Despite various negative factors in international markets in 2017, the wave of M&A in the insurance industry remained unstoppable. Willis Towers Watson data shows total insurance industry M&A value of $57 billion in 2017, up 16% from $49 billion in 2016.
Global insurance M&A heats up while Chinese capital's overseas shopping cools down
October 2016 is not that long ago, but who still vaguely remembers the high-profile announcement by Qianhai Financial Holdings and Shenzhen Investment Holdings to acquire Singapore's Asia Capital Reinsurance Group? That roughly $1 billion acquisition, after more than a year of hurdles, ultimately fell apart in November 2017.
At almost the same time, in October 2016, Oceanwide Group announced it would spend $2.7 billion in cash to acquire all outstanding shares of Genworth Financial Group, a U.S. insurer listed on the NYSE, with the transaction expected to close in mid-2017.
However, Genworth's 2017 interim report showed the deadline of the merger agreement with Oceanwide was extended to November 30, 2017, and recently that deadline was pushed back again to April 1, 2018. Moreover, the U.S. regulator in charge of the deal recently said it was uncertain when it would rule on the transaction. The acquisition, ongoing for more than a year, remains unresolved.
In addition to the above two deals, the outcomes of Tencent's acquisition of Aviva's Hong Kong insurance business and Yunfeng Financial's acquisition of MassMutual Asia also remain unclear.
A global insurance M&A trends survey report released by KPMG in early 2017 said that, driven by the need for business and operating model transformation, the number of global insurance M&A deals in 2017 was expected to rise, especially in the Chinese and U.S. markets. Clearly, KPMG did not anticipate the mixed fortunes of China's insurance industry in 2017.
Large M&A deals kept coming, increasing toward year-end
Although Chinese capital's M&A path has been full of twists, globally, large insurance M&A deals continued throughout 2017, among which Onex's sale of USI Insurance Services for $4.3 billion alone accounted for 7.5% of the year's total deal value.
Although there were many negative factors for global insurance M&A in the second half of 2017 -- whether the impact of catastrophe losses or concerns about U.S. tax reform -- the industry expected M&A to moderate somewhat in 2017. Yet the increase in total M&A value did not match the industry's earlier market expectations.
The M&A wave across the insurance industry continued to year-end and grew rapidly. Brian Sheajia, Willis Towers Watson's head of European business, even attributed the rapid year-on-year growth to a series of December deals.
For example, Denmark's largest insurer Tryg acquired unlisted rival Alka Forsikring for $1.31 billion, and The Hartford sold Talcott Resolution, its run-off life insurance and annuity business, for $2.05 billion.
Insurtech becomes the new darling of M&A deals
2017 was hailed as the inaugural year of insurtech, with innovative technologies being applied in insurance one after another and more insurtech companies emerging. In the 2017 insurance M&A wave, insurtech companies became the new favorite, attracting much capital and prompting major insurers to compete for acquisitions.
In 2017, the largest insurtech acquisition was Travelers' purchase of the UK's Simply Business (the UK's largest online commercial insurance broker) for $4.9 million. Other smaller investments in and acquisitions of insurtech companies by capital or companies are too numerous to list.
Asia-Pacific market hits new M&A high
Willis Towers Watson data shows that in 2017, North American M&A deal value was $23 billion, while Asia's deal value was $17 billion, surpassing Europe's $14 billion and becoming the world's second-largest insurance M&A region.
This matches the forecast in KPMG's global insurance M&A trends survey released earlier in the year, in which about a quarter of respondents listed the U.S. as their preferred country for M&A. By region, about 47% of respondents said Asia-Pacific would be the focus of their M&A activity, more than double the share for North America.
Although Asia's M&A deal value has not yet surpassed North America's, the region's huge market capacity and high growth potential have gradually become a focus of global M&A attention.
Large P&C M&A deals could be counted on one hand
In 2017, life insurance deals far outnumbered non-life deals; single P&C and insurance brokerage deals exceeding $1 billion dwindled to just a handful.
Apart from the aforementioned Talcott and USI deals, the only others were Mitsui's $1.6 billion acquisition of Fairfax's First Capital and Intact's $1.7 billion acquisition of White Mountains' OneBeacon.
Reinsurers' value may increase
The frequent catastrophes of 2017 had some impact on the insurance industry, although no insurer has yet been forced to sell its business because of huge catastrophe-related risks. The impact of catastrophes on reinsurance is self-evident, and changes in reinsurance rates will also have some effect on insurance industry M&A.
Eamonn Flanagan of Shore Capital pointed out that ongoing catastrophe losses leave potential buyers of insurers unclear about acquisition targets, which could throw insurance M&A activity into crisis in the first half of 2018.
Meanwhile, reinsurers' value may increase. After Axis acquired Lloyd's insurer Novae for $6.448 million in October 2017, Eamonn Flanagan said the scarcity value of Lloyd's reinsurers in London remains.
Source: China Insurance News 2018-03-04