DATE: August 8, 2017
Insurance industry mergers and acquisitions (M&A) are spiralling downwards with only 170 deals in the first six months of 2017, compared to 186 in the preceding period.
Activity is now down 24% from its recent high in H1 2015 when there were 225 deals, according to the Clyde & Co’s mid-year growth report.
M&A activity in Europe is down 28% in the last six months, partly due to the distraction of Brexit.
Completed M&A deals in Asia Pacific fell to 22 from 36 in the second half of 2016, partly because of temporary monetary controls in place in China.
The Middle East and Africa saw slight growth in M&A, albeit from a low base, with eight deals compared to just two in the prior period.
Deal activity also grew in the Americas, with 86 transactions so far this year, compared to 81 in the preceding six months.
The impact of regulation
However, insurers are exploring other avenues for business growth.
The capital rules underpinning Solvency II regulation have led insurers to put certain books of business up for sale, with industry heavyweights such as Prudential recently putting a £10bn block of annuities on the market.
As insurers continue to react to the ever-changing world of Solvency II, treasuries must continue to plan for the impact this regulation does, and could continue to have on their business, argues Simon Bittlestone, managing director of financial analytics firm Metapraxis.
Andrew Holderness, Clyde & Co global head of the Corporate Insurance Group, says: “Uncertainty is the enemy of deal-making. M&A has risen in the Americas now that the uncertainty that plagued the market in the run-up to the US presidential election has eased somewhat.
“However, in Europe, uncertainty persists with Brexit acting as a significant brake on M&A activity. Transactions have been overtaken on the corporate agenda by Brexit preparations as companies realise that there is no time to lose.
“Elsewhere in Europe political and economic uncertainty in markets as far apart as Greece, Italy and Russia continue to weigh heavy on investor sentiment,” says Holderness.
Despite the drop in deals, Holderness remains optimistic, arguing the M&A is still an attractive way for a business to create value.
“While insurers continue to consider all the tools at their disposal in the quest for growth, there is good reason to expect that more M&A will get over the line in the coming six months,” says Holderness.
“Hot-spots for deal making are likely to include China where the regulatory environment is expected to ease, allowing a pent-up wave of M&A activity to resume, while overseas expansion as evidence,” he adds.
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