Mergers and acquisitions in the global insurance sector increased in the first part of 2020 with 201 transactions completed worldwide, compared to 197 in the current part of 2019, according to the mid-year update of the Clyde Insurance Growth Report. This is only the time of the six-month era in the last five years when the volume of transactions exceeded 200.
“The agreements reached in the first part of 2020 would have been negotiated and agreed in 2019, prior to the pandemic. The effect of COVID-19 on insurance mergers and acquisitions will not be transparent until the coming months, and we are expecting it to be brutal in the short term,” said Ivor Edwards, Clyde and Co’s European partner and director of corporate insurance.
“For many, responding to the pandemic means setting aside expansion ambitions to take into account the effect on operations, losses and return on investment. The last few months have been marked by a point of uncertainty, the enemy of the agreements, has rarely been noticed before,” he continued.
“This will be reflected in the number of transactions completed in the part of the year. But as the economy moves toward a state of stability that can be explained simply as “the new standard,” the opportunities will remain and we hope to return/insurance transactions will go back to 2021,” Edwards said.
The first part of 2020 saw a slowdown in megatransactions, with only six valued at more than US$1 billion, to 20 for the 2019 total, evidence of a more measured technique for the conclusion of transactions that we expect to continue.
“Strategic and monetary buyers had already begun to focus more on offers that make sense to them, which is a trend that will increase as a result of the consequences of COVID-19. As the pandemic continues, we will see a diversity of both corporations and reinsurers withdrawing from certain lines, industries or geographic areas,” said Vikram Sidhu, Clyde and Co Partner in New York.
“Those who optimize their operations will go on to divest corporate divisions and books that are not compatible with their core strategy or monetary objectives,” Sidhu added. “In 2021, we expect an increase in the number of businesses on sale and a growing interest in classical activities, which can lead to an explosion in transactions.”
Technology remains one of the world’s leading expansion engines. The agreements concluded in the first part of 2020 included investments in the US start-up Openly, Belgian Keypoint and yallacompare in the United Arab Emirates.
Joyce Chan, wife of Clyde and Co. in Hong Kong, he said: “While insurtech investment plummeted in the first quarter due to COVID-19, it recovered in the current quarter. Although investors have been more selective since last year, a trend that the pandemic will reinforce, high-quality generation offerings remain attractive, as long as they can be useful. New companies that are mature and resulting are in a position to be acquired and we expect this to be key in the transaction in the first part of 2021. »
Capital raising has been a feature of the post-pandemic market, reaching US$16 billion in the first part of 2020 according to Willis Towers Watson, presenting opportunities for biological expansion that may be just the appetite for mergers and acquisitions.
“COVID-19 has accelerated the hardening of the already ongoing market and reinsurers are eager to take on more hazards at a higher price, but they will have to compensate for COVID-19 losses to do so,” Edwards said. “As rates rise, there is also the possibility of a wave of new start-ups and scaling, as we have noticed on other occasions of primary losses in the past, even though the scenario is now more nuanced than that followed by Hurricane Katrina, for example, this has not deterred a variety of market-based figures from exploring features and there has been a succession of headlines around early-start-up plans.
Activity in the Americas remained strong in the first part of 2020, with 90 transactions compared to 89 in the last six months, U.S. transactions increased from 73 to 64, marking the third consecutive year of decline.
“Insurance M&A activity in the United States had already slowed down before the pandemic began. After a long trading period, valuations had increased and some investors had stopped to make stocks,” Sidhu said.
“Others have been wary of geopolitical tensions, especially with China, and the upcoming US elections have added some other layer of uncertainty. The pandemic has joined this slowdown, transactions continue,” Sidhu added. “In the future, negotiators will continue to look for interesting opportunities, the time it will likely take to succeed in an agreement will be longer than the general for the foreseeable future.”
Asia-Pacific grew steadily, with mergers and acquisitions emerging from 31 to 38 transactions in the first six months of the year, and Japanese buyers led the way again, ahead of Taiwan and South Korea.
“In the short to medium term, reinsurers in some Asia-Pacific markets are under pressure and are still operating with the effect of COVID-19 on their operations. As margins narrow further, they will rethink their methods and seek to reallocate resources where they are of maximum profitability, possibly resulting in exits from certain jurisdictions or industries,” Chan said. “Further afield, we anticipate increased activity in China, where new regulations have not yet been tested to facilitate consolidation and incoming investments, while the option of a link between the Great Bay region and Hong Kong may also offer China’s direction of choice for foreign investors.”
Brexit’s shadow, combined with difficulties in reaching valuations, brought mergers and acquisitions in Europe to a minimum of three years with 53 completed agreements, up from 67 at the time of 2019.
“The outlook for Europe is combined and will count on the duration and intensity of the recession. We will probably see European banks and insurers trying to dispose of non-essential assets that will generate a set of targets for the acquirers, but capital constraints will save some general insurers from making acquisitions,” Edwards said. “At the same time, insurers in less mature markets would likely feel the opportunity to identify themselves or be present in Europe, in all likelihood at a favorable price.”
Source: Clyde & Co.
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