M&A activity remained strong last year – report

M&A activity remained strong last year – report | Insurance Business Asia

M&A activity remained strong last year – report

There were 418 completed mergers and acquisitions in the insurance sector globally last year, up from 407 in 2020, according to global law firm Clyde & Co’s Insurance Growth Report. M&A activity was driven by a particularly strong second half, which saw 221 deals completed, up from 197 in the first half.

The Americas remained the most active region for M&A, accounting for over half of the global total for 2021. The Americas posted 224 deals during the year, an annual increase of 17%. The US led activity with 180 completed transactions for the year – the highest total for the country since 2015.

Deal activity in Europe rose 21% year over year, with 74 transactions in the second half, up from 51 in the first half. Asia-Pacific saw a 45% drop in M&A activity, from 75 deals in 2020 to 42 in 2021. The Middle East and Africa also saw a drop in activity, with a total of 17 deals in 2021 representing a 47% drop from 2020.

“As anticipated, the volume of M&A activity worldwide picked up notably in 2021,” said Ivor Edwards, head of Clyde & Co’s European corporate insurance group. “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.”

The pandemic has accelerated innovation in the insurance sector, with insurers and reinsurers prepared to buy, fund or partner with tech companies that can help provide product innovation and greater agility, Clyde & Co said. Insurtechs – particularly in the US – are growing significantly, with some reaching the point where they can consider acquisitions themselves.

“Investment flowing into the insurtech space keeps growing strongly,” said Vikram Sidhu, Clyde & Co partner in New York. “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.”

2021 saw a rebound in the number of large M&A transactions, with 25 “mega-deals'' in excess of US$1 billion, up from 20 in 2020. The year’s largest deal was Regent Bidco’s takeover of RSA Insurance Group for US$9.2 billion.

However, insurers and reinsurers were also interested in smaller niche acquisitions to strengthen their core offerings, while the runoff market remained active in the US, Europe, and, increasingly, the Middle East.

“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,” said Peter Hodgins, Clyde & Co partner in Dubai. “In the last 12 months we’ve had more conversations with international runoff 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 runoff.”

Insurers and reinsurers are also seeing the emergence of new business models that will allow them to expand their operations and improve customer experience, Clyde & Co said. The growth in digital platforms, automation, data analytics and other digital innovations are vital to the success of companies that want to continue expanding, the firm said.

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“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,” said Eva-Maria Barbosa, Clyde & Co partner in Munich. “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 a much better position than those who just experiment in this area.” 

The M&A sentiment for the next 12 months is likely to remain positive, Clyde & Co said. The firm expects that M&A deal activity will remain buoyant, with deals exceeding 200 in the first half of 2022 and surpassing 220 in the second half.

“We are likely to see re/insurers positioning themselves for a more growth-oriented environment in the coming year, albeit with some regional variations,” said 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.

“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.”