Mergers and acquisitions (M&A) activity in the global re/insurance sector increased by 9% in 2018, but political and economic uncertainty is expected to cause a temporary slowdown over the next six months, according to analysts at Clyde & Co.
The law firm recorded 382 M&A transactions in 2018, up from 350 in the previous year, and noted that activity had grown for three consecutive six-month periods for the first time since 2009.
The Americas remained the most active region for M&A, with 189 deals in 2018, although it saw a slight drop off in the second half of the year with 92 transactions, down from 97 in the first six months.
Asia Pacific saw the biggest gains year-on-year with 59 deals, up from 42 in 2017, while Europe was steady with 122 completed deals in 2018, up from 118 in the previous year.
“Transaction activity worldwide was buoyant in 2018,” said Andrew Holderness, Global Head of Clyde & Co’s Corporate Insurance Group. “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.
“However, factors including Brexit, trade wars and protectionism are generating uncertainty, the enemy of deal-making,” he continued. “
“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.”
Vikram Sidhu, a New York based Clyde & Co corporate insurance Partner also commented: “Carriers are increasingly targeting the entire insurance value chain for opportunities. The spate of deals involving Bermudan targets has been driven by the realisation that being a stand-alone reinsurance company may no longer be viable and diversification and larger scale will be essential going forward.
“And a growing acceptance that alternative capital is here to stay has seen some re/insurers move in on ILS targets, with Markel’s acquisition of Nephila being the largest. Overall, the continuing pricing and competitive pressures continue to provide an impetus to deal-making.”
Analysts highlighted technology as a key M&A driver, with re/insurers taking stakes in insurtech start-ups across every geography.
Tighter regulations and capital requirements in markets across South East Asia, the Middle East and South Africa has also resulted in consolidation to avoid players being forced out of the market, Clyde & Co said.
“With clarity around Brexit finally likely, the changes that will follow will generate opportunities, especially in the run-off sector,” continued Holderness. “Meanwhile, with no significant hardening of the market on the horizon, we expect the need to dispose of non-core assets will persist.
“The Lloyd’s market could provide rich pickings – with around 20 syndicates exiting different classes there is a substantial quantity of discontinued business which will either be closed naturally or sold to another syndicate, presenting the potential for billions of dollars’ worth of legacy deals.”