Your unrestricted access to Commercial Risk, Commercial Risk Europe and Global Risk Manager will end soon.

Global insurance M&A deals dropped slightly in first half, says Clyde & Co

The first half of 2021 saw a slight decline in the number of mergers and acquisitions (M&A) in the global insurance industry, with 197 completed deals worldwide, down from 206 in the second half of 2020 and 201 at the same point last year, according to Clyde & Co’s Insurance Growth Report mid-year update.

Clyde & Co says the key deal drivers remain strategic disposals, technology and regulatory tightening. There was, however, a big discrepancy in deals regionally, with Asia-Pacific seeing a 51% decrease in deal volume, the Americas increasing by 7% and Europe up 2%.

Ivor Edwards, partner and European head of the corporate insurance group at Clyde & Co, commented: “Despite the challenges of the last 18 months, the insurance industry has responded well and demonstrated a remarkable degree of resilience when it comes to getting deals over the line. Market hardening is creating organic growth opportunities for re/insurance carriers, but the availability of cheap liquidity, active interest from private equity investors, and strategic re-underwriting of portfolios at larger carriers signal that an uptick in M&A is likely. The extent of that increase will vary by region and investor sentiment – dealmakers in the US are comparatively bullish whereas their counterparts in Asia-Pacific remain more cautious as they wait for a more positive economic outlook.”

The Americas saw 116 deals, up from 102, pushing M&A in the region to its highest level since 2015, driven by robust activity in the US, says Clyde & Co, and the expectation is for more M&A to come in the US. Vikram Sidhu, Clyde & Co partner in New York, said: “Dealmakers are looking past concerns around the Covid-19 pandemic and economic uncertainty. There is an expectation in the US that the economy is going to grow in leaps and bounds over the coming quarters and years – the post-pandemic outlook is very positive. Even weak sectors have been rebounding and the concerns of the last year have been receding (albeit tempered by a rebound in Covid cases due to the Delta variant), bolstering investor sentiment. We expect M&A to remain at a high level for the remainder of the year and into 2022.”

Europe saw 51 deals, up one on the previous six-month period. The UK was the leading European country – and second-most active worldwide behind the US – ahead of Spain and Germany. Clyde & Co says in the update that although deal activity in Europe has continued steadily at a comparatively low level for a couple of years, there are signs that some of the region’s structural issues are being addressed.

Eva-Maria Barbosa, a partner at Clyde & Co’s office in Munich, commented: “The high number of life insurers and composite carriers facing stringent capital requirements make these businesses unattractive to potential acquirers, while companies looking to build scale in their non-life book through M&A have to solve the conundrum of what to do about their life operations before seeking a merger partner. Some larger carriers are looking to exit the life market in order to improve their balance sheets, with the bulk of life business divestments expected to end up in the runoff sector.”

Asia-Pacific saw completed deals fall from 37 to 18 – the lowest level since Clyde & Co began its M&A report in 2011. Japanese acquirers were again the most active compared to 2020, ahead of India and Australia. The law firm says M&A activity in Asia-Pacific is likely to remain subdued until the markets have stabilised post-Covid-19 and there is greater certainty about the economic outlook.

The sharp drop in M&A activity in Asia-Pacific can be attributed in part to the high regulatory bar in some jurisdictions, says the update. “Not only do prospective acquirers face higher solvency capital requirements in some markets, but there is a more robust scrutiny of business plans to assess the longevity of new entrants’ interest,” it states.

Joyce Chan, partner at Clyde & Co in Hong Kong, said: “Regulators are becoming increasingly cautious. When new players come in and buy a particular insurer in the region, local regulators usually request quite a substantial capital increment as well. The solvency requirement expectation is much higher, acting as a brake on M&A. Conversely, regulatory actions are also making some significant portfolios available to acquirers. In Australia, for example, the knock-on effect of the recent Royal Commission is forcing the country’s major domestic banks to offload non-core lending businesses, which is making a number of attractive insurance assets targets for acquisition.”

M&A activity in the Middle East and Africa dropped back, with only five completed transactions in the first half of this year. These all involved Middle East acquirers – two from Israel and one each from Egypt, Saudi Arabia and the UAE.

M&A drivers
Clyde & Co says that strategic disposals are increasingly common. It notes that there were 11 deals in H1 2021 valued at more than $1.0bn, compared to 15 in the whole of 2020. In addition, there is an increasing number of more modest strategic divestments from carriers looking to focus on their core business as part of a long-term strategy.

Mr Sidhu said: “We are seeing a lot of legacy books being sold off or prepared for sale. The sellers tend to be companies looking to the future in a robust and creative way, trying to clean up their balance sheets and free up capital; they are taking a proactive focus on the next two, five, ten years.”

Clyde & Co says that H1 2021 saw technology investments into a variety of businesses around the world, but adds that technology is both a deal catalyst and barrier. Ms Barbosa said: “Covid-19 has underlined the importance of having digital capabilities and technology remains a primary driver of M&A. Many startups have matured to the point where they have a proven business model and a robust balance sheet, which makes them very attractive to buyers. Meanwhile, on the flipside, the absence of sufficient technology investment on the part of a seller can be a deal-breaker – potential acquirers can be put off if they think they need to spend millions to make a target company’s IT systems fit for purpose.”

Back to top button