Global insurance M&A activity growing, says Clyde & Co report

Global insurance mergers and acquisitions (M&As) grew in 2021, particularly in Europe and the Americas, and M&A activity is expected to remain buoyant through 2022, according to Clyde & Co’s Insurance Growth Report: Navigating increasing complexity.

The insurance industry is increasingly looking at alternative routes to growth such as insurtechs and new business models, the report adds.

There were 418 completed M&As worldwide in the insurance sector in 2021, up from 407 the previous year, and activity was driven by a particularly strong second half of the year, which saw 221 deals, up from 197 in the first six months. The report notes that there were 25 megadeals in excess of $1bn, compared to 20 in 2020, including the year’s largest, Regent Bidco Ltd’s takeover of RSA Insurance Group PLC for $9.2bn.

M&As in Europe and the Americas increased, while Asia-Pacific and the Middle East and Africa fell back. The Americas remained the most active region for M&A – accounting for more than half of the global annual total – with 224 deals, an annual increase of 17%. The report notes that activity was led by the US, where the number of completed transactions reached 180 for the year – the highest total in the country since 2015.

Deal activity in Europe was up 21% year on year, buoyed by a standout second half, which saw 74 transactions, up from 51 in H1 2021, according to the law firm. However, Asia-Pacific saw a 44% drop in activity from 75 deals in 2020 down to 42 in 2021, after a relatively buoyant couple of years. The Middle East and Africa saw 17 deals, representing a 47% decrease on 2020, which had seen 32 transactions.

Ivor Edwards, head of Clyde & Co’s European corporate insurance group, commented: “As anticipated, the volume of insurance M&A activity worldwide picked up notably in 2021. Despite the pandemic continuing to shape the economic and political landscape, investor sentiment strengthened in most regions as (re)insurers rode the wave of rising prices across all product lines to generate healthy top-line growth. Signs that market hardening is slowing down in certain classes, combined with the pressure of rising costs, means that for those businesses looking to expand, the decision on whether to grow through acquisition or by building out existing operations has never been more relevant.”

Much of the growth, especially in the US, has come from insurtechs as the industry looks for innovation. “The pandemic has accelerated innovation in the industry, with (re)insurers prepared to buy, fund or partner with the technology companies that can help provide product innovation and greater agility to deliver a competitive advantage,” the report states.

It adds: “Insurtechs, particularly in the US, are growing at pace, with some reaching a stage of maturity that is allowing them to look at acquisitions themselves on the path to greater size and market share, and/or being ‘full-stack’ insurance businesses.”

Vikram Sidhu, Clyde & Co partner in New York, said: “Investment flowing into the insurtech space keeps growing strongly. The successful insurtechs are at a place where, for various reasons, they want to have that full-stack insurance business, rather than simply being MGAs that sell policies on behalf of other carriers. These companies want to grow bigger and control their destiny.”

The report notes that M&A is not the only growth strategy, pointing to new business models, the growth in digital platforms and innovations such as automation, data analytics and modelling.

Eva-Maria Barbosa, Clyde & Co partner in Munich, said: “Developing ecosystems will be an important growth strategy for (re)insurers in the year ahead: identifying key services that dovetail with their insurance products and integrating those into their customer journey. Any insurer who finds the right partners and builds up ecosystems that can be seamlessly connected with a bank or another distribution partner will, in five years, be in a much better position than those who just experiment in this area.”

Looking ahead, Clyde & Co expects that M&A deal activity will remain buoyant and that completed deals will exceed 200 worldwide in the first half of 2022, rising above 220 for the second half of the year.

Joyce Chan, Clyde & Co partner in Hong Kong, said: “We are likely to see (re)insurers positioning themselves for a more growth-oriented environment in the coming year, albeit with some reginal variations. Despite continued interest from strategic buyers and private equity, a continued lack of suitable acquisition targets in markets like Europe and Asia will be a feature. However, the MENA region is expected to see a burgeoning M&A market this year, with more activity in GCC countries than has historically been the case. As the more mature insurtechs in the US look for acquisition targets, others will look for opportunities to establish or expand their foothold in the insurance market, driven by high levels of deployable capital.”