1/28/2024 0 Comments Invisor insurancehas led an increasing number of unsatisfied individual agents in M&A situations to strike out on their own. Two major factors are propelling agents to open their own independent agencies: the 68 percent increase in M&A activity over the past five years 3 Daniel Menzer, Agent & broker 2020 year-end merger & acquisition report, Optis Partners, January 2021,. 2 2018 agency universe study, Independent Insurance Agents & Brokers of America (IIABA), 2018,. While the number of agencies declined an estimated 20 percent from 1996 to 2006 because of agency roll-ups, the decline was less than 5 percent over the following decade. In personal P&C, for example, new independent agencies have emerged nearly as quickly as existing ones have merged. Consolidation shifts focus to less trodden paths of opportunity and continued need for value creationĭespite vigorous deal making among brokerage and claims services and third-party administrators, these industry segments remain fragmented. Several tailwinds-consolidation, digitization, and specialization-will play a key role in informing investors’ decisions and value-creation priorities in a postpandemic environment. And while pre-IPO and pre-SPAC insurtech valuations remained high, publicly traded insurtech companies were a notable outlier in the first half of 2021, as investors reevaluated their appetite in this space because of increased concerns about long-term profitability. Insurance stocks recovered, with life insurers and software providers leading the way. But the first half of 2021 showed notable improvement (Exhibit 1). The SNL US Life Insurance Index closed the year more than 20 percent below the S&P 500 Index, and property and casualty (P&C) insurers, while slightly higher on a year-over-year basis, also closed significantly below the S&P 500. The uncertainty of 2020 caused industry-wide disruption. In this article, we offer an update on the industry’s outlook and highlight several areas for investors to consider as they search for value in insurance services, distribution, technology, and balance-sheet plays. This is partially driven by an increased appetite for balance-sheet investments, which investors view as a significant source of permanent capital, as well as by continued opportunities for value creation in an industry that has historically been slower to adopt new business models. Insurance accounts for more than half of all PE deals in financial services. 1 McKinsey analysis of Pitchbook and Preqin 2020 insurance transactions. While PE’s total insurance investment was lower in 2020 than in 2019, it remained above 2017 levels, primarily driven by distribution and balance-sheet transactions. These trends also light the way for PE investors, who continue to look for ways to deploy large amounts of capital-leading to what some in the industry see as outsize valuations, especially in public markets. Today, many players in US and European markets are applying insights from their 2020 performance to emerge stronger amid increased consolidation, digitization, and specialization, as well as persistently low interest rates. When we last published our perspective on this space, in November 2020, insurance-industry M&A activity was on the rise, insurtech IPOs and special-purpose acquisition companies (SPACs) were taking off, and uncertainty around the timing of COVID-19 vaccines and the “next normal” loomed large. As the contours of a postpandemic economy begin to take shape, the implications for private-equity (PE) investors in the insurance sector are also coming into focus.
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