Mergers and acquisitions (M&A) have taken something of a back seat in the insurance industry over the last 18 months or so. Uncertainty, the enemy of deal-making, has weighed heavily on investor sentiment. In some markets – notably Europe – uncertainty persists with Brexit acting as a significant brake on M&A activity. Transactions have been overtaken on the corporate agenda by Brexit preparations as companies realise that there is now no time to lose.
However, growth remains an imperative in an increasingly difficult trading environment and the situation hasn't got any easier for insurers over the last six months. Investment returns remain under pressure and will likely remain so for some time, despite the interest rate rises in US and the UK – the first for a decade.
Meanwhile, abundant liquidity in the market means there's little room for insurers to differentiate on price. And the rise of broker facilities and an increasing number of managing general agents entering the market is putting additional pressure on insurers.
Add in to the mix this year's devastating hurricane season, the losses for which are still being worked out but will certainly run into the tens of billions of dollars, and we expect a number of insurance businesses will see their balance sheets come under increasing strain. This could serve as a trigger for a wave of M&A in 2018 as re/insurers look for partners to help absorb these losses or consider putting their businesses up for sale.
You can read the rest of our insurance predictions here.
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