Insurance M&A hits two-year low

The volume of completed mergers and acquisitions (M&A) worldwide in the insurance industry continues its downward trend with activity down 24 percent to 170 deals in the first six months of 2017 compared to 186 in the preceding period and significantly down from 2015 result of 225 deals, according to the Clyde & Co Growth Report mid-year update.

Andrew Holderness, Global Head of the Corporate Insurance Group, says: “Uncertainty is the enemy of deal-making. M&A has risen in the Americas now that the uncertainty that plagued the market in the run-up to the US presidential election has eased somewhat. However, in Europe, uncertainty persists with Brexit acting as a significant brake on M&A activity.”

Activity in Europe is down 28 per cent in the past six months, in part due to the distraction of Brexit, while completed M&A deals in the Asia Pacific fell to 22 from 36 in the second half of 2016, partly due to temporary monetary controls in place in China.

Despite a reported drop off in Insurtech investment in the first quarter of the year – with funding at USD280 million, down USD500 million from the same quarter in 2016 according to figures from Startupbootcamp and PwC – the application of technology as a solution to deliver growth remains a priority for many businesses around the world.

“Technology offers new distribution routes and access to new markets and new customers, the holy grail for any insurer with growth ambitions,” said Holderness. “At the same time technology can bring substantial efficiencies and slash costs, resulting in a dramatic impact to the bottom line and will continue to dominate the corporate agenda of insurers for the coming years.”

The rise of broker facilities and an increasing number of managing general agents entering the market is putting additional pressure on insurers and may result in an increasing number of businesses being put up for sale. “The environment hasn’t got any easier for insurers in the last six months,” says Holderness. “Investment returns remain under pressure and abundant liquidity in the market means there’s little room to differentiate on price. One key area left in which to generate value is by addressing the cost structure and we will continue to see deals – such as Sompo’s acquisition of Endurance, the largest of the year so far – driven by a combination of desire to broaden international reach as well as to generate economies of scale.”

As markets become less exposed to political and economic uncertainty, the volume of M&A is expected to stabilise or rebound in the second half of the year as insurers continue to drive for growth and new sources of value.

“Deals are still getting done and a merger or acquisition remains an attractive route to generating value,” says Holderness. “While insurers continue to consider all the tools at their disposal in the quest for growth, there is good reason to expect that more M&A will get over the line in the coming six months. Hot-spots for deal making are likely to include China where the regulatory environment is expected to ease, allowing a pent-up wave of M&A activity to resume.”