Global Insurance M&A Rises in H1; Bermuda Generates Much of the Activity

Global Insurance M&A transactions climbed in the 2018 first half, with 186 deals completed worldwide, according to a new Clyde & Co. report.

That number is up from 180 in the 2017 second half, and reflects the second consecutive six-month period of modest increases in transaction volume since a 2017 low point following two years of steady decline.

One key trend at play: many of the completed deals involved Bermuda acquirers in H1 2018, and also takeovers of Bermuda reinsurers from outside insurers. Clyde & Co. cites AXA’s planned acquisition of XL Catlin and AIG’s purchase of Validus as just two examples, and predicts more of these types of M&A deals will follow.

“There is a seismic shift underway in the reinsurance market,” Andrew Holderness, Clyde & Co. global head of Corporate Insurance, said in prepared remarks. “It is proving increasingly difficult to remain relevant as a large monoline reinsurer, and as a result, Bermuda businesses continue to be put up for sale or look to diversify by acquiring new underwriting assets themselves.”

Holderness explained that large reinsurers are trying to get closer to their customers by boosting their reach in the primary market either through organic growth or an M&A deal. Carriers, in turn, “are looking to write risks at every level, be it from direct side, reinsurance or retrocession, and for that they need sufficient scale and balance sheet strength.”

Americas Show Steady M&A Demand

Vikram Sidhu, a partner at Clyde & Co. in New York, said that M&A deal activity in the Americas over the last year should continue for another 6-13 months, driven by similar factors such as strong economic growth, federal corporate tax rates, heavy competition and pricing pressures. The region generated 97 deals in the first six months of 2018, compared to 90 in the six months before, and Clyde & Co. said the stronger U.S. economy and shifting Bermuda market drove this regional trend.

Other findings from the report:

• Clyde & Co. feels that the market has shifted to more of a buyer’s market in U.S. M&A deals, a trend that could delay deals with more aggressive negotiation over pricing.

• M&A deals in the Asia Pacific region ticked up from 20 to 25, thanks to Japanese acquirers, and then Australia and Taiwan.

• Europe saw a decline in M&A deals, down from 64 in the 2017 second half to 59 in the first six months of 2018. Clyde & Co. blames Brexit uncertainty.

• There were just four M&A deals in the Middle East/Africa for H1 2018, versus three in the previous six months.

• Expectations are that M&A deals will grow in China – the world’s second largest insurance market – where deals have been in limbo due to regulatory uncertainty. But that issue has been resolved, so Clyde & Co. expects acquisition transactions to follow.

The full report is Clyde & Co.’s “Insurance Growth Report mid-year update.

Source: Clyde & Co.