July 13, 2016

Clyde & Co research shows global insurance M&A dips as insurers search for other routes to growth

After a spate of announcements of large mergers and acquisitions (M&A) in the early part of last year, the number of completed M&A transactions in the insurance industry worldwide has fallen from its three-year high point in the first half of 2015. According to Clyde & Co’s Search for Growth Report released today, there were 173 deals in the period from October 2015 to March 2016, down from 250 in the previous six months. While M&A remains one route to growth, insurers are also considering alternatives such as establishing businesses in new markets, widening their portfolios and deploying technology solutions.

Andrew Holderness, Global Head of the Corporate Insurance Group, said: “Many carriers and brokers alike talk about looking at a whole range of solutions in their search for growth, and M&A is certainly a route for companies looking for consolidation, diversification and geographic reach. The recent vote by the UK to leave the European Union also means that, in Europe, there will be a sustained period of uncertainty. As a result, some businesses may well want to consider some transactional activity to create a platform within the EU so that they can continue to access business that will disappear if passporting rights are recinded.

“While the appeal of M&A is clear, the challenges of finding the right target and, significantly, at the right price, may cause insurance businesses to consider other routes for growth. New markets are obviously appealing. In Singapore, for example, we have seen an increase in interest from international re/insurers looking to set up shop and establish a base for wider access to markets across the region. Likewise, Miami is emerging as a regional hub for Latin American and Caribbean re/insurance business – attracting a number of international players who are drawn to the city’s deep connections with, and accessibility to, the region.

“Another, as yet largely untested, option is to enter into a joint venture (JV) with a local partner. This year, foreign direct investment limits have been raised in markets such as China and India, offering foreign insurers greater access to some fast growing markets.

“Another development over the year has been investment by a number of larger insurers into technology start-ups as a means of securing future growth. According to recent data from Accenture, insurance technology start-ups attracted US$2.6 billion of investment in 2015, up sharply from US$800 million the year before.

“Market conditions in many insurance sectors are not expected to improve in the foreseeable future. As a result, insurance businesses will need to examine every available avenue as they look for creative answers to the issues they face in the next few years.”