The life and health industry can expect to see continued sluggishness in mergers and acquisitions, thanks to a number of factors unlikely to abate any time soon. This comes from a recent report published by Deloitte that highlights the top 10 issues impacting insurance M&A for 2012.
“In general, insurance company M&A activity during 2011 was hamstrung by widespread uncertainty about the U.S. and global economies, regulatory reform, accounting reform and other concerns,” the report said.
The brightest spot was in broker and agency deal activity, which the study noted was once again the insurance market’s most active segment. The most active buyers, Deloitte said, were “serial acquirers of agencies embarked on a roll-up strategy of large and small brokers and agencies.”
In 2011, there were 238 insurance broker transactions, Deloitte said, up from 324 in 2012. On the low end, the deals were as small as under $100,000. On the high end, deals topped out at more than $1.2 billion. The average size of broker deals was $43.7 million, up considerably from $12.5 million in 2012 and $18.1 in 2009. This uptick, however, was skewed by two unusually large transactions, however.
“Unfortunately, many of the challenges stunting M&A activity in 2011 are likely to remain unresolved in the coming year,” Deloitte said, pointing to 10 prominent issues complicating matters for all insurance mergers and acquisitions:
1) Economic uncertainty. Low growth, high unemployment, stock market volatility and the European debt crisis all make for an unpleasant economic landscape both in the U.S. (which is showing slow recovery) and around the world.
2) Regulatory uncertainty. Provisions in both the Patient Protection and Affordable Care Act (PPACA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act have raised serious M&A concerns. Chief among them is the Dodd-Frank systemic risk designation, which could increase capital requirements and reporting standards for any company that fits the criteria as being a systemically important financial institution (or SIFI).
3) Solvency II. This long-delayed European insurance regulation would codify capital requirements for insurers, which for some companies would equate to needing to meet higher reserving levels, as well as investments in IT and enterprise risk management.