Insurance mergers and acquisitions are at a ten-year high

Mergers and acquisitions in insurance do not know the crisis. “In the face of strong economic pressures – inflation, rising energy costs and looming recession – insurers remain focused on growth opportunities,” summarizes the mid-year update to the Insurance Growth Report. 2022 of the specialized law firm Clyde & Co. In the first six months of the year, mergers and acquisitions finalized in the sector jumped at a rate unprecedented for ten years at the global level, up 9.5% compared to in the second half of 2021. In total, 242 deals were fully completed as of June 30, 2022, compared to 221 in the second half of 2021 and 197 a year earlier. We have to go back to the first half of 2012 to find such a level with 244 deals.

America carries the momentum. On the continent, operations increased by 22.2% compared to the second half of 2021 with 132 deals. The United States alone recorded 103 transactions, including the most expensive, namely the merger estimated at 7.7 billion dollars (7.7 billion euros) between the American private equity fund Apollo Global Management and the Athene Holding retirement savings group. Asia-Pacific, +12.5% ​​with 27 transactions, and the Middle East and Africa, +33.3% with 16 transactions, are also growing. Only Europe stands out, suffering a 9.5% decline in transactions in the first half (67). France ranks second regionally with 11 transactions, behind the United Kingdom which recorded 18.

Consolidation of intermediaries

The Old Continent is also characterized by disposals of activities deemed non-essential but which weigh heavily on the balance sheets. “Europe has seen a lot of run-off operations, which are used to ‘beautify the bride’, to ensure that there are no unwanted old activities on the balance sheet that could hamper a possible merger and acquisition transaction,” explains Ivor Edwards, partner in London. What suggest that the dynamic could start again.

Already, the volume of mergers and acquisitions announced in the insurance sector in Europe has increased by 29% over one year, from 85 to 110 in the second quarter of 2022 and 106 in the first quarter of 2022, reports the latest barometer of the research firm FTI Consulting. Its approach is different from that of Clyde & Co because it does not only concern risk carriers, which plays a major role: “Despite the inflationary spiral and the rise in interest rates on the continent, the results highlight the “continuous inflow of capital into the insurance market, fueled by the consolidation of intermediaries”, explains the firm.

Capital investment

“Broker consolidation activity continues to be supported by the large gap between the target’s buy multiple and the platform’s trading multiple in the retail and service provider sectors,” says André. Frazao, partner at FTI Consulting. “There are still a lot of venture capitalists who prefer to opt for a lean balance sheet or stay with intermediaries or insurance service companies, which is leading to significant consolidation in this part of the insurance industry. ‘insurance,’ agrees Peter Hodgins, partner at Clyde & Co.

France, where the number of operations remains stable at five announcements, is no exception to this specificity: the insurance brokerage and real estate financing specialist Odealim, for example, has entrusted a place of co-control to Ardian alongside TA Associates in an operation valuing him at 950 million euros. More generally, the attractiveness of private equity companies is confirmed: the operations of private equity funds and their portfolio companies thus increased by 24% over one year in the second quarter of 2022.

Red for reinsurance

The upward momentum of mergers and acquisitions should not slow down in the second half, fueled in particular by private equity. “Funds are brimming with capital and keen to deploy it in a sector they increasingly see as offering attractive and reliable returns,” Clyde & Co decrypts. Rising interest rates are not yet an obstacle for those players who have high levels of “dry powder” accumulated during the pandemic. In its annual report on insurance, McKinsey & Company even anticipates an acceleration. “We expect life insurers to be more active than property and casualty insurers,” said the consultancy, for whom the challenges of rising rates are pushing for the consolidation of life insurers. Fueled by this appetite and the attraction for service providers and brokers, valuation multiples will remain high. “Goldman Sachs would have paid 18 times earnings before interest, taxes, depreciation and amortization (Ebitda) for The Clear Group, and Howden announced the purchase of global reinsurance broker TigerRisk for 17-18 times the Ebitda”, recalls FTI Consulting.

Only reinsurance should see activity slow down. “Investor appetite for reinsurance companies has diminished significantly due to their continued poor performance and high levels of volatility, with several transactions failing, such as Brickell’s bid for R&Q,” warns the firm. Fitch Ratings, which sees mergers and acquisitions remaining limited in 2023 in reinsurance, explains that reinsurers will “prioritize pricing, risk management and organic growth rather than mergers and acquisitions”.


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