Insurance sector to attract more buyouts

Private equity activity in the US insurance industry is expected to grow in 2013 due primarily to strong fundamentals of companies in the sector and increased regulatory certainty, according to a recent report from advisory firm Deloitte.  

Positive regulatory indicators that should help dealmaking in the insurance industry include the US Supreme Court’s decision to uphold The Patient Protection and Affordable Care Act, President Barack Obama’s healthcare reform bill passed into law in 2010, and the new regulatory regime imposed by the Dodd-Frank Act, said David Simmons, leader of Deloitte’s insurance M&A services.

“There’s a lot less uncertainty in 2013 than 2012, and I think that’s good for [insurance] M&A, which is why we would expect an uptick in activity as the year goes on,” Simmons said.

During 2011 and 2012, private equity firms completed more than 100 acquisitions in insurance companies, according to Deloitte.

“That’s a lot, historically. We’re seeing them really being more active in the industry overall, primarily now in the annuities side,” Simmons said, adding that insurance businesses represent an investment opportunity for multiple private equity strategies.

“There are opportunities for different types of investment of private equity firms within the insurance industry, either through debt financings or other creative mechanisms,” he said.

Firms that have invested in insurance-related businesses during the past two years include Windjammer Capital Investors, which acquired insurance services company Global Claims Services from mid-market peer The Riverside Company last July, and Colorado-based Excellere Partners, which acquired San Diego-based auto insurance provider Personable Insurance as its only investment of 2011. Toronto-based TorQuest Partners also owns Canadian insurance services provider SCM.

Regions outside of North America are contributing to the growth prospects of US-based insurance companies, according to Simmons.

“When we look at the high growth areas for insurance products, it’s clearly the emerging market economies of Asia and Latin America. That’s where the US insurance companies are going right now,” he said.

While the past two years have presented significant opportunities for private equity investment in insurance companies, 2013 will continue to attract more investment dollars, according to Deliotte. 

“It’s a good time for private equity investment in the insurance space,” Simmons said. “The fundamentals are sound, insurance companies have strong balance sheets, [and] there is opportunity for growth.”