March 26, 2018

US Leading Growth in Insurance M&A

The US marketplace regained its title as the most active region for insurance mergers and acquisitions in 2017, and this year is off to a fast start, with several significant deals already announced.

Clyde & Co’s latest annual Insurance Growth Report, “Unlocking Opportunity in a Disrupted World,” explores the drivers of insurance M&A globally and the outlook for future deal activity. In the Americas, M&A activity increased 6.6% in 2017, the only region worldwide to report full-year growth. Notably, 45% of the 20 largest deals in 2017 involved US acquirers. Last year showed momentum building across the globe in the second half, with deal activity in Europe increasing 22.6% from the first half of 2017, compared with 4.6% growth in the Americas during the second half.

Key drivers of dealmaking to watch in 2018 are:

  • Technology: Insurtech funding in 2017 jumped 36%, to USD 2.3 billion. More insurers and reinsurers are investing in technology and exploring partnerships to improve efficiency and distribution. The number of insurtech investments made by insurers and reinsurers last year grew by 14%, to 120 – the highest annual total so far.
  • Tax reform: In December 2017, the Trump administration unveiled major tax reform legislation. The Tax Cuts and Jobs Act is expected to increase corporate growth and may fuel further mergers and acquisitions, particularly in Bermuda. An element of the legislation designed to promote US industry is a tax on premiums paid to non-US reinsurers which, along with other elements have diminished a key advantage for Bermudan insurers and reinsurers.
  • Territorial expansion: Insurance industry organizations continue to look at expanding their operations outside of their home countries. In 2017, 30% of M&A deals crossed borders. Emerging markets, such as China, India, Singapore, South Africa and the United Arab Emirates, continue to interest insurers and reinsurers. In recent years, Chinese and Japanese insurers have made large acquisitions and/or forged joint ventures with foreign insurers. Changing regulations within China and other countries in Asia that have limited new licenses may make joint ventures and acquisitions more attractive to US and European insurance and reinsurance companies.

As insurers and reinsurers pursue growth through M&A, they will need to navigate changing regulations and legal complexities, many of them crossing borders. Seeking the advice of experienced counsel with international expertise in insurance law is a good first step in that journey.

For more information on insurance M&A, please see Clyde & Co’s Insurance Growth Report 2018.