M&A deal values in P&C sector up by 290% in H1: AM Best
Merger and acquisition (M&A) activity in the property and casualty (P&C) and reinsurance markets during the first half of 2015 experienced a substantial increase in deal activity and announced deal values from already historical levels.
This is according to rating agency AM Best in its latest report, Return of the Mega Deal During First Half of 2015.
Deal values soared 290 percent in the first half of 2015, compared with the first half of 2014. Values also jumped more than 90 percent from the second half of 2014, to a high of $21 billion.
The rating agency added that the deal count was up 73 percent to 76 announced transactions, up from 44 in the first half of 2014. Average deal size jumped 160 percent in the first half of 2015 with deals averaging $725 million, compared with $279 million in the first half of 2014.
This explosive increase in M&A activity in the P&C segment was driven by a number of factors, including increased capital efficiency and scale to drive down costs through synergies, consolidation to increase the buying power of pricing and terms and conditions and cheaper funding, according to the AM Best.
Other factors included diversified product lines and reduced exposure to market cycles and improved growth, vertically integrated and enhanced distribution channels, increased availability and, sometimes non-traditional, sources of capital and general fear of being left behind, according to the data.
AM Best said: “As primary companies consolidate to broaden their product line capabilities and better insulate themselves from the cyclicality of a specific class of business, so too are reinsurers. The days of being a mono-line reinsurer with a specialisation in property catastrophe reinsurance seem to be numbered.
“A combination of changing customer needs and increased participation of the capital markets in the property reinsurance space are two of the major challenges facing the traditional reinsurance model. As a result, some of the larger merger and acquisition deals that occurred or are in the process of closing are in this sector of the P&C market.”
The rating agency added that so far this year, 38 percent of all announced deals were cross-border mergers and acquisitions, while Asia, Latin America and Middle East/ Africa made up 28 percent of all deals for the first half of 2015.
North America continued to dominate the M&A deals with 43 percent of deals, with Europe comprising 28 percent.
