Insurance 2021 - the year ahead
US insurance M&A activity will increase significantly in 2021
The Insurance Growth Report 2021 brings together data on completed M&A over the past six months with expert analysis from our partners around the world to examine the trends and factors driving global insurance deal activity.
The outlook for the insurance industry at the start of 2021 is characterised by uncertainty. How high will losses from COVID-19 climb and for how long? How deep will the recession run and which markets will be most affected? As insolvencies rise, what will the impact be on claims, on demand for insurance and on gross written premiums?
The collapse in share prices in early 2020 has yet to recover; many insurers are currently trading at a discount. Investment returns – already under pressure after years of low interest rates – have become even harder to find. Yet against this backdrop and that of a hardening market, insurance businesses around the world are scenting opportunities, becoming increasingly bold and creative as they look beyond the pandemic to deliver the growth that shareholders demand.
“Insurance transaction activity worldwide belied expectations in 2020. Deal-makers in the insurance industry, like many others, paused for reflection in the first half of the year, but not for long. Strategic players in the market and M&A specialists clearly did not want to be relegated to the side lines and quickly regrouped to identify and pursue opportunities. Given that remote working does not easily lend itself to negotiations, due diligence and all the other elements that make up a transaction, the speed with which companies adapted to the new environment was impressive."
Ivor Edwards, Head of Clyde & Co's European Corporate Insurance Group
After a stand-out 2019, where global insurance M&A reached a four-year high, transaction numbers in 2020 held steady with only a slight dip on the previous year. Europe was hardest hit with activity down by a third, continuing a two-year slide. However, this was offset by an uptick in M&A in the Americas and notably in the Middle East and Africa, albeit from a low base. Activity in Asia Pacific remained broadly flat.
Five things to watch
Deal-makers in the insurance industry, like many others, paused for reflection in the first half of 2020, but not for long. With governments expected to continue to spend heavily to support the recovery of economies around the world, business and consumer spending is forecast to come racing back in the second half of 2021, bringing opportunities for insurers.
The shift to remote working forced by the pandemic has accelerated the adoption of technology across the insurance industry. Technology will continue to be a key feature of the growth agenda in the coming year as re/insurers seek out insurtech providers that can deliver a competitive edge, be it through acquisition, investment or partnership.
Increasing premium rates and a more optimistic outlook for most lines of business will make stronger market players more likely to look for growth opportunities through acquisitions, some of which may have been put on hold in 2020 due to the pandemic.
For those on the acquisition trail, there will be no shortage of targets in 2021. The pandemic has forced insurance businesses to review their strategies and get laser-focused on products and markets, whilst smaller insurers in particular may struggle to cope with the ongoing pressures of COVID-19 and be forced to put themselves up for sale.
While deal-makers are on the front foot and actively looking for acquisitions, most are doing so with a more heightened sense of caution than in the past, and the viability and profitability of potential targets are receiving increasingly intense scrutiny.
Insurance M&A in Europe continued its downwards trajectory in 2020, held back by a lack of viable targets and uncertainty over Brexit, albeit there are signs that this trend could be set to reverse. In the US, the world’s most active M&A insurance market, as the economy returns to a more stable state in 2021, re/insurers will shift focus back to longer term strategy and deal-making. Meanwhile, Asia Pacific has not been impacted by COVID-19 to the same extent as the Americas and Europe, and we expect that investor appetite will bounce back in 2021 more quickly in the region than elsewhere.
Mergers and acquisitions involving foreign targets were down by 18% in 2020. Investors from the Americas pulled back from Europe, where they directed 25% of overseas spending, compared to 66% in 2019.
The UK was the most popular destination for investors into Europe, and Asian acquirors moving into the Americas, with buyers from Japan, Taiwan and China all making moves on targets domiciled in the US.
Deal-makers’ appetites have returned, buoyed by growing confidence in the economic outlook and the sense that there are opportunities to be had. Despite market hardening, many of the fundamentals driving M&A will persist.