Insurance Merger & Acquisition activity on the rise…
Following the recent news that Allianz UK will become the second largest general insurer in Britain following its acquisitions of Legal & General and LV=’s general insurance businesses, it seems likely that M&A activity will continue to increase in the UK insurance market.
Allianz’s combined transaction, thought to have cost in the region of £800m will give Allianz access to 12 million customers and make it the second largest GI provider behind Aviva. Allianz’s acquisitions represent a continuing trend of increased M&A activity from 2017 to date across GI, life and health insurance markets.
Analysts reported a year on year rise in M&A re/insurance transactions from 2017 to 2018 and 2019 is expected to be similar.
Factors including rising interest rates and sustained US economic growth helped drive the M&A market in 2018 and looks set to continue in 2019. Additionally changes brought to a head by US tax reform, fewer M&A regulatory barriers and higher valuations for insurance businesses look set to increase the likelihood of further M&A activity.
Reforms in US tax law and reduced corporate tax for US insurers may make them a more attractive acquisition target. It is likely that European insurers will look to the US for potential M&A targets in order to help offset reduced organic growth in domestic markets.
InsurTech is also likely to become increasingly influential in 2019 and play more of a deciding role in M&A markets, as insurers seek more innovative cost effective technology as a method of engaging with and meeting customer demands on digital interactive platforms. For larger global insurers sometimes the most cost effective way to achieve this is to buy assets or entire InsurTech start-ups.
With Europe, Americas and Asia Pacific insurers leading the way in M&A activity during 2018 combined with a strong 2019 Q1, it remains to be seen whether this trend will continue throughout the remainder of 2019. Factors including Brexit, US China trade wars and global protectionism are generating an air of caution and uncertainty which may have a part to play if the M&A market is to sustain current levels: 382 M&A transactions were recorded in 2018 compared with 350 in 2017 (Clyde & Co).
Overall it looks likely that there will be continued growth in M&A activity as competition for assets amongst the large listed insurers increases and interest rates rise. These factors will make medium sized general/life insurers and InsurTechs that offer bolt on capabilities for global insurers in particular, attractive acquisition targets.