There was a robust rate of mergers and acquisitions in the insurance brokerage sector in 2021, and the trend is expected to continue through 2022. While there were many successful deals last year, the one that got away—the megamerger of Aon and Willis Towers Watson—offers predictive lessons of its own. And, with 2022 Q1 already in the rearview mirror, the current year’s trends are moving from the “predicted” to “current” column.
A Look Back—Noteworthy Deals in 2021
In its 2022 Insurance M&A Outlook, Deloitte’s look back at 2021 began with the impressive 40 percent increase in total deal volume among underwriters and brokers. In the broker sector alone, the 802 transactions announced in 2021 reflected a 45 percent year-on-year increase compared to the 2020 total. In addition, the aggregate $10.9 billion deal value was almost double the average of the previous ten years. Among the reasons: Insurance brokers are more attractive than blocks of insurance business to aggregators and private equity firms because of the logistics for structuring a deal. And with the roster of insurance brokers closing deals expanding in 2021, the number of total deals had nowhere to go but up.
The noteworthy deals of 2021 include these transactions:
- Marsh McLennan Agency (MMA), a subsidiary of insurance broker Marsh, acquired InSource Insurance Group LLC. MMA did not disclose the terms.
- Insurance brokerage firm Brown & Brown, Inc. acquired the stock of Remedy Analytics, which offers pharmacy consulting services to employers. Brown & Brown also acquired the assets of Rainmaker Advisory, LLC, Heacock Insurance Group, and CoverHound. Brown & Brown did not disclose the terms for any of the acquisitions, which were among more than a dozen for the firm in 2021.
- Arthur J. Gallagher & Co. acquired the treaty reinsurance brokerage operations from Willis Towers Watson for $3.25 billion.
The Deal That Wasn’t—Aon-WTW
Willis Towers Watson, now known as WTW, was a party in a cautionary tale of 2021 M&A. In March 2020, WTW and Aon announced they planned to merge to form the world’s largest insurance broker. Annual revenues of the new company were estimated to be more than $20 billion. But while there is a robust trend of insurance brokerages consolidating, megamergers cannot always survive regulatory scrutiny. Facing pressure from the U.S. Department of Justice, which filed suit to block it on antitrust grounds, the two insurance giants canceled the merger. Aon’s 2021 earnings took a hit from the Q3 $1 billion termination fee it paid to WTW.
In additional fallout, deals for asset sales, which had been initiated to address antitrust regulators’ concerns in Europe and the U.S., were canceled. For example, Arthur J. Gallagher & Co. halted its plans to acquire WTW assets valued at nearly $3.6 billion. And Aon scrapped the planned sales of its U.S. retirement business and Retiree Health Exchange.
The COVID Factor
And what effect has the COVID-19 pandemic had on insurance brokerages? Thus far, brokerages have weathered the challenges well, and they continue to be very profitable. No negative impact from the pandemic is evident when it comes to mergers and acquisitions in the sector.
The Path Forward—Predictions for 2022
In its Insurance: Deals 2022 Outlook, PwC noted that insurance brokerage transactions comprised most of the announced M&A activity in the insurance industry for July-December 2021. They predicted the trend would continue in 2022, given the high interest in the insurance sector overall from corporate clients and private equity firms. And, they asserted that the consolidation of insurance brokers would continue at a brisk pace. However, they conceded that the challenge of increased regulatory scrutiny, as evidenced in the aforementioned Aon-WTW merger failure, would limit merger size.
Deloitte’s 2022 outlook also predicted a continued strong trend in insurance brokerage consolidation, particularly in lower- and middle-aggregation markets up to $200 million.
First Quarter 2022—The Numbers
Thus far in 2022, the number of transactions are trending below predictions. S&P Global reported in early April that there were 161 insurance broker deals announced for the first quarter, compared to 207 for the same period in 2021. The aggregate value of the 2022 Q1 deals was $618 million, down dramatically from the $22.72 billion of last year’s first quarter.
Michael Callam is president of Gertsburg Licata Acquisitions. He can be reached at [email protected] or (216) 573-6000 x7003.
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