Eight key M&A deals in 2022

In a very unusual year, as the world began to stir from its COVID-19 pandemic haze, some big name players decided to join up and go large(r). Intelligent Insurer has selected, and explained, the eight key mergers and acquisitions (M&A) deals in 2022. Some were more low-key than you might expect from a major M&A deal and some indicate fervent M&A activity, but all are slated to impact the market in the long run.

Berkshire Hathaway–Allegheny

One of the biggest deals in the market could easily have been the deal you heard the least about. Warren Buffett’s Berkshire Hathaway announced in March that it would buy up Allegheny Corporation. Aside from two sizeable investment balance sheets, the deal brings Allegheny’s reinsurer TransRe into a group with Berkshire Hathaway’s Gen Re and the reinsurance operations of National Indemnity (NICO), boasting $20 billion in 2021 premium pre-deal. That pushes a combined group into (the lower end of) the European big four. Allegheny also brings two names to the Berkshire primary carrier stable.

Talk of cost or revenue synergies, of portfolio repositionings, or of leveraging new scale, was decidedly lacking. No new market landscape has been sculpted. The two groups will continue to operate independently and follow their own paths.

What you were more likely to read were the homey details of Uncle Warren’s famed deal-making: the dinner in New York city, the speed of negotiations and Buffett’s much-publicised refusal to cover the cost of investment bankers. And with the focus on Buffett’s dealmaking, the market got arguably the most bullish statement on reinsurance available in years: reinsurance can still be a “buy”.

Covéa–PartnerRe

Covéa’s acquisition of PartnerRe—a shift of ownership pure and simple—was nearly as quiet and bore equally limited apparent market impact. PartnerRe could chiefly heave a sigh of relief that a period of uncertainty had been put firmly in the rearview mirror after a prior deal had collapsed more than two years earlier.

“The deal ends any speculation around the company being for sale, which is in contrast to the position a lot of other reinsurers find themselves in,” PartnerRe’s president and CEO since July 2020, Jacques Bonneau, told Intelligent Insurer. “It’s business as usual now. I like where we’re positioned, and it’s now up to us to execute.” Bonneau expects no fundamental changes to strategy and no major flip to primary coverage that would compete with to-date clients.

Covéa’s $9 billion acquisition closed in July, almost two-and-a-half years after a preliminary deal was signed, but fell to price bickering after the onset of the pandemic.

Ryan Specialty heralds the next major consolidation wave

Ryan Specialty trumpeted what could be the next great wave of market consolidation, declaring that the advent of 50-state binding capacity in the US could set off an M&A drive for delegated authorities to rival the multi-decade buying spree still underway for brokerages and agencies.

Ryan had begged and pleaded with its insurer partners, then begged again, until finally they hit a moment when carriers broke down and allowed Ryan to take 50-state binding capacity rather than reserve the big nationwide deals exclusively for their own direct channels.

With that door open, Ryan Specialty will have to double and triple down on hiring to handle the volumes and to expand across the relevant lines, president Tim Turner told an equity market conference in September.

“There is never enough underwriting talent,” Turner said. “You constantly have to be grooming it, recruiting it, acquiring it, because the volume is so great.”

M&A buyers could break the leash. The prior industry lock-up by major carriers left the US with “hundreds of thousands of boutique binding authorities” that could look like puzzle pieces on a giant US map, Turner suggested.

The broker-consolidator

Who talks more deals than broker group AJ Gallagher? How CFO Doug Howell calculates organic growth through the constant inflow of new producer teams is anybody’s guess. Through December 7, AJ Gallagher had announced acquisitions 30 times in 2022, 2.6 per month through November.

Throughout the year, Gallagher officials upped the running count of term sheets signed or in preparation, its standard measure of M&A guidance, ultimately saying it had 50 in play for over $400 million in annual revenues.

“We have more opportunities than we know what to do with,” Howell told an investor call in September, insisting that sellers are chasing Gallagher as much as Gallagher is sellers. “We have a lot of great opportunities in the pipeline still at reasonable valuations.”

By mid-November, Gallagher had apparently given up on its vow that M&A could be financed from cash on hand and cash flows pending, some $4 billion to end-2023. Gallagher said it could resume financing its M&A binge with some $1.3 billion in new equity issuance, filing to potentially issue up to seven million new shares for unspecified targets in the brokerage and risk management space.

Sweeping up the little guys could be a never-ending task. “It’s a little bit of whack-a-mole,” the top officer for the US insurance broking market at Gallagher, Mike Pesch, said of the M&A market. Many of the acquisitions announced on the market create as many breakaway startups as they sweep firms from the market.

There’s broker consolidation, and then there’s broker consolidation

For all the sweeping up of small-timers that passes for market consolidation, Howden Group Holdings stepped in with a single deal to buy TigerRisk Partners and turn a market said to be defined by a Big 3 into a Big 4.

The June announcement creates what Howden called a $30 billion business in gross written premium with an enterprise value of over $13 billion, employing 12,000 people across 45 countries. It’s a deal with scale, reminiscent of Guy Carpenter–JLT Re in 2019 or Gallagher–Willis Re, concluded in late 2021.

“This combination is transformational,” Rod Fox, executive chairman and co-founder of TigerRisk Partners, said of the deal. “We will become the difference the market is looking for.”

The deal runs well beyond the industry standard of niche collecting and minor brush strokes on a map. TigerRisk brought reinsurance bulk with a strong US footprint. Howden brought the larger retail and wholesale operation, global facultative, a managing general agent and London Market specialty.

Aon surprises with a taste for insurtech

Aon may have offered the most surprising of M&A declarations. The global broker and risk advisor is increasingly tempted by the talent and capabilities that could be swept up with a major M&A drive through the insurtech space, chief digital officer James Platt said in September. A “ton of conversations” are underway, he vowed, just as the ITC insurtech event got underway in Las Vegas.

Aon is not opposed to drawing on less-than-salubrious targets in its insurtech pursuits. Aon need not acquire proven success as it believes it has the tools on board to overcome the most common insurtech shortcomings. Aon is chiefly seeking talent, and learnings trump earnings. “We look at these firms and they have a lot of learnings that we like,” Platt said. “Sometimes failing, but it’s learning.”

Insurtech failures predominantly stem from shortcomings in distribution or product differentiation and Platt believes Aon is well positioned to onboard talent without inheriting any of those weaknesses.

Chubb goes APAC life, accident & health

The numbers are just too big not to mention the Asia-Pacific deal in accident and health (A&H) and life that Chubb has been lauding as its transformative deal to go global.

The $5.36 billion deal, which includes businesses in Hong Kong, Indonesia, Korea, New Zealand, Taiwan and Thailand, increases the size of Chubb’s global A&H writings to approximately $6 billion in premium, up from $3.7 billion, while the company’s life insurance segment becomes a $5.4 billion business.

Overall, the Asia-Pacific share of Chubb’s global portfolio grows to approximately $7 billion in premium from $4 billion, representing about 18 percent of the total company premiums, with approximately 95 percent of the acquired business contributing to Chubb’s life insurance segment and the remainder to its overseas general insurance segment.

The ‘award’ for best recent M&A declaration …

… goes to Talanx unit HDI Global Specialty. The non-life insurer has said it needs €1.4 billion in premium via M&A to meet its target for €5 billion in premium by 2025–26. Organic growth can take the firm from 2022’s estimated €3.2 billion to a target of €3.6 billion in 2025, so M&A will have to plug the gap.

The US leads the target markets, although HDI Global Specialty also needs to expand its footprint in South America and south-east Asia, the CEO of HDI Global Specialty Ralph Beutter told equity market analysts in early December.