M&A ambitions in Americas ‘reined back’ in 2019, finds Clyde & Co
Insurance firms in the Americas region will continue to “dominate” global M&A activity despite a predicted drop in deal-making for the first half of 2019, a report from law firm Clyde & Co has said.
In 2018, the US led the way on M&A with 152 deals, while Canada clocked up 17 and Bermuda 10. However, insurers anticipating a down-cycle in the US economy this year are expected to review operations and potentially sell off businesses, according to the law firm’s latest insurance growth report ‘Shifting Sands of M&A’.
It found that “overseas ambitions have been reined back” among insurers in the region as frosty US/China trade relations show little sign of thawing and Europe wrestles with Brexit uncertainty.
However, overseas M&As “remain attractive” with 21 percent of deals conducted by buyers from the Americas region focused on cross-border acquisitions.
“One example is Canada’s Fairfax Holdings, which made acquisitions in Hong Kong and India in 2018, as well as at home,” the report said.
Vikram Sidhu, partner at the law firm based in New York, said: “US M&A activity will dip in H1 2019, albeit from a previously high level. Key drivers of activity will include the quest for innovation, with insurtech companies increasingly being targeted for acquisition. This will result in a higher number of deals, albeit smaller in terms of deal value.
“Meanwhile, with alternative capital here to stay, US re/insurers continue to look for opportunities to access such capital including through the ILS market.”
Concerns about political and economic uncertainty in Latin America will hinder the take up of M&A opportunities in 2019, while activity in Bermuda is predicted to slow down in 2019 as the number of targets decreases. “We don’t expect to see transactions of the size we saw in 2018, but the key driver to sell remains – the historical Bermudan mono business model is under challenge and companies need to focus on where the future lies – in large global insurance groups,” the report said.
In the Asia Pacific region, M&As were described as “healthy” in 2018 with 29 deals made by Japanese insurers, 14 by China and 7 by Australia. The report predicted there would be more deals in 2019 as regulatory changes in China allow greater domestic consolidation and give more access to foreign investors.
Chinese re/insurers were highlighted for having “overseas growth ambitions of their own”. The report added that the acquisition of Chaucer by China Re for $940 million “may herald more outbound activity into the Lloyd’s and wider international markets”.
While the report added: “Japanese re/insurers have been some of the most active on the acquisition trail for a number of years, a trend that will continue.” It cited announcements from Tokio Marine and Sompo Holdings that the firms “are on the lookout for targets and have the capital to finance transactions”.
Indonesia, Singapore and Vietnam offer “exciting insurtech growth prospect” as technology continues to be a major growth driver in the region.
Joyce Chan, partner at Clyde & Co based in Hong Kong, added: “Positive insurer sentiment around the region is driving transactions. Most of the deals are not consolidations; they are international in scope as insurance groups look to build out their platforms in particular countries to access new customers and drive growth.”
In Europe, Brexit is negatively affecting the level of deals, although the region retained its place as the world’s second most active for M&As behind the Americas. The UK ranked third behind the US and Japan with 21 deals in 2018, followed by France and Spain with 17 each.
The report predicted that UK deal-making will slow in 2019, with activity picking up again in the second half of the year when greater clarity around the relationship between the UK and the EU has been achieved.
Beyond AXA’s acquisition of XL, there were no major deals in France in 2018, while German buyers “were focused on overseas targets in 2018” with nine of the country’s 12 deals being cross-border. As competition from insurtech companies ramps up, traditional European insurers may choose to specialise leading to a sell off of parts of their business that do not fit into this new strategy.
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