Insurance M&A rises as ‘squeeze’ on mid-tier specialists tightens: Swiss Re

The number of insurance sector M&A deals announced in the second half of 2014 rose to 359 from 295 in the first half of the year, according to Swiss Re figures. This momentum has continued into 2015, added the reinsurer. But it stressed that the overall number of deals remains well below levels seen before the financial crisis. Globally, there were 489 completed deals in 2014 compared with 674 in 2007. Increasing M&A activity is heavily concentrated on the specialty re/insurer sector as firms respond to heightened competitive pressures, said Swiss Re. There is a particular 'squeeze' on middle-tier specialist re/insurers, it added in its M&A In Insurance: Start Of A New Wave? sigma study.hideThe emergence of alternative risk-absorbing capacity from hedge funds, investment banks and pension funds has put downward pressure on prices in some property and casualty lines. This has prompted some specialist re/insurers in Bermuda and Lloyd's to combine their operations to take on wider and emerging corporate risks and reduce operating costs. "What's happening, is a squeezing out of the middle-tier specialist re/insurer," said Kurt Karl, Swiss Re's chief economist. "Some firms do not have the scale or the breadth of services to differentiate their offering from more commoditised reinsurance capacity. Going forward, we expect to continue to see a certain shakeout in the sector as companies join together in search of revenue and cost synergies." Beyond the specialty re/insurance sector, there have been further strategic deals to expand expertise, distribution capabilities and geographical reach. There has been a pick up in M&A activity in the emerging markets, particularly Asia Pacific and Latin America, said Swiss Re. Advanced country insurers continue to focus on expansion in high growth markets, it continued. Furthermore, emerging market insurers are increasingly eyeing acquisitions in advanced regions to diversify geographically and across business lines. The intermediaries sector has also experienced increased M&A activity. Brokers in the wholesale segment have been actively pursuing expansion overseas in response to growing demand from large corporates wanting to partner with firms with an international footprint, said Swiss Re. Intermediary consolidation in domestic markets has also accelerated as economy of scale and the ability to provide clients with a full range of analytical services becomes of key importance to brokers, it added. Swiss Re survey evidence also indicates that sentiment towards M&A is turning as confidence about the economic outlook gradually improves and market participants look to acquisitions or mergers to boost profitability and bolster their balance sheets. However, Swiss Re stressed that the increase in M&A activity is not an industry-wide surge, nor likely to become one. Instead, there will likely be a continuation of recent trends of increased M&A activity in certain segments as firms respond to cyclical and structural changes in the industry, it added. "The still considerable uncertainty about the global macroeconomic and regulatory outlook makes selecting value-enhancing deals challenging, which will restrain firms' appetite for M&As," said Swiss Re. "The introduction of regulations such as Solvency II will encourage some insurers to restructure in pursuit of capital efficiencies and/or economies of scale or scope. Similarly, the influx of alternative capital will continue to stimulate deals, especially if financial investors become active sellers as well as buyers. Access to digital distribution technology is another M&A driver that will likely carry increasing weight," it added.

Insurance M&A rises as ‘squeeze’ on mid-tier specialists tightens: Swiss Re

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