The global insurance industry saw Mergers and Acquisitions (M&A) surge 9% in 2018 to 382 deals, marking three consecutive six-month periods of growth for the first time since 2009, according to a report from law firm Clyde & Co.
The Americas remained the most active region for M&A with 189 deals in 2018, while Asia Pacific saw the biggest gains year-on-year with 59, up from 42 in 2017.
“Transaction activity worldwide was buoyant in 2018. Against a backdrop of stiff competition on pricing, stock market volatility and persistently low interest rates, a merger or acquisition remains a key strategy to reach new customers and markets, and to drive down costs by delivering synergies,” stated Andrew Holderness, Global Head of Clyde & Co’s Corporate Insurance Group.
However, Holderness warns that this rise in M&A activity is expected to diminish temporarily as factors such as Brexit, trade wars and protectionism generate uncertainty, something he calls the “enemy of deal-making.”
“The slowdown in the Americas in the second half of last year is indicative of heightened investor caution and we predict 2019 will be a year of two halves – a slowdown in M&A in some markets in the first six months, while the second half should see a return to form,” added Holderness.
Clyde & Co’s report adds that, at the top end of the market, the idea that size matters still holds.
In 2018 there were 18 mega-deals valued in excess of $1 billion, including AXA’s $15.1 billion acquisition of XL Catlin.
In 2019, Clyde & Co expects further consolidation with a number of large businesses across the world actively on the acquisition trail.
Technology also cemented its position as a key driver of M&A in 2018, underpinning deals of every size.
“Despite the risks of integrating legacy systems, a big-ticket M&A involving established market players remains hugely appealing because of the potential synergies, cost savings and streamlining of processes that the merger and the application of technological innovation can provide,” explained Hong Kong-based Clyde & Co corporate insurance Partner Joyce Chan.
In addition, there’s a feeling that regulators across a number of countries have been introducing legislative changes that are having an impact on M&A.
Tighter capital requirements in markets across South East Asia, the Middle East and South Africa will lead to consolidation or players being forced out of the market, the report says.
“The introduction of risk-based capital systems around the world is presenting deal-making opportunities that will ultimately result in a healthier industry, populated by fewer, stronger insurers,” said Avryl Lattin, Clyde & Co Partner in Sydney.
Lastly, whilst the report predicts a slowdown in transactions in some markets in the first six months of 2019, Clyde & Co believes this should only be a temporary lull as greater clarity emerges in Europe around the shape of Brexit and in the US around trade tensions with China.
“With clarity around Brexit finally likely, the changes that will follow will generate opportunities, especially in the run-off sector,” added Holderness.
“Meanwhile, with no significant hardening of the market on the horizon, we expect the need to dispose of non-core assets will persist.”
