Welcome to our fifth annual report on mergers and acquisitions (M&A) activity in the global insurance market. At the time of writing - mid-summer 2015 - the deal environment is hot. Every day seems to bring another major announcement. In recent weeks, ACE has agreed to buy Chubb, Willis has moved for Towers Watson and Zurich has said it is considering a takeover of RSA.
As the upturn in activity that began in the first half of 2014 has gathered momentum, a number of drivers are at play. Just as last year, the on-going low interest environment continues to impact investment returns while keeping the cost of borrowing low. Combined with an abundance of capital in the market, there is no shortage of funds with which to finance transactions. While levels of competition in the market keeping prices low and depressing return on equity has been ongoing, it seems to have reached a tipping point. Previously we have seen excess capital being deployed in share buybacks, now however there has been a shift in market sentiment towards deal activity that can deliver diversification, geographic reach and cost savings.
The search of growth remains paramount, especially for those whose domestic markets have stagnated. The acquisition of Protective Life Corp. of the United States by Japan's Dai-ichi Life Insurance Co. for USD 5.7 billion is just one example. European insurers too are looking beyond their own region to Asia and Africa to find the expansion opportunities that are not available at home. By contrast, businesses based in dynamic emerging markets such as China's Fosun and BTG Pactual of Brazil are making significant moves into mature markets to acquire assets that can fuel their international growth ambitions.
Regulation too remains a driver, especially in emerging markets. The raising of the foreign investment cap in India is likely to usher in a wave of M&A while new rules recently introduced in China are starting to take effect. The Middle East, long considered ripe for M&A, is set for a combination of domestic consolidation and inbound investment as a result of legislation designed to squeeze out smaller players with weaker balance sheets.
Looking ahead, although we expect M&A to continue across a range of markets, challenges remain in certain jurisdictions. Deal-making in Europe meanwhile has been patchy. A cloud of uncertainty overhangs the region, and in the UK in particular this is exacerbated by the possibility of an exit from the European Union. Many would-be deal-makers in the continent have adopted a "wait and see" attitude as a result, which is acting as a brake on transactions.
In the USA, the positive macro-economic outlook, combined with on-going fierce competition in the re/ insurance marketplace and ever increasing levels of capital - including that from new and alternative sources - points to more M&A to come.
Although activity in Asia Pacific has fallen back slightly over the last 12 months, there has been an increase in the number of cross-border acquisitions; nine of the period's ten largest transactions involving Asia Pacific acquirers had foreign targets. We expect this trend to continue amid clear signs in a number of markets in the region - as elsewhere in the world - that M&A activity is set to surge.
Top ten facts
M&A activity in the re/insurance markets of North America has seen a 61% year-on-year increase with 217 completed...