Upswing in global M&A activity
Global M&A activity is on the rise again and while the number of deals is still below pre-GFC levels, the title of latest Swiss Re sigma study, M&A in insurance: start of a new wave?, suggests that could be about to change.
After a sharp decline in 2009 and relatively subdued activity in the sector in the next few years, there were 489 completed deals in 2014. This was compared with 674 in 2007.
In recent months, activity has stepped up a notch, with the total M&A announcements in the second half of 2014 rising to 359 from 295 in the first half, with the momentum continuing into 2015.
The study identifies the key themes in the transactions to include divestments of closed blocks and run-off operations.
There has also been more activity in the specialty reinsurers sector as incumbent firms respond to heightened competitive pressures.
Beyond this sector, there have also been strategic deals to expand expertise, distribution capabilities and geographical reach.
There has been a pick up in M&A activity in the emerging markets, particularly Asia Pacific and Latin America, with advanced country insurers looking to expand in high growth markets while equally emerging market insurers eye acquisitions in advanced markets as a way to diversify geographically and across business lines, the study said.
The intermediaries sector has also experienced increased M&A activity.
“Brokers in the wholesale segment have been actively pursuing expansion overseas in response to growing demand from large corporates wanting to partner with firms with an international footprint,” the study said.
“Consolidation in domestic markets has also accelerated, the motivation for agents and brokers being economies of scale and the ability to provide a full range of analytical services to their clients.”
However, the study notes that the surge in activity is not industry-wide and remains in particular sectors only, and with considerable uncertainty remaining around the global macroeconomic and regulatory outlook it would still be challenging to select value-enhancing deals.
Co-author of the report, Darren Pain, said: “Those deals that seem to most consistently create value are ones where companies are from the same country and those that combine firms on different part of the insurance value chain.”