19-08-2020
Global insurance M&A likely to stagnate in 2H2020
Insurance AlertssGlobal insurance M&A likely to stagnate in 2H2020
The outlook for the second half of 2020 is for a drop off in global insurance M&A activity as the effect of the coronavirus pandemic is seen on the level of completed deals, revealed Clyde & Co's 'Insurance Growth Report 2020' mid-year update.
In 1H2020, completed M&A in the global insurance industry held steady with 201 deals worldwide, an increase of 197 from 2H2019. However, the report pointed out that the deals completed in the first half of the year would have been negotiated and agreed in 2019 before the pandemic struck.
“The impact of COVID-19 on insurance M&A will only become clear in the coming months and we expect it to be stark. There are practical reasons for this, not least that lockdown has made it very challenging to progress deals as it has been impossible to meet face-to-face to negotiate,” said the report. As the dust settles on COVID-19, a range of distressed businesses with (re)insurers pulling out of certain lines, industries or geographies are expected to be seen. Those looking to rationalise their operations will move to divest teams and books of businesses that do not fit with their core strategy.
The report also noted that the impact of COVID-19 has accelerated the market hardening that was already underway, presenting opportunities for organic growth that could depress the appetite for M&A. Capital-raising is now observed to be a feature of the post-pandemic market with (re)insurers keen to write more risk at a higher price but needing to offset losses from COVID-19 in order to do so. Figures from Willis Towers Watson revealed that capital-raising reached $16bn in 1H2020.
As rates rise, the report highlights the potential for a wave of new start-ups and scale-ups as seen in the aftermath of other major loss events in the past. Looking ahead, Clyde & Co anticipates an increase in the number of targets being offered for a sale and a greater interest in the legacy business in 2021. Start-ups now reaching maturity with a proven track record are ripe for acquisition and are expected to be a major deal driver in 1H2021.
Source: Asia Insurance Review
