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Deloitte tips big year for US consolidation

Deloitte forecasts an active year for US insurance mergers and acquisitions (M&A), with a pick-up in the second half of last year setting the pace.

“At an individual company level, lack of organic growth prospects may prompt organisations to look for ways to cut costs and grow inorganically – a potent combination to drive consolidation,” the Deloitte report says.

“Also, the need to scale and make continued technology investments remains acute.”

The value of deals declined last year to $US27.3 billion ($35.5 billion) from $US70 billion ($91 billion) in a bumper 2015, but activity increased in the second half.

The number of deals across the life and health and property and casualty sectors held up relatively well, with 522 transactions, down 8% on 2015.

Deloitte says this year is unlikely to bring mega-deals of the scale recorded two years ago, but 8-10 deals each worth at least $US1 billion ($1.3 billion) may be driven by domestic and foreign acquirers.

Record-high levels of capital in the property and casualty and reinsurance sectors are likely to contribute to middle-market consolidation.

Private equity-backed brokers are also continuing to seek acquisitions, while “seemingly everyone wants to get into insurtech and direct distribution”, Deloitte says.

Potential M&A headwinds include reluctance of potential sellers, valuation levels, uncertainties after the election of Donald Trump and questions over whether demand from Asian buyers will persist.

Companies may delay deals during the first six months as executives assess the environment, Deloitte says.