The global insurance industry was a very active participant in the mergers and acquisitions (M&A) wave of 2015, accounting for nearly $150 billion, according to a new report from Standard & Poor’s (S&P).
While buyers, sellers, and their investment bankers appear to have taken a brief break from the frenzy, S&P believes the deal-flow will continue, albeit at a slower pace, in 2016.
"We have taken a fairly neutral view of insurance industry M&A over the last 15 years, albeit with a bias toward conservatism," said Dennis Sugrue, credit analyst, S&P.
He added: "A study of the 50 largest transactions involving rated insurers since 2000 shows that nearly two-thirds of ratings on acquirers were affirmed upon announcement of an acquisition, and 22 percent were put on a negative outlook or CreditWatch (with over half of these eventually downgraded in the subsequent five years). All of the acquirers whose ratings were placed on positive outlook or CreditWatch were eventually upgraded."
S&P said a successful merger or acquisition can benefit the surviving entity with a range of benefits. Certain insurance groups have developed a strong track record of acquisition and integration that have led to stronger companies, increased shareholder value, and strengthened ratings over time, according to the report.
It said however that the consensus of insurance industry observers is that the industry doesn't have a particularly strong track record when it comes to M&A, especially for a credit standpoint.
“In terms of both equity returns and ratings momentum, we have observed a negative bias among acquirers since 2000; for instance, over two-thirds of M&A deals since 2000 failed to improve financial strength enough to lead us to upgrade the buyer,” said S&P.
Insurance, Standard & Poor's, M&A, Global