Mergers and acquisitions (M&A) in the global insurance industry reached the highest growth rate for 10 years in the first half of 2022, according to Clyde & Co’s Insurance Growth Report mid-year update released today. There were 242 completed deals worldwide, up from 221 in the second half of 2021 and 197 at the same point last year.
Significant deal activity in the US pushed the number of transactions in the Americas to 132, the highest number of transactions in 10 years, up from 108 in H2 2021. After strong growth in the second half of 2021, the number of deals in Europe dropped slightly to 67 from 74 in the previous six-month period. The UK was the most active country ahead of France, the Netherlands and Spain.
In contrast, after a dip in 2021, deal activity across the Middle East and Africa rose back up to 16 deals compared to 12 in the second half of last year. The majority of acquirors in this half of the year came from Africa – four from the Ivory Coast, three from South Africa and two from Kenya.
The number of deals in Asia Pacific remained relatively steady with 27 compared to 24 deals in the second half of 2021. Japan was once again the lead acquiror ahead of Australia.
Eva-Maria Barbosa, Partner at Clyde & Co in Munich, says: “In the face of stark economic pressures – inflation, rising energy costs, and looming recession – insurers remain focused on growth opportunities. Several factors are driving deals. Rising interest rates promise better investment returns for long duration businesses, while helping insurers to rebalance portfolios. Private equity firms and asset managers are still keen to explore either entry into the insurance market or expansion of existing footprints. And flagging insurtech valuations mean acquisitions are increasingly attractive to both PE investors and traditional carriers seeking to increase technological capabilities.”
Continued divestment of non-core assets
The number of deals valued at over USD 1.0 billion remained relatively steady with 13 in the first half of this year compared to 14 in the previous six-month period. The largest deal of the year so far was the sale of US-headquartered Athene Holding Ltd. to Apollo Global Management Inc for USD 7.7 billion.
Another area which has seen a significant increase in transactions in the first half of 2022 has been the divestment of non-core assets by carriers as they consider focusing on core business through a challenging economic environment.
Ivor Edwards, Clyde & Co Partner in London, says: “Europe has seen a large number of run-off deals which are used to make sure there isn’t any unwanted old business sitting on the balance sheet that might hinder a possible M&A transaction.”
Private equity investment remains buoyant
Private equity interest in the insurance industry remains buoyant, especially with respect to the broker space. Funds are awash with capital and keen to deploy it in a sector that they increasingly view as giving attractive and reliable returns.
Although PE investment has been particularly strong in the global broker market, it has also focused on the carrier space in selected territories, including investments into Lloyd’s.
Peter Hodgins, a Partner at Clyde & Co’s office in Dubai says: “There are still a lot of PE investors who prefer to go ‘balance sheet light’ or to stay with intermediaries or companies servicing the insurance industry, and this is driving significant consolidation in this part of the insurance sector. There nevertheless remains a number of very large, highly professional PE funds that are really interested in the insurance industry and we continue to see the growth of regional insurance conglomerates.”
Interest in insurtechs falters
While the insurtech sector enjoyed significant investment over the last few years, investors are now increasingly nervous due to the risks faced by them in the current economic climate.
Insurtech valuations in the US have continued to worsen in 2022. Elsewhere, growth in the sector remains modest, with limited numbers of insurtechs in the Asian market, where up-front capital requirements remain a significant barrier. Likewise, insurtech investment in Europe has seen limited activity, with partnerships between insurtechs and traditional carriers a more likely route to growth in both markets.
Marc Voses, Partner at Clyde & Co in the US says: “Although the uptick in insurtech companies finding funding and going public seems promising, the heightened risk to these companies due to the current economic climate lingers. With more than 450 insurtechs failing over the past decade, success has proven to be an exclusive club for many.”
Positive outlook – for now
Market sentiment in the insurance sector currently remains broadly positive despite ongoing global economic challenges.
Carriers remain cautious about investment, and many are holding back plans for international expansion - particularly as increasing inflation may hold insureds back from buying cover.
The industry also faces continued headwinds from rising energy costs, low investment returns, supply chain issues, and the possibility of imminent recession. In addition to the uncertain economic landscape, carriers are now also having to contend with increasing ESG requirements and the potential risks if they are not met.
Joyce Chan, Partner at Clyde & Co in Hong Kong says: “While there is some uncertainty in some regions about the direction of travel, for those companies that are still looking at M&A as a way of equipping themselves for transformation, the deals will be driven by business strategy. So, for example, purchasing a tech service provider or acquiring competitors who have better distribution infrastructure or technological capability.”
Clyde & Co Insurance Mid Year Growth report 2022
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