The Middle East and Africa saw 166.7% increase in the number of M&A insurance deals in 2020, the biggest growth across all regions worldwide, according to "Insurance Growth Report 2021 - Finding opportunity in adversity", the latest edition of global law firm Clyde & Co's insurance growth report, released last week.
The growth was from a low base, with 32 completed deals in 2020, up from 12 the previous year.
Dubai-based corporate insurance partner Mr Peter Hodgins said, "The prospect of increased M&A activity in the Middle East has long been predicted by legal commentators. Low penetration rates and highly competitive markets have seen as being ripe for consolidation.
“However, historically there have been significant roadblocks in key markets such as the UAE and KSA due to a combination of unrealistic pricing expectations, a reluctance to sell to competitors and significant regulatory hurdles in acquiring substantive holdings in listed entities.
2020 looks like a watershed year for M&As in the region
Mr Hodgins added, “2020 appears to have been a watershed in the industry. This is due to a combination of regional players seeking to expand their footprint or grow the scale of their operations and some international players consolidating operations into key markets.
“We are witnessing a growth in InsurTech allowing operational efficiencies for those players willing to invest. There have also been significant moves by regulators to encourage consolidation, with increased capital requirements for insurers and intermediaries becoming a feature of many regional markets."
Insurance M&As globally
Worldwide, there were 407 completed mergers and acquisitions (M&A) in the insurance sector in 2020, down from 419 the previous year, the Clyde & Co report shows. An anticipated pandemic-induced dip in activity in the second half of the year failed to materialise, however, with 206 deals in 2H 2020, slightly up from 201 in the first six months.
The Americas remained the most active region for M&A in terms of volume, with 192 deals in 2020. It saw a spike in the second half of the year with 102 transactions – the highest number for five years – up from 90 in the first six months. Asia Pacific saw 75 deals, up from 69 in 2019, with M&A accelerating through the year. In contrast, activity in Europe was down by almost a third year-on-year, to 103 from 155 in 2019.
Mr Ivor Edwards, head of Clyde & Co's European Corporate Insurance Group, says: “Insurance transaction activity worldwide belied expectations in 2020. Deal-makers in the insurance industry, like many others, paused for reflection in the first half of the year, but not for long. Strategic players in the market and M&A specialists clearly did not want to be relegated to the side lines and quickly regrouped to identify and pursue opportunities.
“Given that remote working does not easily lend itself to negotiations, due diligence and all the other elements that make up a transaction, the speed with which companies adapted to the new environment was impressive.
“With deal announcements continuing apace, we expect the level of completed M&A in the coming months to accelerate as re/insurance businesses scent opportunities to build scale, generate efficiencies and reach new customers in new markets.”
Widening pool of targets
2020 saw a drop-off in blockbuster transactions with 15 mega-deals valued in excess of $1bn completed compared to 20 in 2019. But after just six such deals in 1H2020 – including the year’s largest, La Banque Postale’s takeover of French compatriot CNP Assurances for $6.3bn – the number edged up with nine in the second half of the year, suggesting appetite for bigger deals is returning. However, the coming year will see a widening pool of assets of all sizes becoming available to acquirors.
New York-based Clyde & Co corporate insurance partner Mr Vikram Sidhu, said, “The pandemic has forced insurance businesses to review their strategies and get especially focused on which products they want to be underwriting and in which markets. A number of firms are actively pursuing opportunities to exit certain non-core businesses through restructurings, divestitures, and other deal activity, including to free up capital to redeploy to more preferred areas and products in the hardening market. As a result, legacy transactions will continue to grow and will be a feature of the market in the coming year.”
M&A set to soar in 2021
Given the volume of deals announced in recent months, Clyde & Co predict that insurance M&A will surge in the first half of 2021. The number of completed deals worldwide is likely to surpass 220 in a six-month period for the first time since 2019 and could go even higher in the second half of the year.
Mr Edwards said, “Deal-makers’ appetites have returned, buoyed by growing confidence in the economic outlook and the sense that there are opportunities to be had. Despite market hardening, many of the fundamentals driving M&A will persist. These include competition for assets, the need to diversify portfolios, add digital capabilities, and increase scale and market share.
“The availability of plentiful capital, combined with a deeper pool of targets, will give buyers plenty of choices although we expect them to select acquisitions carefully to ensure the best fit with their strategic objectives.”
The Clyde & Co “Insurance Growth Report” is based on data by Thomson Reuters, Alacra and Refinitiv for completed mergers and acquisitions in the global insurance industry in the period 2009 to 2020 for businesses with the SIC codes: 6311 Life Insurance, 6321 Accident and Health Insurance, 6331 Fire, Marine, and Casualty Insurance, 6351 Surety Insurance, 6361 Title Insurance and 6399 Insurance Carriers, Not Elsewhere Classified. Additional input, analysis and insight were gathered from face-to-face and telephone interviews with Clyde & Co partners around the world during January 2021, supplemented by existing third-party research.
Clyde & Co has the largest presence and is one of the most experienced international law firms in the Middle East with over 40 partners and 300 staff, based full time in Abu Dhabi and Dubai in the UAE, Doha in Qatar, and Riyadh in Saudi Arabia. Globally, the firm has 440 partners, 1800 lawyers, 2500 legal professionals and 4,000 staff in over 50 offices and associated offices.