M&As up 9% but uncertainty to bring lull, finds report
Mergers and acquisitions grew 9 percent in the global insurance sector in 2018 as insurers looked to increase their access to customers and innovation, and benefit from greater scale, according to a Clyde & Co report out today (Monday 11 February).
Insurers completed 382 deals in 2018, up from 350 in 2017, in a bid to deliver positive underwriting results with new customers, market share and innovative technology.
Activity increased in the Americas, Europe and the Asia Pacific region, while only the Middle East and Africa saw a drop in deals.
Technology was identified as a key driven of M&As acting as a “skeleton key” that unlocks doors to multiple doors to new customers, the report said.
“Companies with the deepest customer insights will become increasingly dominant
and M&A immediately delivers the acquiror a vastly expanded pool of data.”
It can also be the “easiest way to access innovation” with examples of insurers buying insurtech startups increasing in 2018.
However, the report predicts broader M&A activity will slow down in the first six months of 2019 as emerging market and developing economies “have lost momentum” and Brexit, trade wars and protectionism “are casting long shadows”. The activity seen in 2018 could return in the second half of the year as there is more clarity around Brexit and “the disruption that will follow will generate opportunities, especially in the run-off market”, the report said.
In 2018, Axa’s $15.1 billion acquisition of XL Catlin was the largest M&A deal, while there were 18 mega-deals throughout the year valued at more than $1 billion. Clyde & Co expect further consolidation in 2019 as companies such as Zürich, Tokio Marine and Berkshire Hathaway actively look for potential M&As.
Regulatory changes are also opening up new markets to M&As. For example, China’s “slew of new regulations” attracted more interest from foreign insurers and the law firm said it expects “a number of significant transactions to emerge through 2019”.
Companies considering their long-term solvency may look to sell and the “Lloyd’s market could provide rich pickings”, the report said, “with around 20 syndicates exiting different classes there is a substantial quantity of discontinued business which will either be closed naturally or sold to another syndicate, presenting the potential for billions of dollars’ worth of legacy deals”.
Opportunities in the entire insurance value chain have brought a “spate of deals involving Bermudan targets” as insurers realised that being a mono-line reinsurer is no longer viable, the report said.
“A growing acceptance that alternative capital is here to stay has seen some re/insurers move in on ILS targets, with Markel’s acquisition of Nephila being the largest.”
Andrew Holderness, global head of Clyde & Co's Corporate Insurance Group, said: “Transaction activity worldwide was buoyant in 2018. Against a backdrop of stiff competition on pricing, stock market volatility and persistently low interest rates, a merger or acquisition remains a key strategy to reach new customers and markets, and to drive down costs by delivering synergies.
“However, factors including Brexit, trade wars and protectionism are generating uncertainty, the enemy of deal-making. The slowdown in the Americas in the second half of last year is indicative of heightened investor caution and we predict 2019 will be a year of two halves – a slowdown in M&A in some markets in the first six months, while the second half should see a return to form.”
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