Trump Tax Cuts Could Solidify U.S. as Most Active Insurance M&A Region: Clyde & Co.

The U.S. has regained its position as the most active region for M&A activity in the global insurance industry, and the Trump tax cuts could boost that activity even further, according to a recent report from Clyde & Co. on the sector.

Clyde & Co. tallied an increase from 80 deals in the 2017 first half to 96 in the second half. Approximately 45 percent of the top 20 largest deals involved U.S. acquirers in 2017. The report pointed out that the increase dovetailed with growing economic strength and corporate confidence. What’s more, the Trump tax cuts and the lower tax rate they brought insurers and other businesses will likely accelerate this further in the coming year, the report concluded.

“The U.S. has regained its position as the most active region for transaction activity and will continue to lead the way, with dealmakers displaying greater confidence one year into the Trump administration,” Clyde & Co. said in its report. “Recent tax cuts could generate a spate of deals involving both U.S. targets and acquirers, with Bermudian assets ripe for acquisition.”

Overall, Clyde & Co. tracked 350 completed insurance mergers and acquisitions in the global insurance sector in 2017, down from 387 the previous year. But there was an uptick in deals during the second half of 2017 for this first time since 2015, the global law firm said in its report.

“After a lackluster couple of years for transactions, the rise in activity indicates a renewed level of confidence in deal-making as a tried-and-tested route to growth,” Andrew Holderness, global head of corporate insurance for Clyde & Co., said in prepared remarks. “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.

Holderness said Clyde & Co. expects the M&A momentum to continue as insurance businesses pursue scale and broader geographic reach and seek more efficiencies and innovative technology that helps them access new products through new channels. He predicts that InsurTech will be a main driver for insurance sector growth alongside M&A.

Clyde & Co.’s annual report focuses on annual global insurance growth and is called “Unlocking Opportunity in a Disrupted World.”

Other report conclusions:

• Bermuda’s M&A transaction activity grew in 2017 with two of the year’s five biggest deals globally involving Bermuda targets: Sompo acquiring Endurance in a $6.3 billion deal and Liberty’s $2.9 billion acquisition of Ironshore.

• European deal numbers dropped 22 percent to 118 in 2018 versus 151 in 2016. Clyde & Co. blamed Brexit on the drop, as insurers set up subsidiaries and branches to make sure they could continue European Union-wide operations. Once Brexit is done, the prediction is that European M&A deals should rise.

• The volume of completed M&A deals in Asia dropped 42 percent in 2017, from 72 in 2016 to 42 last year. Clyde & Co. blames foreign currency restrictions and regulatory uncertainty in China.

Clyde & Co., using data from Thomson Reuters and Alacra for its report, looked at completed mergers and acquisitions among global insurers from 2019 to 2017. Clyde & Co. partners globally gave additional analysis, input and insight via interviews during December 2017 and January 2018. Insurance sectors covered in the report include casualty, fire, marine, surety, accident and health, life, and title insurance.

Source: Clyde & Co.