Global M&A exceeds nearly all expectations

While the global insurance industry paused briefly for reflection during the first half of 2020, mergers and acquisitions (M&A) activity across the globe defied expectations and soared. However, while the Americas, Middle East and Africa improved, there was a notable slowdown in Europe.

This was one of the main points from an interview with Vikram Sidhu, partner, New York, and Eva-Maria Barbosa, partner, Munich, both of Clyde & Co. The interview took place on Intelligent Insurer’s Re/insurance Lounge, an online platform where interviews and panel discussions are available on demand.

Sidhu said deal activity had been robust for about five years, but there had been some levelling off in 2019.

“Then the globe was hit with the COVID-19 pandemic and we didn’t know what to expect. But surprisingly, M&A soared. Not just in the Americas, but also the Middle East and Asia while there was a clear dropping-off of activity in Europe,” he said.

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Barbosa said that when Brexit happened, companies became somewhat preoccupied with getting their Brexit plans together.

“Some of the biggest companies we have in Europe are no longer part of the EU, so there was a great deal of team-shifting and creating new structures that were necessary to ensure that there was no business interruption,” she explained.

Improving market conditions have led to a rise in capital and additional funding from private equity investors.

“There is growing private equity interest in the insurers’ space,” said Barbosa. “The insurance sector as a whole, including brokers and distribution chains, is becoming even more attractive to them because of slim balance sheets—and as risk carriers they can add value.”

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New faces
The trend of new players entering the reinsurance market, backed by established organisations, is continuing.

“In the US and the Americas, we are seeing a lot of interest from private equity investors in the insurance sector,” said Sidhu.

“But even more broadly for a whole range of investors, insurance became an industry they wanted to be in for a variety of reasons, such as chasing returns. We are seeing more hardening of rates and terms, as well as more innovation manifested in a variety of ways. Investors are also backing new founders.”

In terms of reversing the 2020 downward trend in M&A across Europe, several reinsurers are looking to reorganise their business lines by putting assets up for sale or actively looking for acquisition opportunities.

Some countries have stood out. “There has been a lot of movement in Spain, Portugal, and Italy,” said Barbosa. “There has also been plenty of investment interest in the reinsurance industry, particularly the broker market,” she added.

“US interest in the reinsurance industry is still attractive, as there are many factors that drive growth. Places to watch include Canada and Bermuda, while Latin America (for a variety of reasons) is still subdued,” said Sidhu.

Barbosa and Sidhu agreed that the surge in M&A activity during the first half of 2021 is set to continue and it may even experience a significant boost in the latter half of the year, because there is confidence in the global economy.

“Dealmakers will select acquisitions carefully to ensure the best fit with their strategic objectives,” concluded Barbosa.

To view the full Re/insurance Lounge session click here.