A “slew of megadeals” have pushed the deal value of global re/insurance mergers and acquisitions to $42 billion (€37 billion) in the first half of 2018, the highest since the financial crisis, according to a new report from Willis Towers Watson and Mergermarket.
Indeed, this past week has seen a succession of high-profile deals including the sale of Tokio Marine’s reinsurance units – which includes Tokio Millennium Re AG and Tokio Millennium Re (UK) – to RenaissanceRe for $1.5 billion in total consideration.
Meanwhile, global re/insurance brokerage Ed has been the subject of a takeover by a subsidiary of BGC Partners, Inc., a global broker and financial technology firm.
And finally, the financial services firm AMP revealed last week an exit from the life insurance sector with the sale of its AMP Life business to Resolution Life for total cash and non-cash consideration of AU$3.3 billion (US$2.3 billion).
Interestingly, the report states that, while H118 saw 14 deals worth over $566 million taking place in the sector, total deal volume was down to just 84 deals, the lowest number since 2009.
Key deal drivers behind this surge in value relate to the changing nature of business models, says WTW.
As regulatory pressures become the norm, new models are emerging and more businesses are seeking to return to their core strategy.
“As the processes, reporting and monitoring have become increasingly business-as-usual, executives have taken back their ‘bandwidth’ and got on with the job of strategically guiding their companies,” explained Fergal O’Shea, Senior Director at Willis Towers Watson.
A growing trend for companies wishing to take this approach has seen them divesting unwanted parts of their business, meaning that valuable assets are once again on the market.
The report goes on to state that, for private equity investors, record levels of inflow – with dry powder levels reaching $1 trillion in 2017 – has driven interest in these assets and seen complex acquisitions from these buyers in 2018.
Furthermore, regulatory change has also played a significant role in relation to U.S assets, as tax reform in the region has provided an immediate boost to company earnings since the turn of the year.
That means U.S insurers instantly became more attractive to foreign insurers who see the potential to earn more from the U.S than had been available before.
And while these drivers support a positive outlook for global insurance M&A in the coming months, the report says time to market may extend the phase to execution, given higher deal values and potential deal complexity.
“We’re seeing a much longer stretch of time from announcement to closing,” said Jack Gibson, Managing Director at Willis Towers Watson.
“However, debt continues to be cheap, and following the recent tax reforms, US companies have been given a steroid kick.”
“We will continue to see an active M&A market, it’s just a matter of paying the right price and overcoming the hurdles that have led to deals taking longer to consummate and perhaps driving the lower number of deals this year,” added Gibson.
Additionally, the report found that political and economic uncertainty could affect global deal making, with volatility surrounding Brexit and tensions between China and the U.S potentially threatening deal acquisition; although the sector remains optimistic that the domestic focus of insurance M&A volume may protect it from cross-border tension.
Keep up-to-date with all future deals over at our M&A directory page, which provides a simple way to analyse recent transactions involving the world’ top insurance and reinsurance companies.