Insurers pummeled by the pandemic are looking to deals as they race to see who’ll emerge strongest when the outbreak subsides.
The takeover of RSA Insurance Group Plc and Allstate Corp.’s largest acquisition ever have helped push industry deals announced this year to nearly $93 billion, according to data compiled by Bloomberg. With other major companies including Zurich Insurance Group AG eyeing purchases, 2020 is on course to be one of the biggest for deals since the last financial crisis.
Insurers were already under pressure to combine before the coronavirus battered their balance sheets, with record low bond yields and mounting regulation costs chipping away at their earnings for years. As the pandemic accelerates those trends and squeezes valuations, a new sense of urgency has kicked in. With the onus on boosting income from premiums, many are focusing on bulking up in markets where they’re firmly established and have the size to influence prices.
“The insurance sector had been primed for some M&A restructuring deals for many years,” said Vinit Malhotra, an insurance analyst at Mediobanca SpA. “The combination of Covid-19 and the dramatic fall in U.S. government bond yields, which both hurt insurers’ bottom lines, was the nudge factor for executives to push the deal button.”
The year’s biggest deal for an insurer, the 7.2 billion-pound ($9.6 billion) takeover of London-based RSA, shows how companies are using acquisitions to grow in their main markets. RSA will be broken up by the two buyers, with Canada’s Intact Financial Corp. taking its Canadian, U.K. and international operations, while Tryg A/S gets the Swedish and Norwegian businesses, helping make it Scandinavia’s biggest listed property and casualty insurer.
Many insurers are also looking to acquisitions to expand their more lucrative property and casualty businesses, part of a shift away from life insurance, which has been hit with increased capital requirements in recent years that have weighed on profits.
Zurich Insurance said last month that its U.S. subsidiary, Farmers Group Inc., was in talks to buy MetLife Inc.’s U.S. property and casualty unit. Allianz SE, already the fourth-largest provider of non-life insurance in Australia, agreed earlier this month to buy Westpac Banking Corp.’s general insurance unit. Sampo Oyj’s agreement in August to buy Hastings Group Holdings Plc is also part of this trend.
“Organizations are looking to focus on the areas where they have scale and competitive advantage,” said Andy Briggs, chief executive officer of Phoenix Group Holdings Plc, Europe’s biggest life-insurance consolidator. “Insurance companies are increasingly saying, ‘What is our core area of capability? What are we really good at? We’re going to focus on that.'”
The biggest deal in the industry overall this year was Aon Plc’s agreement in March to buy Willis Towers Watson Plc for about $30 billion, which could create the world’s biggest insurance brokerage.
Insurers have also become cheaper targets as Covid-19 drives share prices lower. RSA was down about 19% for the year before news of the takeover talks sent the shares soaring by 46% in a single day. The MSCI World Insurance Index is down about 6% this year.
With Covid-19 accelerating the underlying trend toward deals, activity in Europe should remain at above-average levels for the next 12 months, Berenberg analysts including Michael Huttner wrote in a report this week. Potential targets include U.K. insurers Beazley Plc and Hiscox Ltd., the analysts said.
Recent sellers include firms such as Aviva Plc that are looking to slim down. Under new CEO Amanda Blanc, Aviva has exited its Italian life insurance joint venture and agreed to sell a majority stake in its Singapore operation as the firm shifts focus to its strongest businesses in the U.K., Ireland and Canada. It’s also looking at selling units in France and Poland.
Dutch insurer Aegon NV last month said it was selling its insurance, pension and asset management units in Hungary, Poland, Romania and Turkey as part of a strategic shift to countries and businesses where it can “create most value.”
Buyers include Allstate, which agreed earlier this year to purchase National General Holdings Corp. for about $4 billion, helping the firm expand in personal insurance. The company on the other side of the Aegon deal, Vienna Insurance Group AG, used it to bolster its position as the biggest insurer in central and eastern Europe.
“You increasingly need to be the gorilla in the markets you’ve chosen — you need to be the company to beat,” said Kevin Ryan, an insurance analyst at Bloomberg Intelligence. “Only then can you have any sort of influence on pricing.”
–With assistance from Benjamin Robertson and Jan-Henrik Förster.
Top Photo: Shoppers walk along a temporarily pedestrianized Regent Street in London, U.K., on Saturday, Dec. 5, 2020. U.K. retail landlords are facing a hard reality: the rapid approval of a vaccine has come too late for thousands of their stores. Photographer: Chris J. Ratcliffe/Bloomberg