M&A on the Rise
After the New Year, it was widely reported, and noted in this blog space as well, that 2014 was a tremendous year for mergers and acquisitions. The domestic economy has rebounded from the 2008 market crash and subsequent recession as fiscal injections into the economy and a monetary policy keeping interest rates at near-zero lows to make borrowing easier loosened credit. Companies and financial investment firms, like private equity firms, lost the initial reticence that pervaded the markets in recent years, and looked to make leveraged investments by taking on debt like loans or bonds, and even were willing to insert some cash into deals as well as a sign of optimism and confidence. And now, like the ebb and flow that characterizes many economic periods, the Federal Reserve has hinted that it will eventually start to increase interest rates gradually, which will keep inflation in check and start to allow lenders to reap more benefits from the loans they make.
Insurance Industry M&A
Mergers and acquisitions in the insurance industry, specifically, has shown a significant increase in recent years in terms of total deal value. Insurance firms, as most know, issue insurance policies for all types of circumstances, including health insurance, life insurance, insurance for car or home damage, insurance for workers, for business transactions, professional liability, and many other areas. Reinsurance firms issue insurance to other insurance companies so that they can cover and manage their own risks in the event they must make an expensive payout on one of its own insurance policies. Essentially, it is insurance for insurance companies. In addition to insurance underwriters, insurance brokers have also been part of this overall trend. Like any company or financial institutions, these entities merge and make acquisitions all the same to add assets and resources, chase certain markets, expand profits, and otherwise grow in general.
Insurance M&A to Grow in 2015
While the jury may still be out for some on 2015 as the economy nears the end of the first quarter, a recent article, citing a study from the consulting firm Deloitte, explained how such mergers and acquisitions growth will continue in 2015 particularly in the insurance industry. Insurance brokers and underwriters agreed to nearly 400 mergers and acquisitions deals in 2014 alone, with several of them valued at $1 billion or greater, which was significant considering that many occurred in multiple years prior. The article cited the report as explaining that this growth can be attributed not just to improved economic environment, but also foreign firms coming in to the U.S. to make acquisitions and gain a stronger foothold here, as well as an overall aim by firms to consolidate with others and evolve their goals and the types of insurance or reinsurance they offer. Mergers and acquisitions in the insurance industry was particularly notable in the area of property and casualty insurance, while health insurance and life insurance slowed. The Deloitte report indicated that both activity and aggregate deal values should increase this year, building on the improvements of the last couple of years.