The global insurance merger & acquisitions (M&A) growth trend was back on the uptick in the second-half of 2017 after a slow start to the year, and 2018 so far has seen the trend continue with the closure of major deals including AXA’s acquisition of XL for $15.3 billion.
The number of completed M&As dropped from 387 in 2016 to 350 in 2017, however, Clyde & Co noted in its latest annual Insurance Growth Report that the second half of the year saw volume of deals back up for the first time since 2015.
Andrew Holderness, Clyde & Co, Global Head of Corporate Insurance said: “After a lacklustre couple of years for transactions, this rise in activity indicates a renewed level of confidence in deal-making as a tried-and-tested route to growth.
“Following on from the uptick at the end of last year, deal making has already got off to a quick start in 2018, with a number of high profile deals announced, including those involving AIG/Validus and Axa/XL Group.
“We expect this momentum to continue with M&A returning to form as insurance businesses seek to build scale and geographic reach, generate efficiencies and deploy innovative technologies to access new customers with new products through new channels. Alongside M&A, InsurTech is poised to become a mainstream driver for growth in the insurance sector.”
In 2017 the Americas and particularly the U.S. was the most active region for insurance M&A transactions, with these increasing from 80 deals in H1 to 96 in H2.
45% of the top 20 largest deals involved U.S. acquirers in 2017, Clyde & Co explained the uptick coincided with growing economic strength and corporate confidence; this could be further amplified by recent tax changes generating a spate of deals involving both U.S. targets and acquirers.
Bermudian assets are also proving attractive with two of 2017’s five largest transactions involving Bermudian targets: Endurance’s acquisition by Sompo for U.S. $6.3 billion and Ironshore’s acquisition by Liberty Mutual for U.S. $2.9 billion.
New York-based, Clyde & Co Partner Vikram Sidhu, explained that many Bermuda-based companies face low growth, deteriorating margins and cost pressures while “U.S. tax changes have diminished a key advantage for Bermuda insurers and reinsurers. That’s going to lead to greater deal activity involving Bermudian businesses in 2018.”
This echoes the general industry consensus that Bermuda will see further M&A activity in 2018 as entities seek out ways to manage the challenges of increased competition following the U.S. tax regime changes while still under the strain of the 2017 catastrophe losses.
European deal numbers fell 22% to 118 in 2017, down from 151 the previous year, while the volume of completed deals took a nosedive in Asia, falling 42% year on year, Clyde & Co said this is mostly due to foreign currency restrictions and regulatory uncertainty in China.
Consultant to Clyde & Co, Michael Cripps, explained, however, that this could soon change: “The regulator in China is moving to create a better regulated market that is governed in line with international norms and best practices. This will benefit policyholders and investors alike and open the door for more transactions once the new rules have bedded in.”
In conclusion, the global law firm expects deal-making in the insurance industry to pick up in the coming 12 months, with the Americas still leading the way, spurred on by recent tax cuts, and Bermudian assets continuing to be the target of acquisitions.
