Insurance Growth Report 2021 Mid-year update - Actuarial Post
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Insurance Growth Report 2021 Mid-year update
2 Despite a tough year across the insurance sector, the industry has proved remarkably resilient in the face of significantly reduced revenue in Covid-19-affected classes of business, and the impact of business interruption disputes on insurers hit by the resulting class actions. In contrast to the outlook at year-end 2020, global M&A activity in the first half of 2021 dipped to 197 completed deals, compared with 201 in H1 2020. Activity was up 7.3% and 2.0% in the Americas and Europe, respectively, but was down everywhere else. In the Asia-Pacific region, the number of H1 deals fell 51.4%, year-on-year. While a hardening (re)insurance market is driving organic growth at insurance carriers, at the same time, cheap liquidity, growing private equity interest, and the re-structuring of large carrier portfolios is presenting plenty of M&A opportunities for strategic buyers of insurance assets. Although the collapse of the Aon-Willis Towers Watson merger due to US antitrust concerns means some caution for mega deals, at least in the US, M&A activity should otherwise continue to remain on a strong pace.
3
M&A holds steady in H1 2020 Uptick in mega deals UK tops the leaderboard
Volume of deals completed globally, 1 Jan 2009 - 30 Jun 2021
11 deals
The sale of UK-headquartered RSA
to Regent Bidco for
USD 9.2
300
in H1 2021 valued at over USD 1.0 billion
15 billion
200
in the whole of 2020 was the was the largest
100
200
244
180
206
222
282
289
186
186
225
196
266
250
192
192
201
201
291
219
272
162
197
157
170
197
0
US leads big spenders Cross-border activity holds steady
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
2009
2020
2012
2018
2013
2015
2019
2017
2010
2016
2021
2014
2011
Americas’ acquirors dominate the top
35
Activity up in Americas & Europe, falls back elsewhere
20 largest
deals by value
completed cross-border deals in H1 2021 –
17.7% of the global total – the same number
as in H2 2020.
Region H2 2020 H1 2021 % change
Global 206 197 -2 .9%
54.2%
United States has
Americas 102 116 +7.3% 9
of the top 20, Bermuda three, Canada and
19 of 35 cross-border deals were inter-region
Europe 50 51 +2.0%
Cayman Islands one each
APAC 37 18 -51.4%
MEA 17 5 -70.1%4
All to Regulatory challenges and drivers
In the Asia-Pacific region, the anticipation of a robust
play for H1 for M&A transactions was frustrated in part by a
continuing high regulatory bar in certain jurisdictions, with
prospective acquirors facing higher solvency requirements.
Insurers are instead looking at strategic alliances – whether
Key takeaways with online banks, e-commerce giants, or other online
retail platforms – to access new distribution networks.
from H1 2020 At the same time, regulatory activity is also driving
divestment of insurance businesses, with some significant
portfolios likely to become available. In Australia, the
recent Royal Commission on financial services has led to
all four major domestic banks choosing to offload non-core
lending businesses.
Notable acquisitions include Hollard Insurance’s purchase
Regulators in Asia Pacific are
of Commonwealth Bank’s insurance division CommInsure, focused on ensuring a long-term
and Westpac’s sale of both its general insurance business commitment from new entrants.
to Allianz and its captive Lenders Mortgage Insurance
business to Arch.
When new players come in and buy a
particular insurer in the region, local
Those looking to acquire or invest in European insurance
businesses (including the UK) will need to be mindful of regulators usually request quite a
the EU’s Insurance Distribution Directive, which places substantial capital increment.
requirements on companies to invest in staff training,
professional indemnity cover, re-wording of terms and Avryl Lattin, Sydney
conditions and greater disclosure requirements.5
MGAs remain popular
MGAs continue to hold their allure for insurers looking to
access new distribution channels while, at the same time,
private equity capital is very active in the space, looking
for potential targets. In the Americas, some insurtech
MGAs who have attained sufficient scale are keen to
have their own insurance capital and are looking to buy
small insurers to expand. In Australia, where growth in
traditional acquisitions and startups of standalone carriers
has been muted, the MGA route is also proving attractive,
particularly for specialist lines such as cyber.
Europe has likewise seen the establishment of a number
of MGAs for specialist classes of business such as cyber,
warranty and indemnity, and financial lines. In addition to In certain markets we are also seeing
MGAs that have made a success of offering niche lines (for large MGA plays; MGAs looking to
example, Generali-backed Descartes Underwriting, with
buy their own insurers. They may be
its parametric weather coverage), the MGA space has given
established carriers, especially in France and Germany, looking for shell companies that they
an opportunity to grow market share by establishing can build out. Setting up an insurer
new brands, distinct from their traditional products.
can be tricky, expensive and time-
Carriers hope to appeal to a different demographic by
selling coverage either directly to consumers or through consuming, so buying up a small
alternative channels such as social media. business and growing it is easier.
Ivor Edwards, London6
Technology: insurtech ‘yes’, legacy IT ‘no’
Insurtechs are now in the position of being both attractive
as assets as well as potential acquirors and creators of
insurance businesses. The first half of 2021 has seen a flood
of investment into insurtech projects. US homeowners’ Recently, there has been an
insurtech Kin received USD 64 million in funding, for upward trend of insurtech
example, while USD 43 million was invested in India’s online
insurance comparison platform D2C Insurance Broking. deals happening. Insurtechs are
Funding reached a record high of USD 7.4 billion across
reaching the point where they have
308 deals in H1 2021, exceeding full-year investment both critical mass, and we are seeing
last year and in every preceding year, according to data established tech service providers
from Willis Towers Watson.
and start-ups entering into joint
The attractiveness of the insurtech sector as an
ventures or strategic alliances with
alternative to traditional insurance start-ups has never
been more obvious. traditional insurers. On the flipside,
However, technology also features as a significant barrier
traditional insurance players are
to M&A in the insurance sector, with legacy IT systems looking to acquire insurtechs
proving off-putting to potential acquirors of otherwise or making strategic investment
profitable portfolios of business. The complexity of some
insurers’ in-house IT infrastructure presents an expensive
into the insurtech space. Mature
problem that some buyers would prefer to not have to solve insurtechs present valuable
following an acquisition. propositions to buyers.
Joyce Chan, Hong Kong7
Life insurance presents challenge to M&A
In Europe, what is currently the live insurance sector’s
pain could prove to be the legacy sector’s gain, as the
preponderance of life insurers and life insurance divisions
at composite carriers presents a challenge to M&A activity.
The capital-intensive nature of life insurance means
that not only is such business unattractive to potential
acquirors, but companies looking to build scale in their
non-life book through M&A have to solve the conundrum
of what to do about their life operations before seeking a
merger partner.
Zurich has already signalled its intention to cease writing
life insurance business, and the expectation is that more We are seeing a lot of legacy books
carriers will eventually follow suit in order to improve their
balance sheets, with the bulk of life business divestments
being sold off or prepared for sale.
expected to end up in the run-off market. The sellers tend to be companies
looking to the future in a robust and
creative way, trying to clean up their
balance sheets and free up capital;
they are taking a proactive focus on
the next two, five, 10 years.
Vikram Sidhu, New York8
Strategic disposals highlight
carriers’ core focus
While hiving off distressed business to the legacy market In Europe, meanwhile, strategic opportunities are less in
has been a recurring feature of the insurance sector since evidence but carriers are taking a more strategic approach
before the pandemic, disposals of non-core, but to certain corporate business lines. Smaller carriers in
not necessarily under-performing, business appears to particular, anticipating difficult reinsurance renewals, may
be a growing theme this year. consider exiting lines such as D&O or disposing of books
of business where the absence of affordable reinsurance
Disposals of legacy books will be driven by, among
protection makes them less viable. This could present an
other things, insurers seeking to divest non-core
opportunity for mid-tier carriers to build scale.
business in order to build up a war chest for future
acquisitions or otherwise wanting to focus on their
The issue that we have in Europe
core lines and businesses. is we’ve got a lot of life insurance
In the Americas in particular, strategic deal-making has companies, and not enough non-life.
been trending, not only in the form of divesting non-core Everybody would like to buy non-life
assets but also searching for acquisitions that complement
carriers, or do a big merger, but there
core business. As reported in the trade press in July,
for example, US-headquartered AmTrust has placed are not enough targets. So we see a
the remainder of its European business up for sale as it lot more moving of life businesses
continues to simplify its operations following a series of
into run off, rather than traditional
divestments in recent years.
M&A, to get the balance sheet in
better shape for a merger.
Eva-Maria Barbosa, Munich9
UK retains top spot in Europe US drives surge in Americas’ activity
0 30 60 90 120 150 0 30 60 90 120 150
H1 144 H1 102
2009 2009
H2 138 H2 99
H1 119 H1 107
2010 2010
H2 98 H2 104
H1 87 H1 132
2011 2011
H2 98 H2 136
H1 85 H1 129
2012 2012
H2 69 H2 83
H1 54 H1 77
2013 2013
H2 60 H2 62
H1 79 H1 71
2014 2014
H2 55 Volume of deals in Europe H2 95 Volume of deals in the
2015
H1 61 1 Jan 2009 - 30 Jun 2021 2015
H1 122 Americas 1 Jan 2009 -
H2 65 H2 89 30 Jun 2021
H1 77 H1 84
2016 Most active countries in 2016
H2 74 H2 81
Europe by number of deals: Most active countries in
H1 53 H1 86
2017 UK 15, Spain 8, Germany 5 2017 the Americas by number
H2 65 H2 90
H1 59 H1 97
of deals: US 93, Bermuda 8,
2018 2018 Canada 8
H2 63 H2 92
H1 88 H1 93
2019 2019
H2 67 H2 89
H1 53 H1 90
2020 2020
H2 50 H2 102
H1 51 H1 116
2021 2021
H2 H210
M&A dives in Asia Pacific Deal activity drops back in Middle East and Africa
0 10 20 30 40 50 60 0 5 10 15 20
H1 26 H1 10
2009 2009
H2 35 H2 4
H1 29 H1 10
2010 2010
H2 33 H2 13
H1 52 H1 12
2011 2011
H2 23 H2 7
H1 21 H1 9
2012 2012
H2 38 H2 4
H1 28 H1 3
2013 2013
H2 27 H2 8
H1 33 H1 9
2014 2014
H2 26 H2 16 Volume of deals in ME&A
Volume of deals in APAC
H1 26 H1 12 1 Jan 2009 - 30 Jun 2021
2015 1 Jan 2009 - 30 Jun 2021 2015
H2 52 H2 11
H1 36 H1 11 Most active countries in the
2016 Most active countries in 2016
H2 36 H2 2 Middle East and Africa by
APAC by number of deals:
H1 22 H1 8 number of deals: Israel 2,
2017 Japan 9, India 3, Australia 2 2017
H2 20 H2 3 UAE 1, Saudi Arabia 1
H1 25 H1 4
2018 2018
H2 34 H2 4
H1 38 H1 5
2019 2019
H2 31 H2 7
H1 38 H1 15
2020 2020
H2 37 H2 17
H1 18 H1 5
2021 2021
H2 H2440
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