Mergers & Acquisitions Drop in EU, But Accelerate Across Rest of World

Mergers and acquisitions (M&A) in the global insurance industry rose in the first half of 2018 with 186 completed deals worldwide, up from 180 in the second half of 2017, according to Clyde & Co’s Insurance Growth Report mid-year update, released today. This marks the second consecutive six-month period of modest increases in the volume of transactions since the low point in H1 2017 that followed two years of steady decline.

Activity in the Americas was up, with 97 deals in H1 this year, compared to 90 in the preceding six months, with the strengthening economic outlook a key driver in the US, in addition to shifting reinsurance market fundamentals in Bermuda. Asia Pacific saw an uptick in deals from 20 to 25 with Japanese acquirors accounting for the lion’s share, ahead of Australia and Taiwan. Activity in the Middle East and Africa remains subdued with just four deals in H1 2018, slightly up on the three completed in the previous six months. Europe was the only region to see a decline in M&A with 59 deals, down from 65 in H2 2017, with the overhanging uncertainty around Brexit continuing to act as a brake on activity.

Andrew Holderness, Clyde & Co, Global Head of Corporate Insurance says:

“After a sustained period of sliding M&A volumes that bottomed out in the first half of 2017, the first green shoots of recovery that we saw at the turn of the year are now taking root. The characteristics of the operating environment haven’t changed – the market remains uber-competitive and generating growth a perennial challenge – so M&A can provide potential synergies on reducing the cost base, build scale and access new customers. Deal-makers are feeling renewed confidence, buoyed by strengthening economies in the US and Asia, greater regulatory certainty in China and the Middle East, and the need to pick up the pace in Europe as the risk of a chaotic Brexit looms large.”

Reinsurance model is shifting

There have been a number of completed outbound deals involving Bermudan acquirors in the first half of the year as well as announcements of takeovers of Bermudan reinsurers such as AXA’s move on XL Catlin and AIG’s tie-up with Validus with an expectation of more M&A to follow.

Holderness says: “There is a seismic shift underway in the reinsurance market. It is proving increasingly difficult to remain relevant as a large monoline reinsurer and as a result Bermudan businesses continue to be put up for sale or look to diversify by acquiring new underwriting assets themselves. In jurisdictions around the world large reinsurers are striving to get closer to their customers by increasing their footprint in the primary market either organically or through acquisition.

Carriers are looking to write risks at every level, be it from the direct side, reinsurance or retro­cession and for that they need sufficient scale and balance sheet strength.”

Brexit effect set to diminish

Despite an uptick in M&A in Europe in H2 2017, fuelling optimism that the Brexit lag effect was over, deal volume dropped again in the first half of 2018. However, deals are still happening and Europe remains the second busiest region for M&A, behind the Americas.

Holderness says: “Brexit preparations have been absorbing huge chunks of management time, taking priority over M&A. Despite continuing uncertainty over the detailed mechanics of Brexit, most affected insurance businesses now have their operational plans in place and focus will return to the growth agenda. This means re/insurers within the EU and the UK will start looking for targets again while they themselves may be targeted by acquirors from outside the region.”

Technology tops the bill

A number of deals in 2018 have involved insurtech targets such as Canada’s Mnubo and Jungo of The Netherlands. Interest in technology as a growth driver has further accelerated, a trend that is set to continue with technology companies being targeted and looking to acquire insurance assets themselves.

Holderness says: “Technology is the key to unlocking new customers in new markets via new distribution channels. Some are looking to acquire dynamic and innovative start-ups that can deliver proven solutions or take stakes in these types of businesses via corporate venture-style funding. Others are investing in-house, creating so-called ‘digital garages’ to support the development of proprietary solutions.

Meanwhile, new market entrants such as Amazon and Google are looking to challenge established models and heap further pressure on traditional insurers. In one example last week, Chinese online retail giant JD.com announced that it had received approval to take a 30% stake in Allianz China, to become its second largest shareholder.

Holderness adds: “As they seek to compete, traditional players will need to evolve their business models and leave no stone unturned in the quest to protect market share and drive growth.”

Peter Hodgins, Clyde & Co corporate insurance partner in Dubai, says:

“Despite a lack of deals in the Middle East there are signs that this is set to change too with increasing M&A activity in recent months. Regulators in Saudi Arabia and the United Arab Emirates are seeking to promote mergers through the implementation of tougher prudential regulations. The UAE Insurance Authority has also recently increased the limits on foreign ownership of locally incorporated insurers to 49%, which may see international players look to take new or increase existing stakes. Suggestions that these limits may be removed altogether would undoubtedly further increase interest in acquisitions, but we believe such a move is unlikely in the immediate future.”

About InsuranceEdgeEditor (799 Articles)
20 years experience as a journalist and magazine editor. I'm your contact for press releases, events, news and commercial opportunities at Insurance-Edge.Net

Leave a Reply

%d bloggers like this: