It might be the middle of winter, but things are still hot in the insurance M&A market. Although activity slowed a bit in the fourth quarter, 2011 transaction volume far surpassed that of 2010. Through November, the number of insurance deals was up 24% for the year with 256 transactions recorded. This is the second highest level of M&A activity in the last 10 years, only surpassed by 2008 which was the peak of the market.

Looking at the market as a whole, insurance brokerages were buyers in 81% of all transactions, followed by banks with 11%, and insurers and others with 8%. Acquisitions of full-service agencies accounted for 48% of the deals, benefit firms 23%, and property-casualty firms 21% of the total number of insurance transactions.

Hub International was the most active buyer in the insurance sector in 2011 as of October with 25 acquisitions, followed by Arthur J. Gallagher & Co. with 21 transactions and Brown & Brown with 17.  Wells Fargo was the most active bank making 5 acquisitions in 2011.

During a year that has been characterized by industry uncertainty, a weak economy and soft pricing, strategic buyers have used M&A to fuel growth. The good news is that after sitting on the sidelines in 2009 and early 2010, both financial and strategic buyers are back in the market and aggressively pursuing deals. This suggests that valuations will continue to rise for the next 12 to 18 months.  With demand currently exceeding supply, we expect 2012 to be a seller's market.

If you own an insurance brokerage and would like to explore your options please contact Doug Hendrickson, leader of MidCap's Insurance Group, at 212-722-5683.