The first half of the year saw 14 deals worth over €500m taking place in this sector; although total deal volume was down to just 84 deals, the lowest number since 2009.
Key deal drivers behind this surge in value relate to the changing nature of business models. As regulatory pressures become the norm, new models are emerging and more businesses are seeking to return to their core strategy.
Describing the impact of Solvency II implementation, Fergal O’Shea, Senior Director at Willis Towers Watson, said: “As the processes, reporting and monitoring have become increasingly business-as-usual, executives have taken back their ‘bandwidth’ and got on with the job of strategically guiding their companies.”
A growing trend for companies wishing to take this approach has seen them divesting unwanted parts of their business, meaning that valuable assets are once again on the market. For private equity investors, record levels of inflow – with dry powder levels reaching US$1 trillion in 20171 – has driven interest in these assets and seen complex acquisitions from these buyers in 2018.
Regulatory change has also played a significant role in relation to US assets, as tax reform in the region has provided an immediate boost to company earnings since the turn of the year, and that means US insurers instantly became more attractive to foreign insurers who see the potential to earn more from the US than had been available before.
While these drivers support a positive outlook for global insurance M&A in the coming months, time to market may extend the phase to execution, given higher deal values and potential deal complexity.
“We’re seeing a much longer stretch of time from announcement to closing” said Jack Gibson, Managing Director at Willis Towers Watson. “However, debt continues to be cheap, and following the recent tax reforms, US companies have been given a steroid kick. We will continue to see an active M&A market, it’s just a matter of paying the right price and overcoming the hurdles that have led to deals taking longer to consummate and perhaps driving the lower number of deals this year.”
Further key findings from the report include:
Deal sector splits in H1 2018 reflected previous years. P&C led the way with 44 deals, followed by the life sector with 22 deals, while there were 11 in composite and seven in reinsurance.
The insurance sector has been slower to adapt to new technologies than some other sectors. With investment in Insurtech falling behind its digital competitors, it will be important for businesses to engage with this in the future.
There is a growing trend of foreign investment from Asian companies, looking to grow geographical footprint and acquire capabilities. In particular, we will see tactical acquisitions by Asian players in more developed markets and a growing trend across China’s “Belt & Road”.
Political and economic uncertainty could affect global dealmaking, with volatility surrounding Brexit and tensions between China and the US potentially threatening deal acquisition; although the sector remains optimistic that the domestic focus of insurance M&A volume may protect it from cross-border tension.
Mergermarket - Transformation in the global insurance market.
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