Global | Publication | abril 2024
It is widely accepted that 2023 was one of the worst years in recent memory for M&A activity. Although overall volume and value of M&A in the insurance sector was down, mirroring many other sectors, there were segments that bucked the trend. Most notably, deal volumes, competitive tension and pricing remained strong for insurance broking and MGA/MGU transactions with the US and mainland Europe especially active.
Will this trend continue in 2024, and what other areas of the global insurance market are likely to be busiest for M&A transactions over the next 12 months?
We expect to see continued activity in the broking sector across the UK, Europe and the US. “Despite the overall downturn in deal volume, there continues to be significant interest in high quality insurance distribution targets, both brokerage and MGA/MGU, from strategic acquirers and private equity funds” noted Kevin Fischer, the head of our US insurance transactions practice. The opportunities in Europe and the increased focus, including from broker consolidators, on expanding their European footprints or acquiring interests in specialist or niche broker businesses are also expected to continue. We have seen a number of UK clients focus on Europe, as they look at strategic platform transactions to build consistent pan-European businesses, combined with a view that after a sustained period of broker M&A activity, in the UK there are more limited equivalent opportunities for growth.
In the UK, one exception to the slowdown in intermediary transactions has been that there is still substantial appetite for targets in certain higher-margin specialist or niche lines, including within the Lloyd’s market. We expect this will continue into 2024. In the US and Europe, specialty MGA’s are likely to continue to be highly attractive M&A targets for insurance carriers, private equity funds and retail brokerages, given their specialized underwriting expertise, market knowledge, use of data and technology, lean operating models, and high EBITDA margins and recurring revenue.
The trend to focus on core products and to acquire skills or fill product gaps through M&A and the acquisition of MGAs has not just been limited to intermediary groups. This is one area of the insurance market where we see appetite from the full spectrum of buyers including insurance carriers, as well as consolidators and private equity.
In addition, and by contrast to the foregoing, we also expect participants across the insurance industry to look to ‘right-size’ their business by disposing of non-core business units. This inevitably drives opportunities for both those looking to expand into such areas, and for management teams who wish to break-out and follow an MGA style journey backed by private equity capital.
While valuations have fallen from a peak a couple of years ago, our understanding is that many market participants consider valuations more robust now and we believe the trend for establishing new MGAs and the interest from private equity and trade to invest in such businesses will accelerate through 2024. Among other reasons, there remains plenty of ‘dry-powder’ which financial investors are keen to deploy now that interest rates and inflation have started to stabilize, and the use of private credit instead of or alongside bank debt to finance such transaction has become widely accepted.
In addition to MGA transactions, other segments reflect the focus on core/non-core assets. In Germany we are already seeing ongoing activity in the sale of legacy life businesses. In addition to valuation adjustments to reflect the changed interest rate environment, we expect regulators to require more financial and operational commitments from investors as conditions to the grant of regulatory approvals for insurance M&A transactions (particularly in the life insurance sector).
Towards the end of 2023 and into 2024 have seen an increasing volume of commentary about how insurers can help individuals and governments achieve key climate, environmental and social goals. While these topics are often bundled together under the increasingly ubiquitous “ESG” heading, the issues and possible solutions under discussion cover a wide range of matters, including insurers roles as a:
Ultimately, these are all part of the increasing focus on the societal value of insurance by governments, regulators, the industry itself and, most importantly, its commercial and personal customers.
Climate change continues to be on the agenda of insurance clients across Europe and in the UK and, following COP28 in Dubai, there have been a number of additional recent commitments made and new initiatives launched. As words begin to translate into action, our clients are increasingly exploring possible transactional opportunities to supercharge delivery of these approaches through M&A, joint ventures and strategic investments. The focus on climate related opportunities may also lead the industry to look beyond their usual targets at investments in new technology businesses that would allow them and their clients to better monitor and mitigate adverse impacts from climate change, obtain new ancillary products or adjacent offerings for their clients or to better utilize new data and AI analytics tools to improve their (and their clients’) assessments of risk, map emerging and new types of exposures and mitigate loss severity.
We have also seen our insurance clients increasingly requesting introductions to our project finance and sustainable finance colleagues as they seek to transform their own asset portfolios to become ‘greener’, avoid stranded asset risks and adapt to new regulatory requirements. Increasing numbers of insurers are also investing directly in green-energy projects and carbon capital assets as they seek to achieve their own ‘net-zero’ goals. We expect to see continued growth in this segment throughout 2024 as targets for net-zero compliance start to get closer.
Until recently, cross-border reorganizations of pan-European groups were effected using either the SE regulation or the cross-border mergers directive toolkits (which were limited to certain types of transactions) or alternatively combining the legal mechanisms available under the local law of each jurisdiction involved, thus rendering the transactions relatively complex and, in certain cases, challenging from a legal standpoint.
The EU directive known as the Mobility Directive expands the range of cross-border tools available for effecting cross-border conversions, mergers and divisions and facilitates in particular, cross-border separations and de-mergers of companies. These new tools will undoubtedly facilitate the structuring of cross-border M&A transactions, especially for asset deals and where business are spread out across Europe, and thus result in greater transaction execution certainty. “While we have already been approached by market participants in the insurance sector in this respect last year, we expect to see increased interest in such measures in 2024, both in a purely transactional context (in particular in connection with the disposal of non-core businesses), but also in the context of internal group reorganizations”, notes Bénédicte Denis, Head of our corporate practice in Paris.
While our team is cautiously optimistic that 2024 will be a more active M&A period for the global insurance market, there remain substantial headwinds. The conflicts in Ukraine and Israel/Palestine are unlikely to be resolved quickly and will continue to challenge the insurance markets directly through war risks/claims and indirectly through the wider impact on people and the global economy. In addition, 2024 is the “year of democracy” with more than 50% of the global population eligible to vote in major elections. These elections will also inevitably cause disruption whether or not there are changes to the respective governments. The focus by politicians on campaigning, rather than governing, and the impact of uncertainty felt by businesses during major election cycles may cause some companies todefer significant investment decisions until the end of the year.
2024 may be the year the long-predicted distress arising from the pandemic is exposed,causing uncertainty for many people and businesses worldwide, including the insurance industry. this often provides the potential for innovation and opportunistic approaches, and we are confident our clients, colleagues and counterparties across the insurance community will be well placed to overcome these challenges and make the most of opportunities 2024 presents.
Publication
On September 18, 2024, the "Decree amending the list that sets forth goods whose import and export are subject to regulation by the Ministry of Energy" (the "Decree") was published in the Federal Official Gazette.
Publication
On September 18, 2024, the "Decree amending the list that sets forth goods whose import and export are subject to regulation by the Ministry of Energy" (the "Decree") was published in the Federal Official Gazette.
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