Global insurance M&A rises to highest level for four years

Harrogate, UK (Aug. 1, 2019) – Mergers and acquisitions (M&A) in the global insurance industry increased in the first half of 2019, with 222 completed deals worldwide, up from 196 in the second half of 2018, according to Clyde & Co’s Insurance Growth Report mid-year update. This marks the biggest increase in the volume of transactions since H1 2015 and the fourth consecutive six-month period of growth.

While the Americas was the most active region with 93 deals, up from 92, the biggest increase in activity was in Europe, which saw an 40% increase in M&A with 88 completed deals compared to 64 in the previous six months as companies move on from the diversion of Brexit preparations. France was the leading European country – and second most active worldwide behind the US – ahead of the UK and Spain. There were 38 deals in Asia Pacific marking the fourth consecutive period of rising deal volume to the highest level since 2015. Japanese acquirors were again the most active ahead of Australia and India.

“Despite recent signs of market hardening, delivering a positive result for shareholders remains challenging and M&A is an attractive strategy to deliver growth for re/insurance businesses around the world,” said Ivor Edwards, Partner and European Head of the Corporate Insurance Group at Clyde & Co. “In Europe, now that the majority of re/insurers are Brexit-ready, they have been able to divert management attention back towards their growth ambitions. As a result, we have seen a surge in completed deals in 2019 that had been put on hold. Deal-makers elsewhere have been buoyed by a combination of strong economic growth, notably in the US, and positive growth prospects for the insurance sector, especially in Asia Pacific.”

Key M&A drivers are shifting

Mega deals remain a feature of the market

There were 11 transactions valued in excess of USD 1 billion in H1 2019 compared to 18 in the whole of 2018, although there is a question mark over whether this trend can continue.

“The search for scale is still a key factor as leading players seek to deliver cost synergies in addition to new distribution channels and customers,” added Edwards. “However, there is a limited pool of targets at the top end of the market and it may become increasingly difficult for buyers and sellers to come to an agreement on valuation. We have seen a dip in large deal announcements and this will likely translate into fewer big-ticket transactions completing in the second half of the year.”

New cross-border targets

Cross-border M&A activity continued apace in H1 2019 with 63 deals representing 28% of the global total as re/insurers look to extend their reach into new territories. But geographic focus is shifting – after a number of years of inbound activity the pool of targets in Bermuda is shrinking. Just one deal involving a Bermudan target closed in the first half of 2019 – Apollo’s USD 2.5 billion acquisition of Aspen. Meanwhile, European targets accounted for almost two-thirds of cross-border targets in H1 2019.

“Planting a flag overseas can deliver a short-cut to growth, especially for re/insurers whose domestic markets are saturated and ultra-competitiv,” said Joyce Chan, Clyde & Co Partner in Hong Kong.

Technology is a constant

Regardless of location, technology remains the most important emerging driver of M&A. H1 2019 saw technology investments around the world including USD 90 million into insurtech Singapore Life from Japan’s Sumitomo Life; USD 45 million from a US investor group into Paris-based Alan – a software-as-a-service startup for the health insurance market; and a similar amount into Pie Insurance, which offers US workers’ compensation insurance online.

“While these investments may be relatively small, especially in comparison to the value of the larger, big-ticket M&A, they retain tremendous strategic importance,” said Kathrin Feldmann, Counsel at Clyde & Co in Dusseldorf. “Technology can unlock access to new distribution routes, markets and customers, while at the same time delivering substantial efficiencies, resulting in a dramatic impact on the balance sheet. We expect to see a continuing surge in insurtech tie-ups, joint ventures and partnerships, and more involvement from tech companies entering the insurance market.”

Outlook varies by geography

Brexit-driven deals could be short lived

Despite the rush of European deals in the first six months of the year, it is unlikely that this high level of activity will persist.

“Although the operational uncertainty around Brexit for re/insurers has lifted, resulting in the wave of deals we have seen, the economic uncertainty remains,” said Edwards. “This is likely to intensify in the coming months and deal-makers will likely revert to caution mode as they await the details of the withdrawal agreement, which will have a temporary slowing effect on M&A. We expect a drop in deals in the second half of the year in Europe.”

US deal-makers likely to be increasingly wary

While the US remains the world’s busiest country for insurance M&A, it saw its third consecutive drop in H1 2019 with 66 deals completed.

“Although US insurance M&A continues at a steady pace, there is growing geopolitical and financial uncertainty that is causing US dealmakers to pause,” said Vikram Sidhu, Clyde & Co Partner in New York. “We are seeing, for instance, a cooling on cross-border deals as potential acquirors wait to see how issues such as trade disputes might unfold. It is likely that US insurance M&A deal activity will cool down in the second half of 2019, although certain areas such as insurance agency acquisitions are likely to continue strongly throughout the year. After that, M&A dealmakers will see how the dust has settled and take stock of available opportunities.”

Asia gaining momentum

Asia Pacific saw its fourth consecutive period of rising deal volume in H1 2019, taking M&A activity to its highest level since 2015. India was the stand-out market, where recent legislative changes are starting to translate into M&A, including the largest deal of the year worldwide so far – the acquisition of IDBI Bank by the Life Insurance Corp of India for USD 2.8 billion.

“The breadth of opportunity in Asia Pacific was underlined in the first six months of the year with acquirors from 11 nations completing transactions,” added Chan. “Inbound activity was also up, in a trend we expect to continue. Meanwhile, in China, a slew of new regulations has led to a spike in interest from foreign insurers and we expect a number of significant transactions to emerge in the second half of the year.”

Access the full report.

Insurance Growth Report 2019 – mid-year update

In this analysis of insurance M&A activity in the first six months of the year, we find that deal making is very much still on the corporate agenda. M&A volumes rose in the first half of 2019 with 222 completed deals worldwide, up 13% on the second half of 2018. This is the biggest increase since H1 2015 and the fourth consecutive six-month period of growth.

While the Americas was the most active region, the biggest increase in activity was in Europe, which saw a 40% increase in M&A as companies moved on from the diversion of Brexit preparations. Asia Pacific recorded its fourth consecutive period of rising deal volumes with Japanese acquirors again the most active, ahead of Australia and India.

As we look ahead to the second half of the year, we see a limited pool of targets at the top end of the market which may make it increasingly difficult for buyers and sellers to come to an agreement on valuations. A dip in large deal announcements will likely translate into fewer big-ticket insurance transactions completing in the second half of the year.

Access the full report.

About Clyde & Co

Clyde & Co is a leading, sector-focused global law firm with 440 partners, 1800 lawyers, 2500 legal professionals and 4000 staff in over 50 offices and associated offices worldwide. The firm specialises in the sectors that move, build and power our connected world and the insurance that underpins it, namely: transport, infrastructure, energy, trade & commodities and insurance. With a strong focus on developed and emerging markets, the firm has achieved compound average annual revenue growth of 15% over the last ten years, making it one of the fastest growing law firms in the world with ambitious plans for further growth. Learn more at www.clydeco.com.

Source: Chubb

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