Clyde & Co Reveals Number Of Insurance Deals Worldwide In 2019

The volume of mergers and acquisitions in the insurance space rose 10% in 2019, according to insurance law firm Clyde & Co. A study by the firm found that 419 deals were completed worldwide last year, up from 382 in 2018.

Merger activity was driven by an unusually strong first half, led by a spike in deals in Europe that had previously been on hold due to Brexit preparations. M&A activity dropped during the last six months of 2019, but activity remained strong compared to recent years, according to Clyde & Co.

The Americas was the most active region, with 182 deals in 2019, down slightly from 189 deals the year before. Europe posted the largest year-over-year increase with 155 deals last year, up from 122 in 2018. The Asia-Pacific region posted a 17% increase in overall deals to 69. The Middle East and Africa also saw rises, although from a low base, Clyde & Co said.

“M&A has surged in the last 12 months,” said Ivor Edwards, European head of Clyde & Co’s Corporate Insurance Group. “While insurers have had some reasons for cheer in the past year, with reduced natural catastrophe losses and price rises taking hold across a range of classes of business, investment returns are still flat. This makes deal-making a trusted route to growth and a means of satisfying shareholders. Although deal-makers in some markets may adopt a more cautious approach, the quick start to 2020 in certain markets suggests there’s more to come.”

The firm predicted that M&A would be an area of focus this year as capacity is released following ongoing reviews by reinsurers of classes they will continue to underwrite and those from which they will withdraw. Where reinsurers withdraw, that released capacity can be redeployed elsewhere. Market remediation has also led to more businesses being placed into run-off, the firm said.

“Activity in the run-off market is expected to pick up further in markets across the world,” said Vikram Sidhu, Clyde & Co partner in New York. “In the US, insurers will likely take further steps to explore divesting legacy books of insurance business through two recently enacted restructuring mechanisms known as insurance business transfers and corporate divisions, which mechanisms several states have enacted into their laws in recent years. We expect these new tools for legacy business to lead to a burst of new deal activity later this year and beyond.”

Technology

Technology is becoming an increasingly important driver in M&A, according to the firm. The last 12 months have seen several investments in technology, including $250 million from Munich Re into California start-up Next Insurance and $90 million from Japan’s Sumitomo Life into insurtech Singapore Life.

“Technology is now a key consideration in any deal,” said Joyce Chan, Clyde & Co partner in Hong Kong. “Potential buyers are thinking how they can improve existing processes as well as develop new ones. They will be looking at targets which can deliver technological benefits at the back end – in terms of greater efficiencies – and enhance their customer reach and offering in the market. With many insurtech start-ups now reaching the point of maturity where their business models are proven, we expect a new wave of investment from carriers through acquisition, joint venture or partnership in the coming year.”

Mega-deals

There were 20 deals valued in excess of $1 billion in the sector last year, spread across all regions. Among the largest were Prudential’s $3.5 billion acquisition of Assurance IQ and FWD Group’s $3 billion acquisition of Thailand’s SCB Life Assurance.

“The advantages of the ‘bigger is better’ philosophy remain hard to dispute,” said Kathrin Feldmann, a Clyde & Co counsel based in Dusseldorf. “M&A can deliver increased scale and reach, access to new customers and markets, and a wider pool of customer data, which is an increasingly valuable commodity. M&A at the top end of the market will continue, but may be harder to get over the line due to a shrinking pool of targets and challenges in reaching agreement on price. Meanwhile, many reinsurers are starting to take a more considered view of M&A, aiming for smaller, more selected targets that add discrete value to their operations.”

M&A to remain strong

Although the market is hardening, Clyde & Co predicted that M&A activity in the first half of 2020 would maintain the recent trend level at just under 200 deals globally.

“A number of regional factors will impact M&A in 2020,” Edwards said. “The US presidential election may push some deal-makers to complete transactions ahead of a possible change in administration, while others will [put] plans on hold until uncertainty over the result is resolved. Europe should see a return to business as usual now Brexit preparations are mainly completed – but as the details of the future trading relationship between the UK and the EU remain unclear, this may spur transactions during the transition period. In Asia-Pacific the fundamentals are in place for continued M&A, with the caveat that the length and severity of the coronavirus outbreak has the potential to deter potential investors and damage insurers’ balance sheets.”