Insurer M&A activity to ‘at least double’ in 2021, says S&P

Analysis by S&P claims that for 2021, insurance carrier merger and acquisition (M&A) activity is poised for a breakout year, with deal value potentially reaching as high as $71.65 billion in the aggregate.

Deal value of this magnitude would represent an increase of 269.5% from the levels seen in 2020, and would be the third highest amount witnessed over the past 24 years, on an inflation-adjusted basis.

However, this figure does assume a sale of The Hartford later in 2021 and also that AIG finds a partner to invest in the life and retirement business.

As we wrote at the time, The Hartford recently rejected an unsolicited acquisition offer from rival carrier Chubb, which has reportedly led other carriers to explore acquiring the company.

AIG said back in February that it was actively pursuing a 19.9% sale of its Life and Retirement business, with the insurer carefully weighing the relative merits of this path compared to a minority IPO.

In the instance that a sale of The Hartford does not go ahead, and AIG decides to go down the IPO route, which is S&P’s base-case scenario, insurance carrier deal value for 2021, in the aggregate, would reach $40.55 billion. This represents a 109.1% increase from the level seen in 2020.

S&P explains that even in the absence of additional M&A activity, the planned separations of the life and retirement business from AIG and also Jackson Financial from UK insurer Prudential, “would have made 2021 something of a transformational year for the U.S. life and annuity business.”

In fact, for the life, annuity and accident and health sector, S&P’s base-case forecast is for an aggregate deal value of $29.44 billion, which would be in line with the inflation-adjusted total seen in 2005.

The high-case scenario, which assumes a private sale of a minority stake in AIG’s life and retirement operation, would take the total for 2021 to $32.06 billion, in the aggregate. This would be the highest level seen in the sector since 2001, note analysts.

As deal value on the life side of the industry swelled, reaching $19.59 billion in Q1 2021, it’s a very different story for P&C carrier transactions, which actually fell to their lowest level since 2013 at $923.5 million in the period.

For 2021, S&P’s base-case for P&C deal value stands at $10.47 billion. This total adds the median inflation-adjusted activity for the final three quarters of the previous 10 years to the first quarter’s announced total, explain analysts.

The firm’s high-case for P&C in 2021 is $38.94 billion, which assumes a sale of The Hartford “at a price that approximates the tangible book multiple that ACE Ltd. agreed to pay in its 2016 acquisition of Chubb Corp. as outlined in a 2015 Guggenheim Securities fairness opinion.”

During the first-quarter of 2021, S&P notes that transactions involving U.S. and/or Bermuda-based acquirers or targets produced an aggregate deal value of $21.16 billion, which is above the full-year totals from both 2019 and 2020.

“Insurance carrier M&A activity seems poised to at least double in 2021 and could mark one of the strongest years in the last quarter-century,” says S&P.

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