A range of factors – both positive and negative – will likely lead to a spike in M&A activity
The volume of mergers and acquisitions (M&A) in the US insurance industry should be higher in 2018 than in 2017, with a range of factors driving deal-making.
On the up-side, these will include the expected cuts in US corporate tax rates.
We also expect a decrease in pricing pressure (or conversely the ability to raise pricing) for some lines of business due to recent hurricanes and other events. This could allow companies to focus on strategic M&A activity (instead of focusing most of their energies to responding to a difficult price environment).
The third positive driver is insurtech. This presents opportunities as well as a strategic need, which should lead to acquisitions (especially by large insurance groups) of successful insurtech start-ups with a proven track record. However, the size of such deals will typically be small.
On the down-side there are two negative factors that could also drive insurance M&A in the US.
First, if alternative sources of capital expand into new areas beyond the lines of business where they have remained concentrated up to this point, the result will be additional pressure on pricing which could result in some businesses being put up for sale.
Second, business-specific pressures will drive activity (such as the proposed tie-up between CVS and the health insurer Anthem).
However, a recession, a fall in the stock markets, global political conflicts or other negative global events could potentially override the factors above and put a chill on insurance M&A in 2018.