The number of private equity and venture capital deals in the insurance sector dropped in 2023 as investors took a pause amid high interest rates.

Total deal volume in the insurance space stood at 165 in 2023, down 27.6% from 228 transactions in 2022, even as the aggregate deal value ticked up 7.7% year over year to $12.49 billion, according to S&P Global Market Intelligence data.

Fewer private equity dealmakers have submitted bids for insurers on the market in 2023 amid a lull in debt markets, said Matt Hutton, a partner in Deloitte & Touche LLP's M&A transaction services practice.

"Prior to 2023, when something came to market, you would have 10 bidders racing to pay a higher multiple. In the last year we've seen a pause, given what's going on in the debt markets. So, instead of having a feeding frenzy, you only maybe have two or three that are bidding against each other," Hutton said in an interview.

"Interest rates have gone up, decreasing the ability to lever to historical norms of the last number of years."

Largest deals

The largest private equity-backed deal in the insurance space in 2023 saw KKR & Co. Inc. acquire the roughly 37% stake it did not already own in Global Atlantic Financial Group Ltd. for $2.7 billion. The deal closed Jan. 2.

Truist Financial Corp.'s $1.95 billion sale of a 20% stake in its insurance brokerage business, Truist Insurance Holdings, to Stone Point Capital LLC, Mubadala Investment Co. PJSC and other coinvestors was the second-biggest deal. In February, Truist announced that it agreed to sell its remaining stake in Truist Insurance Holdings to the same investor group, along with Clayton Dubilier & Rice LLC. The all-cash transaction values Truist Insurance Holdings at an implied enterprise value of $15.5 billion.

Insurance broker targets

Most of the private equity-backed insurance deals in 2023 involved brokers, totaling $6.35 billion in deal value in 2023. Life and health insurance companies came in second with $3.25 billion, while property and casualty (P&C) insurance companies secured $1.50 billion in announced investments.

– Download a spreadsheet with data featured in this story. – Read about private equity entries in insurance underwriters in the first half of 2023. – Check out US insurance broker M&A activity in 2023. – Explore more private equity coverage.

Insurance brokers are attractive investments because the only capital private equity has to put into the business is for growth and acquisitions, Hutton said.

"Private equity has always had an appetite for [brokers] primarily because they're capital light. If they buy them and aggregate those into a bigger company, they can then sell the whole company and that's really where they make their money," Hutton said. "It's not like underwriters, whether you're thinking about [property and casualty] or life and annuity, where it's capital intensive or balance sheet intensive."

Geographically, the US and Canada insurance market secured the largest amount of private equity capital in 2023 at $10.51 billion, followed by Europe and Asia-Pacific with $1.16 billion and $776.4 million, respectively.

Exits and entries

The value of private equity exits in insurance underwriters and brokers jumped to $14.56 billion in 2023 from $3.76 billion a year ago, according to Market Intelligence data. Exit deal count declined year over year to 21 from 29.

In the fourth quarter of 2023, the value of private equity-backed investments grew to $6.12 billion compared to $2.90 billion in the last three months of 2022.

Annual entry deals in the insurance industry followed the broader downward trend of all private equity entries, which were at their lowest in at least five years in 2023 as inflationary headwinds, rising interest rates and geopolitical unrest impacted M&A.