The US was the most active region for insurance M&As last year, according to international law firm Clyde & Co. Will it remain as active in 2018?
In its year-end review of mergers and acquisitions in the insurance industry, law firm Clyde & Co found that the US saw more M&As than any other region in 2017, with 80 transactions recorded in the first half of the year and 96 more in the second half. What’s more, the report noted that US-based purchasers completed 45% of the 20 largest deals. Encouraged by recent changes to the tax code and a strong economy, the firm expects the US to continue to dominate insurance M&As in 2018.
In other regions, European transaction volume saw a 22% decline to 118 deals, mostly due to the UK’s impending exit from the European Union. China’s foreign currency restrictions and regulatory uncertainty pushed down the number of deals in Asia from 72 in 2016 to 42 in 2017. As those issues are resolved, Clyde & Co foresees more deals happening in those regions.
Worldwide, the total number of M&As dropped from 387 in 2016 to 350 last year. Nevertheless, deal-making activity rose in the second half of the year for the first time since 2015, an indication that more M&As are on the way as insurers pursue growth via acquisitions.
Changes to the US tax code that make offshore reinsurance operations less favorable could prompt insurers to explore deals involving Bermuda-based entities. Earlier this year, American International Group, Inc. agreed to acquire reinsurer Validus Holdings, Ltd. for $5.56 billion. The island was also the site of two of the five largest deals last year, including Tokyo-based Sompo Holdings, Inc.’s $6.3 billion buy of Endurance Specialty Holdings, Ltd., and Liberty Mutual’s $2.9 billion acquisition of Ironshore.
It’s not only the U.S. tax laws that have made Bermuda-based insurers attractive acquisition targets. Clyde & Co Partner Vikram Sidhu said in a statement that the island is also beset by low growth prospects, reduced margins, and cost pressures, leading to “greater deal activity involving Bermudian businesses in 2018.”
The Promise — and Perils — of Technology
In addition to M&As, Clyde & Co reported that technology investments by insurers and reinsurers swelled by 36% to $2.3 billion in 2017. In fact, the number of insurtech investments by those companies climbed 14% to reach 120, its highest annual total.
“Traditional insurers and reinsurers are looking to digital solutions to help them boost their top line, develop new products, enhance their distribution strategies, win new customers or build customer loyalty and drive efficiencies,” asserts Clyde & Co in its report.At the same time, tech giants Google and Amazon pose a looming threat to traditional insurers as they further infiltrate the insurance industry. Capitalizing on their widespread and sophisticated distribution platforms, data analytics capacity, and name recognition, Google and Amazon could muscle out traditional insurers in the personal insurance lines segment, warns Clyde & Co Partner Kevin Martin.