January 20, 2021
U.S. M&A Will Rise Sharply in 2021
by Vikram Sidhu and Jared Wilner
A more optimistic outlook for most lines of business will make stronger players look for growth through acquisitions.
After a year during which the U.S. insurance industry had to grapple with the global pandemic, the severe economic downturn and other factors such as political uncertainty, insurance deal activity in 2021 will be robust due to several factors:
- Increasing premium rates and a more optimistic outlook for most lines of business will make stronger market players more likely to look for growth opportunities through acquisitions, some of which may have been put on hold in 2020 due to the pandemic.
- The improving market conditions for insurers is also attracting more capital into the industry, which will help fund more deals. In addition, with interest rates at historic lows, buyers may look to tap cheap debt or deploy funds stored away during the pandemic to fund acquisitions.
- As the economy begins returning to a more stable state in 2021 — presumably after the widespread dissemination of COVID-19 vaccines — insurers will benefit from a reduction in both the regulatory and commercial uncertainty that resulted from the pandemic, which will allow for more focus on longer-term strategy and deal-making.
- For many large insurers and insurance intermediaries, the pandemic demonstrated a need to double down on efforts to adopt innovation into their existing business models and focus on a digital approach to customer experiences. Insurtech businesses were able to help insurers become more digitally focused and access new sources of data, technology and distribution channels despite the challenges of the pandemic. In 2021, insurers will target acquisitions of startups as a means of accessing novel technology platforms and new distribution channels; insurtech startups will be willing to consider being acquired by or partnering with large incumbents after having experienced the uncertainties of the pandemic and due to the need to allow for exits by early investors.