executives found that more than half expect to complete an M&A transaction in the next two years. As they move forward in 2020, insurance organizations looking to optimize M&A opportunities should:
- Define and “mirror up” the overall corporate growth strategy and the M&A strategy. Determine whether the company can get to its desired future state on its own or if it needs to acquire a capability, technology, or book of business.
- Define the company’s appetite and develop or enhance capabilities so it can react quickly when M&A opportunities arise. Verify access to capital, develop an M&A playbook, and organize a team of internal and external advisers.
- For buyers, be selective about which properties to pursue. Be proactive about contacting targets, establishing executive-level relationships, and stating interest in a potential deal.
- For sellers, develop a very specific view of the company’s value proposition beyond financials to differentiate in an auction.
- Be aware of the changing tax and regulatory landscape’s potential impact on both domestic and global deals.
- Look beyond direct competitors or suppliers for M&A and into digital and value-chain adjacencies.
Laying the groundwork for acquisitions
Insurance M&A deals are an ongoing process for companies that do it well. It requires laying groundwork today to be ready to act on opportunities tomorrow—especially when pursuing profitable growth in a challenging environment.
For more on these insurance M&A drivers and trends, download the 2020 insurance M&A outlook. Our report focuses primarily on conditions and activity in the United States and Bermuda, and we’ve also included an appendix with snapshots of M&A activity in several other global markets.
Visit our Insurance industry page for broader industry insights, analysis, and resources.
In today’s rapidly evolving marketplace environment, key business issues are converging, with impacts felt across multiple industry sectors. What are the key trends, challenges, and opportunities that may affect your business and influence your strategy? Look for more perspectives and insights from some of Deloitte’s forward-thinkers.