How did insurance M&A deals develop in the first half of the year?

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In contrast, the Asia-Pacific region saw completed deals plummet from 37 to 18, the lowest level since Clyde & Co began keeping tabs a decade ago. The Asia-Pacific drop was driven by geopolitical and post-pandemic uncertainty, the report said. Japanese acquirers were the most active in the region, ahead of India and Australia.

After a standout year in 2020, which saw a total of 32 deals, M&A activity in the Middle East and Africa fell to only five completed transactions in the first half. All of those deals involved Middle east acquirers – two from Israel and one each from Egypt, Saudi Arabia and the United Arab Emirates.

“Despite the challenges of the last 18 months, the insurance industry has responded well and demonstrated a remarkable degree of resilience when it comes to getting deals over the line,” said Ivor Edwards, partner and European head of Clyde & Co’s corporate insurance group. “Market hardening is creating organic growth opportunities for reinsurance carriers, but the availability of cheap liquidity, active interest from private equity investors and strategic re-underwriting of portfolios at larger carriers signal that an uptick in M&A is likely. The extent of that increase will vary by region and investor sentiment – dealmakers in the US are comparatively bullish, whereas their counterparts in Asia-Pacific remain more cautious as they wait for a more positive economic outlook.”

There were 11 deals in the first half valued at over US$1 billion, compared to 15 for the whole of 2020 – including the largest deal of H1, the sale of UK-based RSA to Regent Bidco for US$9.2 billion. There was also an increasing number of more modest strategic divestments from carriers aiming to focus more on their core business, Clyde & Co reported.

“We’re seeing a lot of legacy books being sold or prepared for sale,” said Vikram Sidhu, Clyde & Co partner in New York. “The sellers tend to be companies looking into the future in a robust and creative way, trying to clean up their balance sheets and free up capital. They are taking a proactive focus on the next five to 10 years.”

H1 also saw technology investments in a variety of businesses, including deals focusing on coverage for homeowners in catastrophe-prone areas, inline insurance comparison platforms, and digital healthcare.

“COVID-19 has underlined the importance of having digital capabilities, and technology remains a primary driver of M&A,” said Eva-Maria Barbosa, partner at Clyde & Co’s Munich office. “Many startups have matured to the point where they have a proven business model and a robust balance sheet, which makes them very attractive to buyers. Meanwhile, on the flipside, the absence of sufficient technology investment on the part of a seller can be a dealbreaker – potential acquirers can be put off if they think they need to spend millions to make a target company’s IT systems fit for purpose.”

Increased scrutiny

The sharp fall in M&A activity in the Asia-Pacific region was driven largely by the high regulatory bar in some jurisdictions, Clyde & Co said. Prospective buyers face higher solvency capital requirements in some markets, and there is stricter scrutiny of business plans to assess the longevity of new entrants’ interest.

“Regulators are becoming increasingly cautious,” said Joyce Chan, partner at Clyde & Co in Hong Kong. “When new players come in and buy a particular insurer in the region, local regulators usually request quite a substantial capital increment as well. The solvency requirement expectation is much higher, acting as a brake on M&A. Conversely, regulatory actions are also making some significant portfolios available to acquirers. In Australia, for example, the knock-on effect of the recent royal commission is forcing the country’s major domestic banks to offload non-core lending businesses, which is making a number of attractive insurance assets targets for acquisition.”

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