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Report: more insurance M&A activity in 2020 than anticipated

John Johnston, chief executive officer of Deloitte Caribbean and Bermuda (Photograph supplied)

The insurance industry posted more merger and acquisition activity in 2020 than anticipated, despite Covid-19 related uncertainty, reveals the latest Deloitte 2021 Insurance M&A Outlook.

The annual report examining insurance industry merger and acquisition trends, expectations and challenges, said companies are powering through the pandemic disruption to pursue growth opportunities that are likely to emerge alongside an improving, and likely transformed economy and industry landscape.

“Soft markets and overcapacity have been cited as two of the key drivers of much of the insurance industry consolidation of the past several years,” John Johnston, chief executive officer of Deloitte Caribbean and Bermuda said. “Now, with the worst of the pandemic hopefully behind us, insurers and reinsurers are enjoying a surge in demand and better underwriting conditions.”

Mr Johnston said cost pressures and low investment returns persist, and opinions are mixed as to the likely duration of the hard market.

“The general pause in M&A caused by the pandemic hasn’t lessened the strategic rationale or available capital for deals; accordingly, we expect to see a rebound in activity over this and next year,” Mr Johnston said.

According to the outlook, in the first half of the year, global 2020 insurance M&A was consistent with first half 2019, likely because most deals closing in this period were already in process prior to the full-scale Covid-19 outbreak.

“After a pause during the summer months, dealmaking picked up again, with 25 insurance company deals announced in the United States alone, towards the latter part of the third quarter and a life and health megadeal to close out the year,” a spokesman for the company said.

Total deal volume across underwriters and brokers decreased about eight per cent year over year through December 31, 2020 – 620 deals versus 671 in 2019.

However, aggregate deal value climbed about 39 per cent year over year, ($21.6 billion in 2020 compared with $15.6 billion in 2019), buoyed by several transformative transactions in both the property and casualty and L & H sectors and a couple of large transactions in the broker space.

Deloitte is expecting this year to be a positive one for insurance M&A.

The company reported there is an increased appetite for InsurTech acquisitions to meet customers’ digital engagement demands and support employees’ new work-from-home needs.

A Deloitte survey of insurance industry executives, conducted prior to the pandemic, found that more than half expect to complete an M&A transaction in the next two years.

In Deloitte’s global outlook survey of insurance executives, 32 per cent of North American respondents, 38 per cent of European respondents, and 26 per cent of Asia Pacific respondents plan to pursue M&A as a way to support financial stability over the next six to 12 months. Deals are likely to be strategic rather than opportunistic as companies consider where to play and how to win in the next normal.

The report said some companies should consider radical actions, including distressed asset sales, to salvage value from loss-making divisions and preserve the viable core business.

“This portfolio rebalancing may bolster market supply for future dealmaking,” Deloitte said. “Conversely, companies that have a strong balance sheet and competitive positioning but expect a significant degree of structural disruption could use M&A to safeguard their customer base and accelerate long-term transformation of their business model.”

Deloitte also said that in addition to piloting their company through the pandemic and various economic and market conditions in 2021, insurance executives should consider how to address the following trends as they move forward with their M&A growth strategies.

For the full report see www2.deloitte.com/bm/en/pages/financial-services/articles/2021-insurance-m-and-a-outlook.html

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Published March 12, 2021 at 12:58 pm (Updated March 12, 2021 at 12:58 pm)

Report: more insurance M&A activity in 2020 than anticipated

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