The once-booming insurance merger and acquisition market across North America has hit a significant speed bump in early 2024, with transaction volumes dropping to their lowest levels in nearly five years. According to industry analysts at Deloitte, only 132 insurance deals were completed in the first quarter – representing a stark 28% decline from the same period last year.
“We’re witnessing a fundamental shift in how capital flows through the insurance sector,” said Marcus Donovan, senior M&A advisor at Financial Risk Partners. “Buyers who were aggressively expanding their portfolios are now applying much stricter scrutiny to potential acquisitions.”
The slowdown spans both the United States and Canadian markets, with property and casualty insurers particularly affected. The segment recorded just 79 transactions in Q1 2024, down from 118 during the first quarter of 2023.
Economic uncertainty appears to be the primary culprit. Rising interest rates have dramatically increased borrowing costs for potential buyers, while persistent inflation has created valuation challenges. Many sellers, still anchored to the premium multiples of 2021-2022, are reluctant to accept offers that reflect today’s more conservative market outlook.
“The gap between buyer and seller expectations is probably the biggest impediment to deal-making right now,” explained Jennifer Keller, insurance industry analyst at CO24 Business. “Sellers remember the 12-14x EBITDA multiples from 18 months ago, while buyers are looking at economic fundamentals that simply don’t support those valuations anymore.”
Private equity firms, which drove much of the previous acquisition surge, have also pulled back significantly. PE-backed transactions fell 35% year-over-year, with many firms choosing to focus on improving operational efficiencies within their existing insurance portfolios rather than pursuing new targets.
Regulatory scrutiny represents another headwind. Both U.S. and Canadian regulatory bodies have intensified their review processes for insurance mergers, with particular attention to market concentration and consumer impact. The average approval timeline has extended by nearly three months compared to 2022.
The life and health insurance sector has proven somewhat more resilient, with transaction volume declining just 12% – substantially outperforming the broader market. Industry experts attribute this to the segment’s relatively stable cash flows and reduced exposure to catastrophic risk factors that have plagued the P&C sector.
“Life insurance businesses present a more predictable earnings profile, which is incredibly attractive in uncertain economic times,” noted William Cheng, insurance M&A specialist at Pinnacle Advisory Group. “Plus, the demographic trends supporting life and retirement products remain exceptionally strong across North America.”
Geographic patterns reveal that Canadian insurers have seen a steeper decline in M&A activity, with deals down 42% compared to 31% in the U.S. market. This disparity likely reflects Canada’s more concentrated insurance landscape, where fewer potential acquisition targets exist.
Despite the overall slowdown, activity in specialized niches has remained robust. Insurtech acquisitions and deals involving specialty underwriters in emerging risk categories like cyber liability and climate-related coverage have bucked the broader trend, with transaction volumes nearly matching 2023 levels.
Industry forecasts suggest the current M&A lull may persist through 2024, with a potential rebound coming in early 2025 if interest rates stabilize and economic confidence improves. Until then, transactions that do move forward will likely feature more conservative structures, including earnouts and contingent pricing mechanisms that bridge valuation gaps.
“The fundamentals driving insurance consolidation haven’t disappeared,” concludes Raymond Terrell, CEO of Atlantic Insurance Partners. “Scale advantages, technology investment needs, and succession planning challenges remain very real. We’re not seeing the end of insurance M&A – just a necessary recalibration after years of frenetic activity.”
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