Global insurance mergers and acquisitions may be returning to form after a two-year decline, according to a new report.
There were 350 completed mergers and acquisitions in the global insurance sector in 2017, according to a new report from global law firm Clyde & Co. That’s down from 387 in 2016 – but the second half of 2017 showed an uptick in deals for the first time since 2015.
“After a lackluster couple of years for transactions, this rise in activity indicates a renewed level of confidence in deal-making as a tried-and-tested route to growth,” said Andrew Holderness, global head of corporate insurance for Clyde & Co. “Following on from the uptick at the end of last year, deal-making has already got off to a quick start in 2018, with a number of high-profile deals announced, including those involving AIG/Validus and AXA/XL Group.”
Holderness said that Clyde & Co expects the momentum to continue, “with M&A returning to form as insurance businesses seek to build scale and geographic reach, generate efficiencies and deploy innovative technologies to access new customers with new products through new channels.” Holderness also said that insurtech is poised to join M&A as a mainstream driver of growth in the sector.
The Americas – specifically the United States – led the way for insurance M&A transactions last year, increasing from 80 deals in the first half of the year to 96 in the second half, according to Clyde & Co. Forty-five per cent (45%) of the top 20 largest deals in 2017 involved US acquirers – and Clyde & Co said that recent tax-law changes have the potential to generate even more deals involving both US targets and acquirers.
Meanwhile, European deal numbers tumbled by 22% in 2017, from 151 to 118. That’s largely due to “the Brexit effect” – with insurance businesses focused on preparing for Brexit and setting up subsidiaries and branches to ensure that they can continue operations across Europe, M&A transactions have taken a back seat. Insurers outside Europe, meanwhile, have held off on potential acquisition targets on the continent until the situation clarifies.
“As Brexit preparations are completed, we expect to see an increase in deals,” Clyde & Co said. “In the meantime, this may have a positive impact on M&A activity elsewhere in the world such as Asia, where there is not the same degree of market uncertainty and deals may be perceived as easier to get over the line.”
Asia could use the boost. The volume of completed M&A deals in Asia fell 42% in 2017, from 72 the previous year to 42. The drop was mainly due to foreign currency restrictions in China, Clyde & Co said.