Global insurance M&A deal value surges to new high in H1

The deal value of global insurance mergers and acquisitions (M&A) surged to €37 billion in the first six months of 2018, with many mega deals pushing the value to its highest first-half total since the financial crisis.

According to a new report by Willis Towers Watson and Mergermarket, the first half of the year saw 14 deals worth over €500 million, although the total deal volume was down to just 84 deals, the lowest number since 2009. Property and casualty (P&C) led the way with 44 deals, followed by the life sector with 22 deals, while there were 11 in composite and seven in reinsurance.

The report cited the changing nature of business models as a key driver for deals, with regulatory pressures and more businesses seeking to return to their core strategy, as other factors.

It added that more companies are now divesting unwanted parts of their business, meaning that valuable assets are once again on the market. For private equity investors, record levels of inflow – with dry powder levels reaching $1 trillion in 2017 – has driven interest in these assets and seen complex acquisitions from these buyers in 2018.

According to the report, regulatory change has also played a significant role in relation to US assets, as tax reform in the region has provided an immediate boost to company earnings since the turn of the year, meaning that US insurers instantly became more attractive to foreign insurers who see the potential to earn more from the US than had been available before.

“We’re seeing a much longer stretch of time from announcement to closing,” said Jack Gibson, managing director at Willis Towers Watson. “However, debt continues to be cheap, and following the recent tax reforms, US companies have been given a steroid kick. We will continue to see an active M&A market, it’s just a matter of paying the right price and overcoming the hurdles that have led to deals taking longer to consummate and perhaps driving the lower number of deals this year.”

Describing the impact of Solvency II implementation, Fergal O’Shea, senior director at Willis Towers Watson, said: “As the processes, reporting and monitoring have become increasingly business-as-usual, executives have taken back their ‘bandwidth’ and got on with the job of strategically guiding their companies.”

The report highlighted that there's a growing trend of foreign investment from Asian companies, but added that political and economic uncertainty could affect global deal making, with volatility surrounding Brexit and tensions between China and the US potentially threatening deal acquisition; although the sector remains optimistic that the domestic focus of insurance M&A volume may protect it from cross-border tension.

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