Clyde & Co: Middle East insurance M&A activity defies economic slowdown and is set to soar in 2021

M&A insurance deals in the Middle East & Africa rose by 166.7% in 2020, the biggest growth across all regions 

·         Global insurance deal volume rose in H2 2020, pushing annual total to second highest level in the last five years

·         Abundance of capital and targets and demand for innovation among key transaction drivers

·         Despite economic uncertainty and heightened deal scrutiny, increase in M&A expected in next six months 

DUBAI, 18 February 2021: There were 407 completed mergers and acquisitions (M&A) worldwide in the insurance sector in 2020, down from 419 the previous year. An anticipated pandemic-induced dip in activity in the second half of the year failed to materialise, however, with 206 deals in H2 2020, slightly up from 201 in the first six months, according to Finding opportunity in adversity, the latest edition of global law firm Clyde & Co’s insurance growth report, released today.

The Middle East and Africa saw the biggest gains in percentage terms, albeit from a low base, with 32 completed deals in 2020, up from 12 the previous year. 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.  

Dubai-based corporate insurance Partner Peter Hodgins says: "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 road blocks 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 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." 

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 USD 1 billion completed compared to 20 in 2019. But after just six such deals in H1 2020 – including the year’s largest, La Banque Postale’s takeover of French compatriot CNP Assurances for USD 6.3 billion – 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 Vikram Sidhu, says: “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.”

 Abundance of capital

Increasing premium rates and a more optimistic outlook for most lines of business will make stronger market players more likely to look for growth opportunities through acquisitions, some of which may have been put on hold in 2020 due to the pandemic. 

Eva-Maria Barbosa, a partner at Clyde & Co’s recently opened office in Munich, said: The improving market conditions have seen insurers move to raise capital but are also attracting more funds into the industry, including from private equity, which will help finance more deals. The involvement of PE giants Kelso and Warburg Pincus as part of Arch’s deal to acquire Watford Re is just one example. In addition, with interest rates at historic lows, buyers may look to tap cheap debt or deploy cash stored away during the pandemic to fund acquisitions. Meanwhile, the trend of new players entering the re/insurance market, often backed by an established figure with a proven track record capable of attracting significant financial backing, is set to continue.”

Technology a primary deal driver

The pandemic has accelerated the adoption of technology across the insurance industry, underpinning deals of every size. Examples of insurers taking stakes in insurtech start-ups increased across every geography. These included multiple investments into US start-up insurer Hippo Enterprises, propelling its valuation to over USD 1 billion; Sompo buying a stake in Japan’s Tier IV, a company leading the development of open-source software for self-driving technology; and Aviva partnering with venture capital firm Anthemis to expand its insurtech investment activity.

Hong Kong-based Clyde & Co corporate insurance Partner Joyce Chan, said: “The fallout from COVID-19 has intensified the focus on innovation. When growing your business face-to-face is restricted, you have little choice but to fall back on technology to maintain existing relationships but also to access new markets and grow your customer base. At the same time, in the face of balance sheet pressure, any innovation that can generate efficiencies and bring down the cost base is welcome. Technology will continue to be a key feature of the growth agenda in the coming year as re/insurers seek out insurtech providers that can deliver a competitive edge, be it through acquisition, investment or partnership.”

M&A set to soar in 2021 

Given the volume of deals announced in recent months, we 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.

Ivor 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 choice although we expect them to select acquisitions carefully to ensure the best fit with their strategic objectives.”

ENDS

Notes to Editors: 

 About the Clyde & Co Insurance Growth Report 

 The Clyde & Co Insurance Growth Report is 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 was gathered from face-to-face and telephone interviews with Clyde & Co partners around the world during January 2021, supplemented by existing third-party research.

 About Clyde & Co in the Middle East

Clyde & Co has the largest presence and is one of 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. The firm supports international investors and local organisations throughout the wider region with a full-service offering of local specialists across most business sectors and areas of law, including commercial, corporate, dispute resolution, employment, intellectual property, international arbitration, finance & banking, insurance, projects & construction, real estate, regulatory & investigations, and technology.

 About Clyde & Co 

 Clyde & Co is a leading global law firm, specialising in the sectors that underpin global trade and commercial activity, namely:  insurance, transport, infrastructure, energy, and trade and commodities.  It is globally integrated, offering a comprehensive range of contentious and non-contentious legal services and commercially-minded legal advice to businesses operating across developed and developing markets. Clyde & Co is committed to operating in a responsible way. This means progressing towards a diverse and inclusive workforce that reflects the diversity of its communities and clients, using its legal skills to support its communities through pro bono work, volunteering and charitable partnerships, and minimising the impact it has on the environment. The firm has 440 partners, 1800 lawyers, 2500 legal professionals and 4000 staff in over 50 offices and associated offices worldwide. 

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