European insurance M&A falls to three-year low but global activity holds up: Clyde & Co

The number of global insurance mergers and acquisitions (M&A) held steady in the first half of 2020 but fell in Europe, according to analysis from Clyde & Co, which expects a dropoff in activity as the impact of Covid-19 filters through. There were 201 completed global insurance M&A in H1 2020, from 197 in the second half of 201, finds Clyde & Co’s Insurance Growth Report mid-year update. This is only the second six-month period in the last five years where the volume of transactions exceeded 200. The first half saw a slowdown in megadeals, with just six valued at more than $1bn, compared to 20 in the whole of 2019. Clyde & Co says this is evidence of a more “measured approach to dealmaking”, which it expects to continue. Ivor Edwards, partner and European head of the corporate insurance group at Clyde & Co, said the deals completed in the first half of 2020 would have been negotiated and agreed back in 2019, pre-pandemic. Therefore, the impact of Covid-19 on insurance M&A will only become clear in the coming months, he added. But Mr Edwards said Clyde & Co expects the impact to be “stark in the short term”. “For many, responding to the pandemic has meant putting growth ambitions to one side, in order to take stake stock of the impact on operations, claims and investment returns. The last few months have been plagued by a level of uncertainty – the enemy of dealmaking – rarely seen before. This will be reflected in the number of completed deals in the second half of the year. But as the economy moves towards a state of stability that could be defined as ‘the new normal’, opportunities will arise and we expect re/insurance transactions to make a comeback in 2021,” he said. The first half of 2020 saw insurance M&A slow in Europe. Clyde & Co says the “shadow of Brexit”, combined with difficulties in reaching agreement on valuations, pushed M&A in Europe to a three-year low with 53 deals completed, down from 67 in H2 2019. Activity in the Americas was flat in H1 2020, with 90 deals compared to 89 in the preceding six months. However, deals in the US dropped from 73 to 64, marking the third consecutive period of decline. Activity rose in Asia-Pacific, from 31 deals in H2 2019 to 38 in the first six months of this year. Clyde & Co says Japanese acquirors once again led the way, ahead of Taiwan and South Korea. The law firm says capital-raising has been a feature of the post-pandemic insurance market – reaching $16bn in H1 2020, according to Willis Towers Watson. Clyde & Co says this presents opportunities for organic growth that could depress appetite for M&A. Mr Edwards commented: “Covid-19 has accelerated the market hardening that was already underway and re/insurers are keen to write more risk at a higher price but need to offset losses from Covid-19 in order to do so. As rates rise, there is also the potential for a wave of new startups and scale-ups, as we have seen in the aftermath of other major loss events in the past, albeit the situation now is more nuanced than post-Hurricane Katrina, for example. That has not deterred a range of market figures from exploring options and there has been a succession of headlines around early-stage startup plans.” He added that outlook for European insurance M&A is “mixed” and will depend on the length and depth of the recession. “We will likely see European banks and insurers looking to dispose of non-core assets that will generate a pool of targets for acquirers, but limitations on capital will prevent some general insurers from making acquisitions. At the same time, insurers from less mature markets may sense an opportunity to establish or strengthen a presence in Europe, possibly at a favourable price,” said Mr Edwards.

European insurance M&A falls to three-year low but global activity holds up: Clyde & Co

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