M&A activity drops off in insurance sector
Global insurance M&A deals were at a three-year low in 2016, with 12 of the top 20 biggest deals involving Asian acquirers.
Global insurance M&A deals were at a three-year low in 2016, with 12 of the top 20 biggest deals involving Asian acquirers.
The number of completed mergers and acquisition (M&A) deals in the global insurance industry fell to 387 in 2016, 13% down from the 444 transactions recorded in 2015 according to global law firm Clyde & Co.
In ‘Insurers search for growth’, its latest insurance growth report, the firm reports that H2 of 2016 saw 186 transactions, down from the 201 recorded in H1. The total number of M&As for the year was the lowest since 2013.
“Last year didn’t match what was, in retrospect, a bumper year in 2015,” commented Andrew Holderness, global head of the corporate insurance group at Clyde & Co. “Market conditions for insurance businesses have not improved during the last 12 months and if anything have got worse, particularly in the last six months.
“In this environment it is becoming increasingly difficult to tread water and stay afloat, let alone move ahead of the competition by delivering the growth that shareholders expect.”
The report notes a clear focus among insurers on investing in technology with investment in insurance technology (insurtech) start-ups reaching US$1.7bn worldwide in 2016.
“Regulators in markets including the UK, Singapore and the United Arab Emirates (UAE) have taken notice and are working together with innovators to help create the right conditions for new products and solutions to emerge and thrive, although there is a general feeling that others – notably those in the US – have some catching up to do in this regard,” the authors comment.
“The report quotes research that states 94% of insurers expect digital transformation to have the greatest impact on distribution over the next five years.”
Holderness adds: “Insurance businesses are looking increasingly at how they can deploy innovative technological solutions to reduce their cost base. At the same time, technology is rapidly cementing itself as the key to accessing new customers in new markets. Although still early stages, we expect insurtech will dominate boardroom discussions in coming years.”
Asia on the march
Outbound deal activity by Japanese insurers continued to be one of 2016’s dominant themes, as was the high level of M&A activity generally among Asian insurers.
In 2016, 12 of the top 20 completed deals by value involved an Asian-based acquirer, predominantly from Japan and China. However, the majority of the China-led deals were domestic transactions and the outlook for further international acquisitions in the near term is currently unclear following the decision last December by the China Insurance Regulatory Commission (CIRC) to impose stricter controls on insurance investments, including companies’ foreign assets.
Prospects for 2017
With competition showing no sign of diminishing, and the difficult operating environment expected to continue for the foreseeable future, technology, protectionism and disposals look set to remain key drivers of M&A activity.
“After five or six years of difficult trading conditions, we can expect to see a higher proportion of distressed businesses being put up for sale,” says Holderness. “Brexit will also be a deal driver as smaller businesses will go to market if they consider it too difficult or expensive to continue operations independently after the UK leaves the European Union (EU).
“Regulators are also set to have a significant impact on deal-making, with those taking a more protectionist stance in places as far apart as South Africa, China and Ecuador, effectively forcing companies looking to do business in these markets to build a presence on the ground, either by M&A or starting up new operations. In others, such as India, Singapore, Miami and Dubai, regulators are positively encouraging global insurers to set up new offices to exploit national and regional markets.
“With competition to leverage opportunities showing no sign of diminishing, and tough market conditions expected to continue for the foreseeable future, there is no doubt that insurance businesses around the world will continue to look at all available avenues in the search for growth.”