M&As in European insurance sector set to continue in 2019, finds Moody’s

The European insurance sector will continue to consolidate in 2019, with varying credit impacts, according to the latest Moody's Investors Service report.

Dominic Simpson, VP-Sr credit officer at the ratings agency said that as low interest rates continue to pressure life insurers' margins, they have strong incentives to buy and sell closed book businesses that no longer accept new customers, also known as books in run-off.

Saturated western insurance European markets have made achieving organic growth difficult, which has been the catalyst for insurers that want greater scale or business transformation to take the M&A route.

This was particularly true in 2018, with transformative acquisitions by the likes of AXA. The insurer accelerated its ambition to increase its reliance on margins less sensitive to financial markets through the purchase of non-life insurer XL, Moody’s said.

The trend for transformative M&A is expected to continue as insurers speed up efforts to change their business models, the research found. This activity will include cross-sector transactions with asset managers and insurtechs.

Moody's said it particularly expected to see an increase in closed book consolidation activity in Germany. This reflects “improved visibility over the impact of closed book disposals on Solvency II ratios”, and support in the form of the German regulator's recent approval of the sale of Generali's traditional German life business. Moody’s said it also sees potential for more deals of this kind in the UK.

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