Insurance: Mergers and acquisitions are back in 2016

Mergers and acquisitions: 2015, the year of all records

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It is after several years of stagnation that external growth recovered in 2015.

In terms of values, mergers and acquisitions [4] reported an increase of 238% in the course of the previous year.

The overall transaction volume jumped by 20 billion USD in 2014, at 67.6 billion USD in 2015. The number of operations grew by 6% moving from 433 to 460.

The biggest rapprochements have been initiated by Asian players. Japan topped the list with three important acquisitions worth 21.6 billion USD, that is, 32% of the overall transactions in 2015.

The major mergers and acquisitions achieved in 2015 by Japanese insurers

China, on its turn, has proceeded to two large-scale operations with Anbang Insurance Group which took control of the American Fidelity & Guaranty Life for the amount of 1.57 billion USD and Fosun International Group which acquired Meadowbrook Insurance Group (United States) for 433 million USD.

In Europe, the most important transaction finalized in 2015 was conducted by Exor, the Italian holding of the Agnelli dynasty which took over Partner Re for the amount of 6.9 billion USD.

Mergers and acquisitions: 2016, a rather quiet start

This merger and acquisition move witnessed a notable slowdown in the course of the first half of 2016, the period during which the main players on the market favored in-house restructuring operations at the detriment of external growth. Only at the beginning of July 2016 did the market restart the big rapprochement operations with Asian groups at the lead, as usual.

The need to rebalance portfolios and conquer market shares have been strained, however, by the excessive valuation of target companies.

It is also worth noting that numerous insurers and reinsurers have focused in 2016 on ensuring conformity of their structures with the new prudential rules instituted in particular by Solvency II [6] in Europe and by the CIMA Code⁽¹⁾ in West Africa.

Finally, the large resignation-recruitment movement that has affected the big bosses of the business triggered also a slowdown in expansion operations. The newly set-up teams preferred to reorganize their structures and define new priorities in the first place.

Main changes affecting management of major groups:

• In January 2016, Mario Greco, former chief executive officer of Italian Generali, was ap-pointed group CEO of Zurich Insurance Group,
• In March 2016, Joachim Wenning took over from Nikolaus Von Bomhard as chairman of Munich Re's management board,
• In March 2016, John Elkann, general manager of Exor, takes the leadership of Partner Re following the takeover of the Bermudan reinsurer by Italian holding, Exor,
• In March 2016, Henri de Castries, chief executive officer of AXA for 17 years, quit the French group before the end of his term,
• In May 2016, Nicolas Moreau, chief executive officer of AXA France resigned,
• In July 2016, Christian Mumenthaler became chief executive officer of Swiss Re in replacement of Michel Liès.

First half 2016: New wave of Mergers and acquisitions

After a short break taken during the first half of 2016 concentration is restarting in earnest.

New teams are now moving within a healthy context endeavoring for the building of “too big to fail” groups and recovering new growth that would counter-balance the saturation of their domestic market.

Within four months, no less than 11 merger and acquisition operations have been announced.

External growth is also driven by:

• the need of diversification of sources of income venus,
• the cost reductions and achievement of scale economies,
• the search for profitability,
• the introduction of new regulatory requirements in terms of minimum capital.

Impressively active, Japanese investors are lying in wait for new growth relays outside the archipelago. Sompo Japan, which has already set its sight on insurers in Malaysia, Turkey, Brazil and United Kingdom, has taken a further step by setting foot in the United States with the takeover of Endurance for the amount of 6.3 billion USD.

It is the second largest operation of its kind after the one concluded, in 2015, between Tokio Marine and HCC Insurance for the amount of 7.5 billion USD. During the last two years, Japanese players have disbursed 27.9 billion USD to finance their expansion abroad.

The takeover of United Guaranty Corporation (UGC), subsidiary of AIG, by Bermudan Arch Capital for the amount of 3.4 billion USD stands as one of the biggest acquisitions realized so far in 2016.

Mergers and acquisitions: perspectives

According to a survey conducted in Europe and in the United States by Mergermarket, four insurance companies out of five are intent on making at least one acquisition in the next three years. The polled companies are hoping this way to get better positioned on the market and increase their customer portfolio.

Admin Re, subsidiary of Swiss Re, is currently in talks with several sizable companies, mainly in the United Kingdom and in Europe with a view to getting them into the circuit of the Swiss reinsurer. Axis Capital is equally in search of major transactions similar to the failed offer with Partner Re.

Chinese investors, and to a lesser degree the Indian and South Korea ones, are exhibiting their desire for territorial expansion. Both Japanese and Chinese are setting their eyes on the new opportunities in Europe and the United States.

The major concluded or announced mergers and acquisitions transactions: June-October 2016