U.S. and Canadian insurance agent and broker mergers and acquisitions fell to 158 in the first quarter of 2023, down 17% compared the first quarter of 2022, according to a report by OPTIS Partners LLC, the Chicago-based investment banking and financial consulting firm.

Higher interest rates and uncertain economic conditions continued to limit deals, the report said. The number of deals announced was the lowest since 2019 and 7% below the five-year average for deals.

“Considering the sharp rise in interest rates and economic uncertainty, it is no surprise that first-quarter activity was lower than last year's," said Steve Germundson, a partner at Optis Partners, in a statement.

Fifty-five percent (87) of the transactions announced related to property-casualty sales, while benefits agencies sales totaled 8% (13), and 22% (34) were agencies in both p-c and benefits markets. All other sellers accounted for 15% (24) of sales. 

The decline in the number of sales continued a trend that began in the second half of 2022 when some of the most active buyers in the sector significantly slowed down. “Whether by choice or by necessity, some buyers are standing on the sidelines for the time being," said Timothy J. Cunningham, managing partner, OPTIS. "But other well-capitalized firms are still very much in the hunt."

Several firms have continued acquisitions, including BroadStreet Partners Inc. the most active buyer during first quarter announcing 14 deals, followed by Inszone Insurance Services LLC and Hub International Ltd., both with 10 deals each; World Insurance Associates LLC, with nine; and Risk Strategies Co., with eight deals.

Other previously more active buyers over the past five years such as Acrisure LLC, PCF Insurance Services, High Street Insurance Partners Inc. and Digital Insurance Inc., which does business as OneDigital, dropped off in the quarter, the report said.

Private equity-backed groups and private brokers with significant outside financial support continued to dominate the M&A environment, accounting for 74% of transactions in the quarter while transactions between private parties accounted for 17%. 

Arthur J. Gallagher & Co. was the most active publicly traded brokerage, with seven deals in the quarter.

“We're experiencing the other side of a nine-quarter deal bubble that began in Q4 '20," Germundson said. “The current deal environment may have wavered some with economic changes and looks anemic compared to the bubble years, but there is plenty of evidence to suggest that M&A in the insurance distribution sector will continue at a healthy pace."

Olivia Overman is IA content editor.