The market continues to be buoyant, albeit more recently we have started to see a slowdown in mega deals, as many of the larger organizations take a breath! Overall we remain positive on the market outlook, particularly, with the continued development of the regulatory agenda for Solvency II in Europe and the recent IAIS announcement around Global Systemically Important Insurers.
We expect to see activity at both ends of the market, with a continuation of the mega deals, as well as, targeted M&A to build specific capability, and insures divesting non-core underperforming businesses.
Outbound deal flow from China and Japan into the U.S. and Europe continues with a number of new Chinese players successfully entering the market (eg China Minsheng Investment Corp), and the ongoing interest from organizations like Fosun and Anbang, we expect this to be an important driver of activity going forward.
Recently, global regulators finalized rules for the world’s largest insurance companies (AIG, MetLife, Aviva, Ping An, Generali, Prudential of the UK, Allianz and AXA). Under these new rules the identified companies may have to increase capital to overcome the impact of unexpected losses. One likely implication of this change is further pressure and focus on non-core assets and a targeted divestment program to free up capital.
Along with this, the prevailing low interest rate environment, increased competition and soft rate environment for property and casualty (P&C) insurers are increasing pressure on poorly performing players, which we believe will create consolidation driven activity.
Solvency II is now less than three months away and as the regulators finalize the impact on individual companies and the sector, a number of organizations will face pressure to either raise additional debt/equity or potentially look for other solutions (of which M&A is a likely option). We expect a number of surprises in the interim period as final outcomes differ from current expectations.
Alternative capital providers and private equity remain a key driver behind M&A activity across the globe with large deals in Hong Kong, UK and the US, as well as commitment from alternative capital providers to enter the market. For example, Italy’s Exor SpA has won the battle to acquire reinsurance group PartnerRe. We expect more of these transactions in the future.
The competition for insurance assets remains high and as a result we are seeing some buyers adopt a more aggressive approach to deal structuring, including relaxing certain ‘sales and purchasing agreement’ requirements such as the purchase price adjustment mechanism or need for confirmatory due diligence. This approach can help make a bid more compelling but needs to be carefully managed, particularly in relation to a robust due diligence process to ensure risks are understood and appropriately managed.
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Note: Content for this newsletter has been compiled from a variety of publicly available sources.
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