The pace of insurance M&A is set to slow down in the first half of this year after a bumper 2018, according to new forecasts, before picking up again after the summer.
Andrew Holderness, head of the corporate insurance group at law firm Clyde & Co, predicted that political and economic problems would weigh on the minds of dealmakers over the next few months.
“Until Brexit comes to a landing it will continue to create uncertainty, and the US/China trade position is out there,” he said, adding that tough conditions in the insurance market itself would also hold deals back. “Until all that becomes clearer, it will put a dampener on the M&A market.”
However, Mr Holderness expects a “more exciting” second half as some of the themes that drove a surge in dealmaking last year start to reassert themselves.
According to Clyde & Co’s figures, M&A activity in the insurance sector jumped 9 per cent last year, with 382 completed deals.
Of those, 18 were more than $1bn in value including AIG’s $5.5bn purchase of Validus, Axa’s €12.4bn deal for XL Group and, towards the end of the year, the £4.3bn purchase of insurance broker JLT by rival Marsh & McLennan.
A number of insurers and brokers have already signalled their enthusiasm for renewed dealmaking. Generali chief executive Philippe Donnet has earmarked up to €4bn for acquisitions as he attempts to reach an ambitious new 6-8 per cent earnings growth target.
And insurance broker Willis Towers Watson is also ready for new deals, four years after the $18bn merger that brought Willis and Towers Watson together.
Chief executive John Haley said last year that he was seeking targets in areas that were “adjacent” to where the company operated.
Mr Holderness predicted that the specialist insurance market, where prices had been soft for several years, would be an active source of deals.
“With no significant hardening of the market on the horizon, we expect the need to dispose of non-core assets will persist,” he said.
“The Lloyd’s market could provide rich pickings — with around 20 syndicates exiting different classes there is a substantial quantity of discontinued business which will either be closed naturally or sold to another syndicate, presenting the potential for billions of dollars’ worth of legacy deals.”
However, last year’s experience shows how difficult it can be to get big insurance deals over the line. Early in the year SoftBank was in talks about taking a stake in Swiss Re but the discussions came to nothing.
And last summer French mutual insurer Covea made an approach to Scor, the reinsurer in which it holds an 8 per cent stake.
Scor rebuffed the move and Covea has backed off amid considerable acrimony. Scor has now launched legal action against Covea and its advisers.