More players are expected to get involved in M&A activities within the U.S. insurance space in 2018, according to Deloitte's insurance M&A outlook report.
The space is experiencing the emergence of new buyer types, with sovereign wealth funds, pension funds, closed-block specialists and special purchase acquisition companies seen as highly competitive buyers because of their lower cost of capital.
Typical competitive buyers have neither the expertise to underwrite nor the desire to distribute, but they may be part of an investor group looking to capitalize on another entity that does want to underwrite and distribute. Such buyers may also want to aggregate various closed blocks, make them "lean and mean," and divest them in a run-off deal. Demand for such run-offs may exceed supply, potentially leading to higher prices, according to the report.
The U.S. insurance space also continues to attract the interest of foreign investors, especially Chinese and Japanese companies seeking to diversify and grow outside their home country at a time when capital is plentiful and debt is cheap. The space could also potentially draw European buyers that are looking into how the U.S. market will affect their business portfolios.
Deloitte projects that 2018 will see a continuation of inbound M&A interest and activity focused more on the property and casualty and specialty insurance segments than on life and health.
In 2018, deals will consist mainly of smaller transactions valued at less than $2 billion. However, there could also be a handful of deals with a value of $5 billion or more given the number of CEOs of large, global companies who are speaking publicly about initiatives that will either directly or indirectly boost strategic M&A, according to Deloitte.
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