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Wednesday 15 August 2018


M&A momentum builds as Brexit plans crystallise

Written by staff reporter

Merger and acquisition activity in the 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', released today. 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.

Activity in the Americas was reported to be up, with 97 deals in H1 this year, compared with 90 in the preceding six months – the strengthening economic outlook a key driver, in addition to shifting reinsurance market fundamentals in Bermuda. Asia-Pacific saw an uptick in deals from 20 to 25 with Japanese acquirers 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.

Global head of corporate insurance, Clyde & Co, Andrew Holderness says: “After a sustained period of sliding M&A volumes that bottomed out in the first half of 2017, the first green shoots of recovery that we saw at the turn of the year are now taking root. The characteristics of the operating environment haven’t changed – the market remains uber-competitive and generating growth a perennial challenge – so M&A can provide potential synergies on reducing the cost base, build scale and access new customers. Deal-makers are feeling renewed confidence, buoyed by strengthening economies in the US and Asia, greater regulatory certainty in China and the Middle East, and the need to pick up the pace in Europe as the risk of a chaotic Brexit looms large.”

There have been a number of completed outbound deals involving Bermudan acquirers 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.

Holderness says: “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. 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 retro¬cession and for that they need sufficient scale and balance sheet strength.”

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.

“Brexit preparations have been absorbing huge chunks of management time, taking priority over M&A. Despite continuing uncertainty over the detailed mechanics of Brexit, most affected insurance businesses now have their operational plans in place and focus will return to the growth agenda. This means re/insurers within the EU and the UK will start looking for targets again while they themselves may be targeted by acquirers from outside the region," Holderness adds.

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.

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 announced that it had received approval to take a 30% stake in Allianz China, to become its second largest shareholder.

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