Global insurance mergers and acquisitions (M&A) activity rose by nine per cent in 2018 compared with 2017, according to a new report from Clyde & Co – however, a temporary slowdown is a distinct possibility, largely due to ongoing economic and political uncertainty.
The second half of 2018, Clyde & Co found, was the third consecutive six-month period in which the volume of insurance deals grew. The Americas, Europe and the Asia Pacific regions all saw M&A activity increase, with only the Middle East and Africa seeing a fall.
According to Clyde & Co’s report, Navigating a course between uncertainty and opportunity, the insurance industry saw 382 completed M&A deals worldwide in 2018, up from 350 the year before.
“Transaction activity worldwide was buoyant in 2018,” said Andrew Holderness, Global Head of Clyde & Co’s corporate insurance group. “Against a backdrop of stiff competition on pricing, stock market volatility and persistently low interest rates, a merger or acquisition remains a key strategy to reach new customers and markets, and to drive down costs by delivering synergies. However, factors including Brexit, trade wars and protectionism are generating uncertainty, the enemy of deal-making. The slowdown in the Americas in the second half of last year is indicative of heightened investor caution and we predict 2019 will be a year of two halves – a slowdown in M&A in some markets in the first six months, while the second half should see a return to form.”
While Clyde & Co expects that the first half of 2019 will see a slowdown in transactions, largely due to a lack of clarity around the political situation in Europe and ongoing trade tensions between the US and China, it is hoped that this slowdown will only be temporary, and that clarity will return as the year progresses.
“With clarity around Brexit finally likely, the changes that will follow will generate opportunities, especially in the run-off sector,” added Holderness. “Meanwhile, with no significant hardening of the market on the horizon, we expect the need to dispose of non-core assets will persist. The Lloyd’s market could provide rich pickings – with around 20 syndicates exiting different classes there is a substantial quantity of discontinued business which will either be closed naturally or sold to another syndicate, presenting the potential for billions of dollars’ worth of legacy deals.”