Global insurance M&A rises again in first half of 2018, Clyde & Co. finds
Mergers & acquisitions in the global insurance industry rose in first half of 2018 with 186 completed deals worldwide.
Mergers and acquisitions (M&A) in the global insurance industry rose in the first half of 2018 with 186 completed deals worldwide, up from 180 in the second half of 2017, according to Clyde & Co’s Insurance Growth Report mid-year update.
This marks the second consecutive six-month period of modest increases in the volume of transactions since the low point in H1 2017 that followed two years of steady decline.
97 deals in Americas
Activity in the Americas was up, with 97 deals in H1 this year, compared to 90 in the preceding six months, with the strengthening economic outlook a key driver in the U.S., in addition to shifting reinsurance market fundamentals in Bermuda. Asia Pacific saw an uptick in deals from 20 to 25 with Japanese acquirors accounting for the lion’s share, ahead of Australia and Taiwan.
Activity in the Middle East and Africa remains subdued with just four deals in H1 2018, slightly up on the three completed in the previous six months. Europe was the only region to see a decline in M&A with 59 deals, down from 65 in H2 2017, with the overhanging uncertainty around Brexit continuing to act as a brake on activity.
Reinsurance model is shifting
There have been a number of completed outbound deals involving Bermudan acquirors in the first half of the year as well as announcements of takeovers of Bermudan reinsurers such as AXA’s move on XL Catlin and AIG’s tie-up with Validus with an expectation of more M&A to follow.
“There is a seismic shift underway in the reinsurance market. It is proving increasingly difficult to remain relevant as a large monoline reinsurer and as a result Bermudan businesses continue to be put up for sale or look to diversify by acquiring new underwriting assets themselves,” said Andrew Holderness, Clyde & Co., global head of corporate insurance.
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“In jurisdictions around the world large reinsurers are striving to get closer to their customers by increasing their footprint in the primary market either organically or through acquisition. Carriers are looking to write risks at every level, be it from the direct side, reinsurance or retrocession and for that they need sufficient scale and balance sheet strength.”
Brexit effect set to diminish
Despite an uptick in M&A in Europe in H2 2017, fuelling optimism that the Brexit lag effect was over, deal volume dropped again in the first half of 2018. However, deals are still happening and Europe remains the second busiest region for M&A, behind the Americas.
Technology tops the bill
A number of deals in 2018 have involved InsurTech targets such as Canada’s Mnubo and Jungo of The Netherlands. Interest in technology as a growth driver has further accelerated, a trend that is set to continue with technology companies being targeted and looking to acquire insurance assets themselves.
“Technology is the key to unlocking new customers in new markets via new distribution channels. Some are looking to acquire dynamic and innovative start-ups that can deliver proven solutions or take stakes in these types of businesses via corporate venture-style funding,” Holderness said. “Others are investing in-house, creating so-called ‘digital garages’ to support the development of proprietary solutions.”
Meanwhile, new market entrants such as Amazon and Google are looking to challenge established models and heap further pressure on traditional insurers. In one example last week, Chinese online retail giant JD.com announced that it had received approval to take a 30% stake in Allianz China, to become its second largest shareholder.
Positive outlook in multiple regions
The forecast for M&A is brighter than it has been for some time. In addition to further deals in Bermuda and Europe, activity is expected to pick up in China, the U.S. and the Middle East.
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