While insurance deal volume remained flat in 2012 compared to 2011, momentum increased in the final quarter of 2012; PwC expects this momentum to continue into 2013 despite the ongoing economic uncertainty, according to a new report from the consulting firm, titled “A case for optimism, in the face of uncertainty: 2013 U.S. financial services M&A insights.”
Despite the fact that the sector saw 305 announced deals in 2012, as opposed to 310 in 2011, the report notes the insurance sector’s high activity from last year relative to other financial sectors. “While insurance announced deal volumes have declined slightly in 2012, we noticed increased interest in the sector on the part of both buyers and sellers,” reads the report. The increase in interest did not lead to an increase in deal volume, according to PwC, partially because “buyers sought to acquire specific products or business lines, while sellers were interested in a clean exit.”
Insurance accounted for $10.1 billion of disclosed deal value in 2012, also down from 2011’s mark of $12.9 billion. Average deal size, therefore, decreased as well, with only one multi-billion dollar deal in 2012. Nevertheless, the increase in interest combined with a couple other factors give reason for optimism, according to PwC.
Continuing low investment yields driven by the Federal Reserve’s efforts to stimulate economic growth through quantitative easing and other monetary policies will continue to strain the profitability of insurance companies, according to the report. PwC asserts that strategic acquisitions and exiting certain lines of business are the two main options for mitigating this pressure.
Also seen forcing insurers to make moves is the uncertainty surrounding Solvency II. The report notes that many European-based insurers divested their U.S. operations; PwC expects this trend to continue. Lastly, the high volume of catastrophe-related claims over the past few years could, according to the report, drive severe enough price increases to attract new acquirers to the industry.
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