Despite headwinds, the insurance deals market remains resilient
Insurance deal action continued to slow in the second half of 2022 as a result of increased borrowing costs, financial tension and inflation. For the six-month period from mid-May 2022 via mid-November 2022, there were 205 reported transactions, with $2 billion in disclosed deal value and no megadeals, reached to 343 reported transactions with $15.4 billion in deal value reported in the previous six-month period from mid-November 2021 via mid-May 2022.
Toward the end of the year, we started to see a more noticeable impact from economic anticipation, as deal action slowed even further, with only 29 reported deals from the end of September via mid-November. Nevertheless, while training has drawn back from its 2020-21 peak, insurance dealmaking has still been rather resilient likened to other sectors.
Insurance brokerage transactions have persisted to drive announced deal volume. Of the 203 insurance deals announced, 189 were connected to brokers, with the remaining 14 to underwriters. One of the more notable insurance commerce was Mitsui Sumitomo Insurance Company’s deal to develop Transverse Insurance Group from Virgo Investment Group for $550 million. The purchase will give the Japanese effects insurer key to a historically strong US MGA and fronting business as they strive to grow in the US.
In other key products, Blackstone Inc. and Resolution Life reported a partnership in October. Blackstone’s acquisition is $500 million and will help increase approximately an additional $3.5 billion in new equity funds commitments, obtaining Resolution Life’s total equity capital base to more than $8 billion.
The deal will give Blackstone $25 billion in support to manage in the first year and up to $60 billion of assets to manage over the next six years. In November, Voya reported a $570 million purchase of Benefitfocus, Inc., a help administrator, showing a continued good among insurers in developing use administration capabilities that increase their group benefit offerings.
Insurance Deal action outlook
We expect economic headwinds to continue into the first quarter of 2023 as companies consider the impacts of inflation and good rates on deal values. As has been the case historically, we expect private equity buyer need for resilient, EBITDA generating businesses, such as insurance brokerage firms, to remain strong. As the cost of borrowing increases, we expect valuations to decline, especially for insurance brokerage marks where many of the brokerage consolidators are personal equity backed and rely laboriously on debt financing to fund these investments. Given the recent rise in good rates, the price of funds has increased dramatically, which is possible to affect valuations of these marks into 2023.
Deal movement in the life and pension sector has stayed strong, as long-duration blocks have helped from a rising rate environment. Acquirers of these in-force/legacy blocks don’t rely on debt financing, which makes these trades demanding to buyers in a rising rate climate. As a result, we’ve seen improved demand and rising valuations for these assets as personal equity seeks to deploy its vast dry powder.
Again, as valuations decline in the cooling economy, corporate buyers with strong balance sheets may have continued interest in the insurance sales market.