The US insurance market continues to be an attractive prospect for foreign buyers. Direct investment via mergers and acquisitions (M&A) from foreign countries into the US insurance industry has shot up by US$70 billion (about SGD$92.2 billion) since 2013, according to the Bureau of Economic Analysis.
Global professional services network Deloitte expects to see a continuation of inbound M&A interest into the US throughout 2018, especially in the P&C and specialty insurance segments. The firm highlights interest from Asian buyers in its 2018 Insurance M&A Outlook report, suggesting available capital remains abundant in counties like Japan, China and Taiwan.
Market trends also suggest the potential for heightened interest by European buyers as they re-evaluate the role the US market will play in their business portfolios. The US dollar has been falling relative to the euro and the pound over the last year, but that could change given continued interest rate increases in the US, according to Deloitte.
“Foreign buyers have been one of the most important stories in the US insurance M&A market over the past several years, in particular buyers from China and Japan,” said Boris Lukan, M&A and Restructuring Leader, Insurance, Deloitte. “We believe foreign participation is likely to evolve throughout 2018. Moving forward, we expect Japanese and European companies to be active, but we expect Chinese activity to drop off slightly.
“Chinese insurers have had a difficult time with regulation both in their home country and here in the US, where they’re facing pressure from state and federal authorities. It has been challenging for them to provide sufficient information that gives transparency into ownership and control of the parent company. This has caused Chinese/US transactions to be delayed or broken up entirely.”
China’s Oceanwide Holdings is going ahead with a US$2.7 billion acquisition of US insurer Genworth Financial, despite delays caused by concerns around Chinese access to sensitive US personal data. The acquisition deadline was extended from November 2017 to April 2018 to give Oceanwide time to amend their proposal in order to win the approval of The US Treasury Department’s Committee on Foreign Investment in the United States. Chinese investors are also facing pressure from within China, where the government is putting value constraints on outbound investment deals and M&A transactions.
“In contrast, Japanese companies have been substantially more successful in providing the transparency that regulators seek,” Lukan told Insurance Business. “European companies are also in a strong position to participate in the insurance M&A market in the US. Given the decline of the US dollar against a basket of foreign currencies, and improvements in stock valuations in Europe - which provides companies with a stronger acquisition currency – we anticipate more European involvement in the US market through 2018.”