Targeted P/C insurance mergers and acquisitions should continue in 2018 after they slowed down to a trickle last year, Conning said in a new report. The predicted M&A behavior for the rest of 2018: a focus on specialty insurers or niche business lines in the quest for carrier acquisition targets.
“This trend creates insurers with sharper focus and is likely to continue and strengthen beyond 2018 as insurers avail themselves of richer data and analytics to provide products and services in line with customers’ rising expectations,” the Conning report said, also making similar predictions for life insurers.
The Conning report pointed out that a mix of incentives and disincentives should keep the pace measured and relatively slow compared to previous years.
“The scarcity of high-value specialty targets, reflected in rich multiples associated with acquiring such targets, will be a deterrent,” Conning said. “Technology, already seen as a driver, also will spur M&A, as insurers seek to gain competitive advantage by acquiring insurers and InsurTech firms with advanced capabilities, rather than develop technology in-house.”
Insurance M&A Slowed Down in 2016
Conning said that global M&A activity among insurers was about the same in 2017 as in 2016, but far fewer of the deals were in the property/casualty carrier space.
There were nine billion-dollar-plus transactions in the P/C insurance space in 2015, seven in 2016 and five in 2017, Conning said. Five deals were worth more than $2.5 billion in 2015, as were five in 2016, but none reached this high in 2017.
“The absence of such large transformational deals in 2017 underscored the difference in activity from that of recent years,” Conning said. “While the large transactions of 2015 and 2016 featured consolidations of large multiline insurers and large reinsurers, in 2017, most of the activity involved acquisitions of niche specialist insurers.”
Conning noted that specialist insurers, unlike multiline insurers and reinsurers, “typically do not attain very large scale.”
Conning’s predictions follow a Willis Towers Watson report in November that M&A trends were moving toward fewer and larger deals, with a focus on brand strength as carriers transition to digital sales.
A Few High-Profile Deals So Far
So far in 2018, there have been a few, select high-profile M&A deals. Earlier in March, for example, AXA SA agreed to buy XL Group Ltd. for $15.3 billion in cash, with the French insurer seeking to gain a larger share of the U.S. property/casualty market. In January, American International Group inked a deal to acquire Validus Holdings for more than $5.56 billion. The acquisition will give AIG new market presence in specialty, marine and P/C reinsurance; a Lloyd’s arm (Talbot); and Western World, a U.S. specialty P/C underwriter focused on the small commercial E&S and admitted markets.
The full Conning report is “Global Insurer Mergers & Acquisitions in 2017: Repositioning to Face the Future.”