Insurance M&A sees highest growth rate in 10 years

After sturdy development in H2 2021, the variety of offers in Europe dropped to 67 in H1 2022 from 74 within the earlier six months. The UK was essentially the most lively nation for M&A, adopted by France, the Netherlands and Spain.

Deal exercise within the Center East and Africa rose within the first half after a dip in 2021, with 16 offers posted, in comparison with 12 within the second half of final yr. Nearly all of acquirers on this half had been from Africa – 4 from the Ivory Coast, three from South Africa and two from Kenya.

The variety of offers in Asia Pacific rose barely to 27, from 24 in H2 2021. Japan was the lead acquirer within the area, adopted by Australia.

“Within the face of stark financial pressures – inflation, rising vitality prices, and looming recession – insurers stay centered on development alternatives,” mentioned Eva-Maria Barbosa, associate at Clyde & Co in Munich. “A number of elements are driving reals. Rising rates of interest promise higher funding returns for long-duration companies, whereas serving to insurers to rebalance portfolios. Non-public fairness corporations and asset managers are nonetheless eager to discover both entry into the insurance coverage market or growth of present footprints. And flagging insurtech valuations imply acquisitions are more and more enticing to each PE buyers and conventional carriers searching for to extend technological capabilities.”

The variety of offers valued at greater than $1 billion remained comparatively regular, with 13 in H1 2022 in comparison with 14 within the second half of final yr. The biggest deal of the yr to this point was the sale of US-based Athene Holding to Apollo World Administration for $7.7 billion.

One other space the place there was a major rise in transactions is the divestment of non-core belongings by carriers specializing in core enterprise, Clyde & Co mentioned.

“Europe has seen a lot of run-off offers, that are used to ensure there isn’t any undesirable previous enterprise sitting on the stability sheet that may hinder a doable M&A transaction,” mentioned Ivor Edwards, Clyde & Co associate in London.

Non-public fairness curiosity within the insurance coverage sector remained sturdy, particularly with respect to the dealer area. PE funding has additionally centered on the provider area in chosen territories, together with investments in Lloyd’s, the report discovered.

“There are nonetheless a variety of PE buyers preferring to go ‘stability sheet mild’ or to stick with intermediaries or corporations servicing the insurance coverage business, and that is driving vital consolidation on this a part of the insurance coverage sector,” mentioned Peter Hodgins, Clyde & Co associate in Dubai. “There nonetheless stays various very giant, extremely skilled PE funds which might be actually within the insurance coverage business, and we proceed to see the expansion of regional insurance coverage conglomerates.”

Curiosity within the insurtech sector appeared to wane within the first half. Whereas the sector has seen vital funding over the previous few years, buyers are more and more nervous because of the uncertainty of the present financial local weather, the report mentioned.

Insurtech valuations within the US have continued to worsen in 2022. In different areas, development within the sector stays modest, with restricted numbers of insurtechs within the Asian markets, the place upfront capital necessities stay a stumbling block. Insurtech funding in Europe has additionally seen restricted exercise, with partnerships between insurtechs and conventional carriers a extra probably path to development, Clyde & Co mentioned.

“Though the uptick in insurtech corporations discovering funding and going public appears promising, the heightened threat to those corporations because of the present financial local weather lingers,” mentioned Marc Voses, Clyde & Co associate within the US. “With greater than 450 insurtechs failing over the previous decade, success has confirmed to be an unique membership for a lot of.”

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Total market sentiment within the insurance coverage sector stays broadly constructive regardless of ongoing world financial headwinds.

Carriers stay cautious about funding, and lots of are holding again on plans for worldwide growth, particularly with spiking inflation dissuading many insureds from shopping for cowl.

The business additionally faces hurdles from rising vitality prices, low funding returns, provide chain points, and the opportunity of a recession. Carriers additionally must deal with rising ESG necessities and the potential dangers if these necessities aren’t met, the report mentioned.

“Whereas there’s some uncertainty in some areas in regards to the path of journey, for these corporations which might be nonetheless taking a look at M&A as a approach of equipping themselves for transformation, the offers shall be pushed by enterprise technique,” mentioned Joyce Chan, associate at Clyde & Co in Hong Kong. “So, for instance, buying a tech service supplier or buying rivals who’ve higher distribution infrastructure of technological functionality.”