Pressure on re/insurers’ earnings will drive further M&A: Clyde & Co

Despite many re/insurers posting positive Q2 results and optimism around rising rates, downside risks—including the spectre of a global recession, the rise of nationalism and protectionism, trade wars and Brexit—are casting a shadow on the market, Ivor Edwards, European head of the corporate insurance group, Clyde & Co, told Monte Carlo Today.

“Many re/insurers are seeing continued pressure on earnings and investment returns remain under pressure for all. Businesses in the insurance market are focused on every available avenue to deliver growth,” he said.

This, in turn, is driving further interest in mergers and acquisitions (M&A). He said the law firm’s latest figures suggest that M&A activity is increasing: completed deals worldwide rose to the highest level for four years in H1 2019.

“Worldwide, the search for scale, access to new markets and investment in tech remain key M&A drivers,” Edwards said.

“We are seeing increased insurtech investments around the world and 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 in terms of unlocking 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.
“The overall outlook for M&A is tempered by political and economic uncertainty, and a hardening market, and it varies by geography.”

He said the firm now forecasts a drop in deals in the second half of the year in Europe. “Although the operational uncertainty around Brexit for re/insurers has lifted, the economic uncertainty remains.

“This is likely to intensify in the coming months and deal-makers will likely revert to caution mode as they await the details of the UK’s withdrawal agreement, which will have a temporary slowing effect on M&A,” he concluded.