The COVID-19 pandemic failed to put a huge dent in insurance M&A activity for 2020, with more deals expected to come in 2021, according to a report by global law firm Clyde & Co.
The report, titled Finding Opportunity in Adversity, tallied a total of 407 completed M&A transactions in the global insurance sector for 2020, only slightly less than the 419 recorded for 2019. An expected slowdown in deals in the second half of the year due to the pandemic did not materialize.
The Americas remained the most active region for M&A, with 192 deals in 2020, up by 6% year-on-year. In fact, the second half of 2020 saw a spike in deals with 102 transactions – the highest number for five years – up from 90 in the first six months. Asia-Pacific saw 75 deals, a 9% rise from 69 in 2019, with M&A accelerating through the year. The Middle East and Africa region went from 12 completed deals in 2019 to 32 in 2020.
On the other hand, Europe saw a 34% decrease in deals, with 103 in 2020, down from 155 in 2019.
“Insurance transaction activity worldwide belied expectations in 2020,” said Ivor Edwards, head of Clyde & Co's European corporate insurance group. “Deal-makers in the insurance industry, like many others, paused for reflection in the first half of the year, but not for long. Strategic players in the market and M&A specialists clearly did not want to be relegated to the side lines and quickly regrouped to identify and pursue opportunities. Given that remote working does not easily lend itself to negotiations, due diligence and all the other elements that make up a transaction, the speed with which companies adapted to the new environment was impressive.”
Edwards added that Clyde & Co expects a surge of completed M&A in the coming months to as re/insurance businesses grab opportunities to build scale, generate efficiencies and reach new customers in new markets.
Some of the trends Clyde & Co observed include a widening pool of targets, due to the pandemic forcing firms to review their strategies and optimizing which markets they want to be present in. Firms are looking to exit non-core businesses, in order to free up capital to be aligned in preferred business areas, especially with hardening markets.
Additionally, increasing premium rates and a more optimistic outlook for most lines of business will make stronger market players more likely to look for growth opportunities. Improving market conditions make it attractive to investors such as private equity funds, which will help finance more deals.
The pandemic has also hastened the adoption of technology, with increased interest in insurtech start-ups. The report cited multiple investments into US start-up insurer Hippo Enterprises, propelling its valuation to over US$1 billion; Sompo buying a stake in Japan’s Tier IV, a company leading the development of open-source software for self-driving technology; and Aviva partnering with venture capital firm Anthemis to expand its insurtech investment activity.