1 August 2019News

M&A activity up but pool of targets in Bermuda is shrinking

Mergers and acquisitions (M&A) in the global insurance industry rose in H1 2019 with 222 completed deals worldwide, up from 196 in H2 2018, according to Clyde and Co’s Insurance Growth Report mid-year update.

There were 63 cross border deals, representing 28 percent of the global total, as re/insurers look to extend their reach into new territories. But after a number of years of inbound activity, the pool of targets in Bermuda is shrinking, with just one deal involving a Bermudan target closing in H1 – Apollo’s $2.5 billion acquisition of Aspen.

Instead, European targets accounted for almost two-thirds of cross-border targets in H1.

But the overall number of M&A deals represented the biggest increase in the volume of transactions since H1 2015 and the fourth consecutive six-month period of growth. There were 11 transactions valued in excess of $1 billion in H1, compared to 18 in the whole of 2018.

Ivor Edwards, partner and European head of the corporate insurance group at Clyde and Co, said leading players were searching for scale that could deliver cost synergies and new distribution channels and customers.

“However, there is a limited pool of targets at the top end of the market and it may become increasingly difficult for buyers and sellers to come to an agreement on valuation. We have seen a dip in large deal announcements and this will likely translate into fewer big-ticket transactions completing in the second half of the year,” he said.

Technology is the most important emerging driver of M&A, with H1 seeing technology investments around the world including $90 million into insurtech Singapore Life from Japan’s Sumitomo Life; $45 million from a US investor group into Paris-based Alan – a software-as-a-service startup for the health insurance market; and a similar amount into Pie Insurance, which offers US workers’ compensation insurance online.

The biggest increase in activity was in Europe, which saw 88 completed deals, a 40 percent increase on the 64 completed in the previous six month period. France was the leading country in Europe, and the second most active worldwide behind the US, with the UK and Spain behind them.

Edwards said: “Now that the majority of re/insurers are Brexit-ready, they have been able to , divert management attention back towards their growth ambitions. As a result, we have seen a surge in completed deals in 2019 that had been put on hold.”

But Edwards said Europe’s M&A bonanza is unlikely to persist into H2. Economic uncertainty “is likely to intensify in the coming months and deal-makers will likely revert to caution mode as they await the details of the withdrawal agreement, which will have a temporary slowing effect on M&A.”

The Americas was the most active M&A region, with 93 deals, up from 92 the previous half, but Vikram Sidhu, partner at Clyde and Co in New York, warned that growing geopolitical and financial uncertainty is causing US dealmakers to pause.

There is “a cooling on cross-border deals as potential acquirors wait to see how issues such as trade disputes might unfold,” said Sidhu. “It is likely that US insurance M&A deal activity will cool down in the second half of 2019, although certain areas such as insurance agency acquisitions are likely to continue strongly throughout the year.”

There were 38 deals in Asia Pacific, marking the fourth consecutive period of rising deal volume, and the highest level since 2015. In Asia Japanese acquirors were again the most active, ahead of Australia and India.

India was Asia’s stand-out market, with recent legislative changes translating into M&A, including the largest deal of the year worldwide so far – the acquisition of IDBI Bank by the Life Insurance Corp of India for $2.8 billion.  In China, too, new regulations have stimulated interest from foreign insurers, which could lead to an uptick in deals in H2.