US and Asia-Pacific to see insurance M&A grow in 2021, says Clyde & Co

Insurance M&A activity in both the US and Asia-Pacific will increase significantly in 2021, according to Clyde & Co. As part of its insurance predictions for 2020, Clyde & Co said insurance deal activity in the US in 2021 will be robust, while next year will see a surge of M&A activity in Asia-Pacific. According to Vikram Sidhu, partner, Clyde & Co, New York, there are a number of factors behind the predicted increase in the US. “Increasing premium rates and a more optimistic outlook for most lines of business will make stronger market players more likely to look for growth opportunities through acquisitions, some of which may have been put on hold in 2020 due to the pandemic. The improving market conditions for insurers are also attracting more capital into the industry, which will help fund more deals. In addition, with interest rates at historic lows, buyers may look to tap cheap debt or deploy funds stored away during the pandemic to fund acquisitions.” His colleague, Jared Wilner, senior counsel, Clyde & Co, New York, said that as the economy starts to return to a more stable state in 2021 as a result of the introduction and widespread dissemination of Covid-19 vaccines, insurers will benefit from a reduction in both the regulatory and commercial uncertainty that resulted from the pandemic, allowing for more focus on longer term strategy and dealmaking. “For many large insurers and insurance intermediaries, the pandemic demonstrated a need to double down on efforts to adopt innovation into their existing business models and focus on a digital approach to customer experiences,” said Mr Wilner. “Insurtech businesses were able to help insurers become more digitally focused and access new sources of data, technology and distribution channels, despite the challenges of the pandemic.” He added that in 2021, insurers will target acquisitions of insurtech startups as a means of accessing novel technology platforms and new distribution channels. “Insurtech startups will be willing to consider being acquired by or partnering with large incumbents, after having experienced the uncertainties of the pandemic and due to the need to allow for exits by early investors,” he said. In Asia-Pacific, the first half of 2020 saw a rise in the number of mergers and acquisitions involving re/insurance businesses, with 38 deals completed compared to 31 in the previous six months. Joyce Chan, partner at Clyde & Co in Hong Kong, said that while these transactions would have been negotiated and agreed back in 2019, pre-Covid-19, the fact they completed suggests an underlying degree of confidence. “Although M&A volumes fell back in the second half of this year – as many re/insurers put growth ambitions to one side while they took stock of the impact of the pandemic on operations, claims and investment returns, and re-evaluated lines and jurisdictions with a view to redeploying resources to where they would be most profitable – they are not ruling out future M&A activity,” said Ms Chan. She added: “Asia-Pacific has not been impacted by Covid-19 to the same extent as the Americas and Europe. Deaths have been far lower, disruption has been less pronounced and the fallout in terms of financial and job losses has not been as severe. As a result, we expect that investor appetite will bounce back in 2021 and that it will do so more quickly in the region than elsewhere, likely leading to a surge of M&A starting in the first or second quarter.”

US and Asia-Pacific to see insurance M&A grow in 2021, says Clyde & Co

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