Global law firm Clyde & Co has found that there were 418 mergers and acquisitions (M&A) across the global insurance sector in 2021, up from 407 M&As in 2020.
The figures were published as part of the firm’s annual Insurance Growth Report. M&A deals were particularly high in the second half of the year (H2), with Clyde & Co finding 221 deals worldwide – up from 197 for the same period in 2020.
M&A figures were driven primarily by activity in the Americas, which accounted for over half of the global annual total, with 224 deals in 2021. This represented an annual increase of 17 per cent compared with 2020, with a particular focus on the US, where a total of 180 M&As took place last year – the highest levels of deals for the country since 2015.
Europe also saw a rise in M&A activity of 21 per cent year-on-year. This was buoyed by 74 deals in H2 2021, up from 51 deals in the first half (H1).
By contrast, the Asia-Pacific and Middle East and Africa (MEA) regions saw significant falls in M&A activity. Asia-Pacific saw a 44 per cent drop in deals, from 75 in 2020 to only 42 in 2021, while MEA reported a 47 per cent drop, from 32 transactions in 2020 to just 17 in 2021.
Ivor Edwards, Head of Clyde & Co's European Corporate Insurance Group, commented: “As anticipated, the volume of insurance M&A activity worldwide picked up notably in 2021. Despite the pandemic continuing to shape the economic and political landscape, investor sentiment strengthened in most regions as re/insurers rode the wave of rising prices across all product lines to generate healthy top line growth.
“Signs that market hardening is slowing down in certain classes, combined with the pressure of rising costs means that for those businesses looking to expand, the decision on whether to grow through acquisition or by building out existing operations has never been more relevant.”
A range of deals were common in 2021, including a higher number of ‘mega-deals’
Clyde & Co also found that in 2021, there was a rebound in the number of large M&A transactions, with 25 ‘mega-deals’ with a value in excess of US$1 billion reported for the year, compared with just 20 mega-deals in 2020. This included Regent Bidco’s takeover of the RAS Insurance Group for $9.2 billion, which was concluded in June 2021.
However, smaller niche acquisitions continue to be common worldwide as firms aim to strengthen their core offerings, while run-off markets in the US, Europe and the Middle East remain active.
“The legacy market remains a popular choice for the divestment of non-core assets, whether from P&C carriers and banks selling off life insurance divisions, or the spin-off of underperforming classes of business or subsidiaries due to market conditions,” said Peter Hodgins, Clyde & Co Partner in Dubai. “In the last 12 months we've had more conversations with international run-off specialists around accessing the market in this region than ever before. This year we will see much more discussion with regulators and heightened activity for the purpose of run-off.”
High levels of M&A activity are expected to continue throughout 2022
Clyde & Co also said that they expected the M&A market to remain buoyant in 2022, as the world moves beyond the coronavirus pandemic. It estimates that completed M&As for H2 2022 will exceed 200 deals, and rise above 220 for H2 of the year.
Joyce Chan, Clyde & Co Partner in Hong Kong, said: “We are likely to see insurers and reinsurers positioning themselves for a more growth-oriented environment in the coming year, albeit with some reginal variations. Despite continued interest from strategic buyers and private equity, a continued lack of suitable acquisition targets in markets like Europe and Asia will be a feature.”
Chan also said that the Middle East and North Africa in particular should expect to see a burgeoning M&A market in 2022, and that as more mature insurtechs in the US look for acquisition targets, others will look for opportunities to establish or expand their foothold in the insurance market.
Accelerating innovation has been a key driver of mergers and acquisitions
Clyde & Co said that the pandemic has been a key driver of M&As and other investment by insurers and reinsurers, with accelerated innovation motivating more companies to buy, fund or partner with tech firms for greater competitive advantages.
Insurtech firms, particularly in the US, have also experienced significant growth, with some now reaching the stage of maturity that allows them to explore the possibility of making acquisitions of their own.
Vikram Sidhu, Clyde & Co Partner in New York, said: “The successful insurtechs are at a place where, for various reasons, they want to have that ‘full stack’ insurance business, rather than simply being MGAs that sell policies on behalf of other carriers. These companies want to grow bigger and control their destiny.”
In addition to M&As, Clyde & Co reported that the same innovation has encouraged insurers and reinsurers to begin exploring other business models for expansion beyond just M&A. This includes a greater focus on greater digitization being a key trend for many insurance firms. This includes a shift to remote work, an expansion of online platforms and the employment of automation, data analytics and modelling.
“Developing ecosystems will be an important growth strategy for re/insurers in the year ahead: identifying key services that dovetail with their insurance products and integrating those into their customer journey,” added Eva-Maria Barbosa, Clyde & Co Partner for Munich. “Any insurer who finds the right partners and builds up ecosystems that can be seamlessly connected with a bank or another distribution partner will, in five years, be in much better position than those who just experiment in this area.”