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Closed book deals to drive consolidation in European sector: Moody’s

23rd May 2019 - Author: Matt Sheehan

Moody’s Investors Service expects to see further consolidation in the European re/insurance sector, driven in particular by an uptick in closed book deals as low interest rates continue to pressure margins.

closed book businessAnalysts noted that low interest rates have pressured margins on UK annuities and German traditional savings products with guaranteed rates.

Therefore, they expect life insurers in these regions to place more such books into run-off rather than to invest to make them competitive, leading to more closed book consolidation activity.

With organic growth becoming increasingly difficult in the saturated western European markets, Moody’s also views M&A as an attractive route for re/insurers to achieve scale and transform their business.

It sees incentives for buyers to carry out incremental acquisitions to enhance their scale and market position, while also unlocking cost efficiencies.

Additionally, more companies are looking to transform their business models through acquisitions, and Moody’s anticipates more deals of this nature in the coming months, including  through cross-sector transactions with asset managers and insurtechs.

“The European insurance sector will continue to consolidate, and the credit implications for the deals will vary, depending on the strategic rationale, execution risk and resulting financial impact,” Moody’s stated in a report.

Dominic Simpson, VP-Sr Credit Officer at Moody’s, also commented: “As low interest rates continue to pressure life insurers’ margins, they have strong incentives to buy and sell closed book businesses.”

“With organic growth difficult to achieve in saturated western European markets, we also see insurers as wanting to achieve scale or transform their businesses through M&A,” he added.

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