Global insurance M&As rise in 2019 marking 'biggest increase' since 2015, finds Clyde & Co

Mergers and acquisitions (M&A) in the global insurance industry are at their highest level for four years up 13 percent to 222 deals completed worldwide in the first six months of 2019 from 196 deals in the six months before.

The accelerating trend was flagged up in the 'Insurance Growth Report' mid-year update from international law firm Clyde & Co. The firm said it “marks the biggest increase in the volume of transactions since H1 2015” and represents the fourth consecutive six-month period of growth.

Europe saw the biggest increase in M&A activity with a 40 percent rise to 88 completed deals compared to 64 in the previous six months. Clyde & Co said this was partly because companies were “moving on from the diversion of Brexit preparations”.

France was the frontrunner in Europe for M&A activity, followed by the UK and Spain. The report found there were 38 deals in Asia Pacific, with Japanese buyers the most active ahead of Australia and India.

The Americas were the most active region worldwide with 93 deals in H1 2019 compared with 92 in the six months before.

Ivor Edwards, partner and European head of the corporate insurance group at Clyde & Co, said: “Despite recent signs of market hardening, delivering a positive result for shareholders remains challenging and M&A is an attractive strategy to deliver growth for re/insurance businesses around the world.

“In Europe, now that the majority of re/insurers are Brexit-ready, they have been able to divert management attention back towards their growth ambitions. As a result, we have seen a surge in completed deals in 2019 that had been put on hold. Deal-makers elsewhere have been buoyed by a combination of strong economic growth, notably in the US, and positive growth prospects for the insurance sector, especially in Asia Pacific.”

While, Clyde & Co found that the key drivers for M&A were “shifting”, the firm said that mega deals “remain a feature of the market”.

Eleven transactions were valued at more than $1 billion in H1 2019 compared with 18 in the whole of 2018, it reported.

Edwards explained: “The search for scale is still a key factor as leading players seek to deliver cost synergies in addition to new distribution channels and customers. However, there is a limited pool of targets at the top end of the market and it may become increasingly difficult for buyers and sellers to come to an agreement on valuation. We have seen a dip in large deal announcements and this will likely translate into fewer big-ticket transactions completing in the second half of the year.”

Technology was identified as the “most important emerging driver of M&A” as tech investments were reported throughout the world market.

For example, Japan’s Sumitomo Life put $90 million into insurtech Singapore Life; a US investor group put $45 million into Paris-based Alan – a software-as-a-service startup for the health insurance market; and the same group put a similar amount into Pie Insurance, which offers US workers’ compensation insurance online.

Kathrin Feldmann, counsel at Clyde & Co in Dusseldorf, said: “While these investments may be relatively small, especially in comparison to the value of the larger, big-ticket M&A, they retain tremendous strategic importance. Technology can unlock access to new distribution routes, markets and customers, while at the same time delivering substantial efficiencies, resulting in a dramatic impact on the balance sheet.

"We expect to see a continuing surge in insurtech tie-ups, joint ventures and partnerships, and more involvement from tech companies entering the insurance market.”

Cross-border M&A deals is another area to watch as it represented 28 percent of the H1 2019 total with 63 deals as existing “saturated and ultra-competitive” markets pushed re/insurers to consider new territories.

European firms accounted for almost two-thirds of cross-border targets in H1 2019, while Bermuda, that had seen a number of years of M&A activity, closed just one transaction in H1 2019 – Apollo’s $2.5 billion acquisition of Aspen. This is because the available pool of M&A targets in Bermuda has shrunk, the report said.

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