M&A in the Middle East continues to bump along at a low level, said global law firm Clyde & Co in its ‘Insurance Growth Report – Charting the ebb and flow of insurance M&A’, which analyses transaction trends by region.
Globally, 419 deals were completed last year, up from 382 in 2018. In the Middle East & Africa (MEA), 12 deals were completed in 2019 compared to eight in 2018, said the law firm.
Although there was anticipation that new regulatory requirements would increase capital in jurisdictions and pressure from regulators across the Middle East region would translate into a flow of deals as businesses moved to consolidate, this has yet to materialise, the report said.
One significant exception to this trend was the recent announcement of the merger of MetLife AIG ANB Cooperative Insurance with Walaa Cooperative Insurance in Saudi Arabia.
In terms of foreign investment, Bupa’s acquisition of Acibadem Sigorta, the second largest health insurer in Turkey, was one of a handful of completed inbound deals.
The more prevalent trend has been MNCs continuing to close parts of their operations in the region as pressures at home force them to divest underperforming assets and refocus on their core businesses. Swiss Re and Allianz have both recently announced decisions to close their operations in the DIFC, while HDI Global is placing its Bahraini operations into runoff, said the report.
Other players are seeking to focus on core regional markets with AIG, for example, having pulled out of Oman through a portfolio transfer and putting its business in Bahrain into runoff.
Looking ahead, the backdrop of a mixed economic outlook and political tension in Iran and Qatar will continue to act as a brake on deal activity, said Clyde & Co.
Saudi Arabia, the UAE and Egypt have sufficient scale to be attractive to inbound investors, while other markets are either too competitive or lack sufficient population size to generate an adequate return on equity.
Africa
In Africa, 2019 saw sporadic consolidation in some markets and a small number of cross-border deals. The most notable of these was Prudential’s acquisition of a majority stake in Group Beneficial, a leading life insurer in Cameroon, Cote d’Ivoire and Togo.
However, while there are clear opportunities in markets such as Nigeria and Kenya, ongoing political instability is deterring potential investors.
In South Africa, the continent’s leading insurance market, the Solvency II-style capital requirements that came into force in mid-2018 have undoubtedly increased pressure on some insurers, but have yet to lead to any significant deal activity. This could be set to change with the introduction of new Group Supervision rules that will demand new board and licensing requirements, leading some insurers to consider whether to spin out certain businesses.
On the broker side, recent and upcoming changes in the insurance regulatory landscape, combined with continuing digitalisation, will shake up traditional distribution channels, leading to a decline in the number of traditional insurance intermediaries. M