Insurance M&A sees biggest growth in 10 years

After strong growth in H2 2021, the number of sales in Europe fell to 67 in H1 2022 from 74 in the previous six months. The UK was the most active country for M&A, followed by France, the Netherlands and Spain.

Trade in the Middle East and Africa rose in the first half after a decline in 2021, with 16 contracts signed, compared to 12 in the second half of last year. The majority of those who got the share were from Africa – four from Ivory Coast, three from South Africa and two from Kenya.

The number of sales in Asia Pacific increased slightly to 27, from 24 in H2 2021. Japan was the best gainer in the region, followed by Australia.

“In the face of major economic challenges – inflation, rising energy costs, and recession – insurers remain focused on growth opportunities,” said Eva-Maria Barbosa, partner at Clyde & Co in Munich. “Several factors are driving the reality. Rising interest rates promise better returns for long-term businesses, while helping insurers recoup their investments. Businesses and asset managers are still eager to explore new entries into the insurance market or expand existing ones. And branding of insurtech means that acquisitions are increasing for PE investors and carriers looking to add technology.”

The number of transactions worth more than $ 1 billion remained stable, with 13 in H1 2022 compared to 14 in the second half of last year. The biggest deal of the year so far was the sale of US-based Athene Holding to Apollo Global Management for $7.7 billion.

Another area where there has been a significant increase in trade is the takeover of non-essential goods by carriers looking for bigger business, Clyde & Co said.

“Europe has seen a lot of spin-off businesses, which are used to ensure that there is no redundant legacy business that can hinder M&A activity,” said Ivor Edwards, Clyde & Co partner. London.

Private interest in the insurance sector remained strong, particularly in relation to real estate. PE funds have also focused on cargo space in selected sectors, including businesses at Lloyd’s, the report found.

“There are a lot of PE investors who tend to go ‘balance sheet light’ or have intermediaries or insurance companies, and this is creating a lot of momentum in this sector of insurance,” said Peter Hodgins, Clyde. & Co friend in Dubai. “There are still a lot of PE funds that are very interested in insurance, and we continue to see growth in the insurance industry.”

Interest in the insurtech sector appeared to be waning in the first half. While the sector has seen significant investment over the past few years, investors are increasingly worried by the uncertainty surrounding the economic outlook, the report said.

US insurtech statistics continue to grow in 2022. In other regions, the growth of the sector remains limited, with few insurtechs in Asian markets, where future demand remains a stumbling block. European insurtech sales have also seen limited activity, with partnerships between insurtechs and traditional carriers being the way forward, Clyde & Co said.

“While the rise of insurtech companies raising funds and going public appears to be encouraging, the growing risk in these industries due to the financial crisis continues,” said Marc Voses, a US partner at Clyde & Co. “With over 450 insurtechs that have failed over the past decade, success has proven to be an exclusive club for many.”

Read the following: Insurance M&A works in Q2

Overall market sentiment in the insurance sector remains positive despite the global financial crisis.

Carriers remain cautious when it comes to finances, and many are taking a step back from the global economic outlook, especially as inflation continues to hamper many insurers’ ability to afford premiums.

The industry is also facing challenges due to rising energy costs, low returns, supply chain constraints, and financial constraints. Carriers must also contend with the increasing number of ESG requirements and the risks that may arise if those requirements are not met, the report said.

“While there is some uncertainty in some sectors related to travel, companies that are still looking at M&A as a way to prepare themselves for change, these deals will be driven by business strategies,” said Joyce Chan, a partner at Clyde. & Co. in Hong Kong. “For example, buying a technology service provider or acquiring competitors who have better technology distribution tools.”