‘Buoyant’ M&A outlook for 2022 driven by innovation and automation

Mergers and acquisitions (M&A) in the insurance sector is expected to remain “buoyant” during 2022, with re/insurers looking for strategic acquisition targets driven by acceleration in innovation, automation, data analytics and modelling, suggest a new report by  Clyde & Co.

Re/insurers are looking to buy, fund and partner with insurtech companies to gain greater agility and competitive advantage. At the same time, they are looking at smaller niche acquisitions that strengthen their core offerings, while the run-off market remains active in the US, Europe and increasingly in the Middle East.

“We are likely to see re/insurers positioning themselves for a more growth-oriented environment in the coming year, albeit with some regional variations,” according to Joyce Chan, Clyde & Co partner in Hong Kong.

“Despite continued interest from strategic buyers and private equity, a continued lack of suitable acquisition targets in markets like Europe and Asia will be a feature,” Chan noted.

“However, the MENA region is expected to see a burgeoning M&A market this year, with more activity in GCC countries than has historically been the case. As the more mature insurtechs in the US look for acquisition targets, others will look for opportunities to establish or expand their foothold in the insurance market, driven by high levels of deployable capital.”

The report finds that insurtechs, particularly in the US, are growing at pace, with some reaching a stage of maturity that is allowing them to look at acquisitions themselves on the path to greater size and market share and/or being ‘full stack’ insurance businesses.

Vikram Sidhu, Clyde & Co partner in New York, explained: “Investment flowing into the insurtech space keeps growing strongly. The successful insurtechs are at a place where, for various reasons, they want to have that ‘full stack’ insurance business, rather than simply being MGAs that sell policies on behalf of other carriers. These companies want to grow bigger and control their destiny.”

There were 418 completed M&A in the global insurance sector in 2021 - a year that saw a rebound in the number of large transactions with 25 mega-deals in excess of $1 billion.

The Americas remained the most active region for M&A – accounting for over half of the global annual total, an annual increase of 17%. Activity was led by the US, where the number of completed transactions reached 180 for the year – the highest total for the country since 2015. The US was followed by Europe where deal activity rose 21% year-on-year. However, Asia Pacific saw a decline of 44% and Middle East & Africa 47% in 2021.

Ivor Edwards, head of Clyde & Co's European Corporate Insurance Group, said: “As anticipated, the volume of insurance M&A activity worldwide picked up notably in 2021. Despite the pandemic continuing to shape the economic and political landscape, investor sentiment strengthened in most regions as re/insurers rode the wave of rising prices across all product lines to generate healthy top line growth.

“Signs that market hardening is slowing down in certain classes, combined with the pressure of rising costs means that for those businesses looking to expand, the decision on whether to grow through acquisition or by building out existing operations has never been more relevant.”

Beyond M&A as a route to growth, the re/insurers will look for new business models to expand their operations and improve customer journey, which has become more important than ever following the move to remote working during the pandemic.

Eva-Maria Barbosa, Clyde & Co partner, Munich, explained: “Developing ecosystems will be an important growth strategy for re/insurers in the year ahead: identifying key services that dovetail with their insurance products and integrating those into their customer journey. Any insurer who finds the right partners and builds up ecosystems that can be seamlessly connected with a bank or another distribution partner will, in five years, be in much better position than those who just experiment in this area.”

Peter Hodgins, Clyde & Co partner in Dubai, added: “The legacy market remains a popular choice for the divestment of non-core assets, whether from P&C carriers and banks selling off life insurance divisions, or the spin-off of underperforming classes of business or subsidiaries due to market conditions.

“In the last 12 months we've had more conversations with international run-off specialists around accessing the market in this region than ever before. This year we will see much more discussion with regulators and heightened activity for the purpose of run-off.”

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