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With 59 completed mergers and acquisitions (M&A) in the Asia-Pacific insurance sector in 2018, the total number of deals has increased by 40% from 42 in the previous year, a report by global law firm Clyde & Co has revealed.
The report, titled ‘Navigating a course between uncertainty and opportunity’, said that there were 34 deals completed in the second half of 2018, following 25 in the first half. This meant that there have been three consecutive six-month periods of growth in APAC for the first time since 2010.
“The growth of M&A activity in APAC has far outstripped other regions around the world over the last year,” said Joyce Chan, a Clyde & Co partner based in Hong Kong. “With huge untapped potential due to relatively low insurance penetration in the region and a range of advances in innovative technology changing the way insurance is written and sold, you would expect the interest in the region to remain high.”
Insurance transaction activity increased by 9% globally over the last year, with 382 completed M&A deals up from 350 in the previous year, according to the report.
The Americas remained the most active region for M&A, with 189 deals in 2018, but the second half of the year saw a slight slowdown with 92 transactions, down from 97 in the first six months. Europe remained steady with 122 completed deals in 2018, up from 118 in the previous year.
“Transaction activity worldwide was buoyant in 2018,” said Andrew Holderness, global head of Clyde & Co’s corporate insurance group. “Against a backdrop of stiff competition on pricing, stock market volatility and persistently low interest rates, a merger or acquisition remains a key strategy to reach new customers and markets, and to drive down costs by delivering synergies. However, factors including Brexit, trade wars and protectionism are generating uncertainty, the enemy of deal-making. The slowdown in the Americas in the second half of last year is indicative of heightened investor caution and we predict 2019 will be a year of two halves – a slowdown in M&A in some markets in the first six months, while the second half should see a return to form.”
The report found that technology was a key driver of M&A in 2018, underpinning deals of every size. This was evidenced by the number of deals where insurers invested in insurtech start-ups increasing across every global region. Examples included France’s CNP Assurances investing in mobile payment solutions company Lydia, Berkshire Hathaway buying a stake in One97 Communications, India’s largest digital payments company, and HSB, part of Munich Re, acquiring US-based relayr, Inc., a global Industrial Internet of Things (IIoT) technology company.
“Despite the risks of integrating legacy systems, a big-ticket M&A involving established market players remains hugely appealing because of the potential synergies, cost savings and streamlining of processes that the merger and the application of technological innovation can provide,” said Chan. “Meanwhile, a transaction can be the easiest way to access innovation offered by dynamic start-ups. Some acquirers are looking at companies at a very early stage of development, while others prefer slightly more established targets with proven business models.
“Whichever part of the industry they are focused on, as re/insurers consider their growth strategies for the year ahead, technology remains an imperative.”
