February 24, 2020

Global insurance M&A activity at a four-year high; number of deals up 10% in 2019

Clyde & Co’s Insurance Growth Report explores the 2019 drivers of global insurance M&A.

Insurance M&A continued to surge in 2019 with 419 deals completed worldwide, up from 382 in 2018. Activity was driven by an exceptionally strong first half of the year, led by a spike in deals in Europe that had been put on hold during Brexit preparations. Although M&A dropped back in the second half of the year, activity globally remained buoyant.

The Americas continued to be the most active region (182 deals in 2019, down slightly from 189 in 2018), with activity balanced between the first and second halves of the year (93 and 89 transactions, respectively).

Growth in run-off activity

As re/insurers continue to review their operations and decide which lines they will continue to underwrite and where they will withdraw (including due to regulatory, financial or geopolitical considerations), M&A opportunities will certainly be one area in focus.

Activity in the run-off market is picking up in markets across the world. In the US, insurers will look for potential opportunities to divest legacy books of insurance business through two restructuring mechanisms that have been recently enacted in several states:  Insurance Business Transfers and corporate divisions.  These new tools for legacy business could lead to burst of new deal activity later in 2020.

More insurtech deals

2019 was the year that technology cemented itself as the most important emerging driver for the insurance business in every region of the world.  The last 12 months have seen investments such as $250 million from Munich Re into Next Insurance, a California start-up offering tailored, digital insurance solutions to small and medium-sized enterprises; $90 million into insurtech Singapore Life from Japan’s Sumitomo Life; and MS Amlin’s purchase of an undisclosed stake in Envelop Risk, a Bermudian start-up that provides artificial intelligence-driven cyber risk modelling.

We expect M&A in insurtech to take off this year.  Insurtech growth thus far has centered around the MGA start-up model.  So many of these businesses are maturing, such that we will continue to see transaction activity where MGAs will merge or be acquired.

Parametrics as a growth model

Through parametric insurance products, the industry continues to innovate to adapt to climate change risks and provide rapid relief when disaster strikes. However, insurance laws and regulations in most US states are typically understood to require the indemnity principle—that insurance must indemnify the insured for an actual loss.  This runs counter to the benefits of parametric insurance, especially fast claims payment without a lengthy and expensive claim adjustment process to determine the specific loss suffered by the insured.

Despite these regulatory issues, insurers are expected to develop more creative new products including based on hybrid models that include parametric and indemnity elements to fill the need.  Hybrid insurance products can have a parametric trigger that allows for immediate emergency funding to be released to a policyholder combined with a normal indemnity function that tops up any additional loss after claims adjustment. This innovative strategy could hold the key to providing immediate financial relief to those most affected by climate related disasters.

Parametric insurance will be an important source for both growth and cost savings in the coming years as the industry adapts to climate change risks. With improved analytics and modeling, and the hope for a supportive regulatory environment, we expect more insurers to add parametric insurance solutions to their offerings.

For more information on insurance M&A activity on a global scale, read our full Insurance Growth Report.