Insurance M&A activity drops in 2016

Global insurance mergers and acquisitions (M&A) transaction activity dropped in 2016 across all sectors, according to a study by Conning.

In the year, there were fewer transactions with values over $1 billion, and two key health transactions from 2015 were either cancelled or are very unlikely to be completed, according to the study named ‘Global Insurer Mergers & Acquisitions in 2016’.

While the property/casualty (P&C) sector continued to have strong activity by its more offensive minded competitors, the life sector pulled back significantly.

Overall, in 2016 there were 165 transactions representing $33 billion in aggregate announced value. There were 13 announced transactions of $1 billion or more, with five of them taking place in the P&C sector. The largest transaction for the year was Sompo’s acquisition of Endurance for $6.3 billion. That compares to 2015 when there were (originally) 24 transactions of $1 billion or more announced.

M&A in P&C

Despite a drop in activity in 2016, the property-casualty sector led the M&A activity with a particular focus on specialty assets. The activity was marked by a selected number of insurers playing offense and defence.

Arch, Fairfax, and Liberty Mutual were all on offense in 2016 and led the P&C sector in making major acquisitions to expand their specialty capabilities. Arch’s $3.4 billion acquisition of United Guaranty cements its position as the leader in the mortgage insurance industry.

Fairfax improved its North American insurance operations with the acquisition of Allied World while capitalizing on AIG’s divestment activities to expand in Latin America and Eastern Europe.

Liberty Mutual accelerated its global specialty push through the acquisition of E&S (excess & surplus lines) insurer Ironshore.

Conversely, AIG continued its global divestment of insurance and investment assets. All told, AIG executed more than ten divestment transactions, not including its $10 billion reinsurance transaction with Berkshire Hathaway.

Despite returning more than $12 billion to shareholders in the form of share repurchases and dividends, AIG continues to come under pressure from shareholders seeking an improved market position and return story.

Alternatively, The Hartford signalled a shift in its position to the market with the acquisition of E&S insurer Maxum Specialty.

While a small transaction on a relative basis, this transaction was the first P&C acquisition for the current CEO and follows the company’s more recent divestment strategy.

Sompo Holdings’ acquisition of Endurance was the largest property-casualty transaction of the year at $6.3 billion.

The transaction demonstrates a continued strong appetite from Japanese insurers seeking platforms in developed markets. Since 2008, there have been six large specialty acquisitions from Japanese insurers totalling more than $25 billion in value.

M&A in life insurance

Life insurance M&A slowed in 2016, with only two of the largest transactions involving North American targets. Much of the remaining activity was focused on targets in Europe and Asia. Those transactions that occurred tended to be focused on companies repositioning themselves to address shareholder and regulatory pressures, or seeking specialized capabilities or new market opportunities. Asian buyers had been actively purchasing US targets, but turned their attention to companies in Asia in 2016.

Total transaction volume in life insurance was approximately $7 billion in 2016, compared to more than $25 billion in 2015.

In 2016, life insurers, or parents of life insurers, sought to reposition or divest companies to address shareholder, regulatory, and solvency pressures.

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