Mega deals in insurance, (re)insurance and global risk…set to continue?
September 13, 2016
- The past 2 years have seen several mega M&A deals between high profile companies driven by several factors
- M&A is expected to evolve in nature towards revenue enhancement, non-traditional capital and structuring opportunities
- Full report covering valuations, data & analytics, run off, regulatory, tax, delivering deal value (operations) and claims advisory – Download it here.
Last year we characterised 2015 as the year of the “mega deal”. Whilst we do not expect this level of volume to repeat in 2016 and into 2017, there remain compelling “push” and “pull” factors for global mergers and acquisitions (M&A) to continue (for a number of years) in the insurance, (re)insurance and global risk sectors.
2015/2016 has been one of the most exciting periods in the insurance, reinsurance and global risk sector’s history for M&A. This is not only due to the volume of transactions (depending on measure, a total value of c.$150bn+ of announced deals), but also because of:
- the scale and high profile of the companies involved e.g. selected disclosed acquisition values - Ace/Chubb ($28bn), Tokio Marine/HCC ($8bn), Exor/Partner Re ($5bn+), Mitsui/Amlin ($$5bn), XL/Catlin ($4bn), Fairfax/Brit ($2bn), together with Willis/Towers Watson ($8bn); and
- the underlying drivers and pricing of transactions (parallel increase in market and execution multiples, non-traditional capital “behind the scenes”, public company deals, prevalence of Japan, breadth of Chinese capital, hedge fund Re activity etc.).
Shift from mega deals
Whilst we naturally expect the scale of transactions to fall heading into 2017, we do still expect M&A activity in our sector to continue and, importantly, evolve in nature. I expect to see a shift from “mega deals” towards revenue enhancement, non-traditional capital and structuring opportunities:
- The longer term drivers for consolidation remain – from a macro perspective, our industry is still relatively fragmented. While scale, capital efficiency, growth in underwriting reach (geography, products) remain key, and regulatory evolution will continue.
- On the “pull side”, interest remains high from non-sector capital – e.g. private equity, pension funds, overseas capital, an increasingly diverse Chinese investor base and start-up funding – with insurance/(re)insurance being an under-represented, uncorrelated risk within portfolios.
- The extended soft rating environment continues with consequent ongoing pressures on growth and rates of return. In the absence of the “$100bn correctional event” referred to within the market, strategic acquisitions will remain of interest to boards, beyond which we also expect to see an increasing focus on the opportunities to use Insurance Linked Securities (as one example of structuring options in the sector) to drive reductions in core capital (thus driving up ROE, while also presenting an interesting alternative source of transaction funding).
For more detail on this from my colleagues across valuations, data & analytics, run off, regulatory, tax delivering deal value (operations) and claims advisory please download your copy of our report here.
Please get in touch if you’d like to discuss any of the themes I’ve raised here.