Clyde & Co has released its annual Insurance Growth Report, detailing the increased volume of global insurance deals over the last year, despite ongoing economic and social pressures.
2021 was the fourth busiest year in the last decade for global merger and acquisition (M&A) activity, with 418 completed deals in the insurance sector, up from 407 in 2020.
M&A in Europe and the Americas rose steadily, with innovation as a key deal driver. Reinsurers and insurers continue to consider alternative routes for growth and M&A activity is anticipated to remain bullish throughout this year.
The report highlighted that the Americas was the most active region in the M&A space, accounting for over half of the global annual total, with 224 deals and a year-over-year increase of 17%. In Europe, deal activity was up 21%, with a notable second half of 2021, completing 74 transactions.
A key driver for M&A deals can be attributed to insurtech, and the innovative deals that have been facilitated over the past year.
“There are so many growth strategies being deployed in the insurance industry,” said Vikram Sidhu (pictured), a managing partner of the corporate insurance team at Clyde & Co.
“I’ve seen so much innovation in all its forms - the use of data analytics and artificial intelligence, new product development such as parametric insurance and telemedicine, even new growth in sectors such as cyber, energy and so on. Insurance has embedded itself in so many ways. There are ties between insurers and large businesses outside of the industry, creating innovation in distribution areas.”
Sidhu explained that insurtechs have been a major driver for industry growth. There are insurtech companies merging with each other, and large insurers acquiring insurtechs. This growth was predicted for a few years, but this space has really picked up speed recently.
“There’s a desire for more mature tech start-ups to buy insurance companies themselves and become full stack, and then there are the incumbents like established insurers and reinsurers looking for acquisitions themselves,” he noted.
There are some hurdles when engaging in new M&A deals with tech companies, however. Some start-up companies can appear to be shiny, exciting, and new, but, according to Sidhu, there’s a level of complexity that can be difficult to understand from a commercial and legal perspective.
The global economic and political landscape has led to a lower volume in cross-border deals compared to the first half of the decade. The landscape of M&A is constantly changing, especially with the recent Russian-Ukrainian war, making 2022 forecasts hard to predict.
“The pandemic has made cross-border deal making much more difficult, and now the realization of greater geopolitical risks is causing a pause,” said Sidhu. “I wouldn’t be surprised if we see a dip this year because prior to making cross-border deals, there’s more concern about the transparentness of a business’s financial case and strategic plan.”
There is more rationalisation that needs to happen on insurers’ balance sheets in comparison to the past trend of rolling the dice and taking a chance based on the acquisition target’s incredible growth potential.
“Splicing off books of business that don’t make sense any longer is a trend we expect to continue in the US, UK, western Europe, the middle east and Asia,” Sidhu highlighted. “There is appetite for deals on both the buyer and seller perspectives, but strategically identifying what to keep within a group remains a crucial piece of managing companies big and small.”