Global insurance M&A up 9pc

Global insurance merger and acquisition activity was up 9pc to 382 completed mergers in 2018. The second half of the year was also the third consecutive six-month period of M&A growth for the first time since 2009.

These are among the findings of law firm Clyde and Co’s latest M&A report, which cites the search for scale, technology and regulatory changes among the key drivers for the rise in the number of transactions.

Fuelling the figures were deals in the Americas, Europe and APAC, a trend that the law firm expects to tail off due to lulls caused by Brexit-related uncertainty and US trade tensions with China.

Global head of Clyde & Co's Corporate Insurance group, Andrew Holderness expects this lull to be temporary, however, predicting a return to form in H2 2019.

“With clarity around Brexit finally likely, the changes that will follow will generate opportunities, especially in the run-off sector. Meanwhile, with no significant hardening of the market on the horizon, we expect the need to dispose of non-core assets will persist,” he says.

“The Lloyd’s market could provide rich pickings – with around 20 syndicates exiting different classes there is a substantial quantity of discontinued business which will either be closed naturally or sold to another syndicate, presenting the potential for billions of dollars’ worth of legacy deals.

“Transaction activity worldwide was buoyant in 2018. Against a backdrop of stiff competition on pricing, stock market volatility and persistently low interest rates, a merger or acquisition remains a key strategy to reach new customers and markets, and to drive down costs by delivering synergies. However, factors including Brexit, trade wars and protectionism are generating uncertainty, the enemy of deal-making. The slowdown in the Americas in the second half of last year is indicative of heightened investor caution and we predict 2019 will be a year of two halves – a slowdown in M&A in some markets in the first six months, while the second half should see a return to form.”

In detail: Global insurance M&A activity (Source: Clyde & Co)

At the top end of the market the idea that size matters still holds. In 2018 there were 18 mega-deals valued in excess of US$1bn, including the year’s largest, AXA’s US$15.1bn acquisition of XL Catlin. In 2019, further consolidation is expected with a number of large businesses across the world actively on the acquisition trail.

Technology cemented its position as a key driver of M&A in 2018, underpinning deals of every size. Examples of insurers taking stakes in insurtech start-ups increased across every geography. These included France’s CNP Assurances investing in mobile payment solutions company Lydia, Berkshire Hathaway buying a stake in One97 Communications, India's largest digital payments company, and HSB, part of Munich Re, acquiring US-based relayr, Inc., a global Industrial Internet of Things (IIoT) technology company.

Regulators in a number of countries have been introducing legislative changes that are having an impact on M&A. Tighter capital requirements in markets across South East Asia, the Middle East and South Africa will lead to consolidation or players being forced out of the market.

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