Merger and acquisition (M&A) activity rose significantly in the US and Bermuda in 2018, according to a report from law firm Sidley Austin.
The Sidley Austin Global Insurance Review 2019, produced by the law firm’s insurance and financial services group, provides an overview of major legal and market developments in the global insurance industry over the past year.
The report revealed that the aggregate value of an M&A deal involving a US- or Bermuda-based buyer or target increased sharply from $14.8 billion in 2017 to $42.7 billion in 2018 (the second highest aggregate annual deal value since 2007).
The total number of transactions, however, only grew modestly, rising from 84 deals to 87 deals, giving 2018 the second highest deal count since 2013.
According to the report, the surge was in part due to a wave of property and casualty transactions, most notably AXA Group’s acquisition of XL Group.
The report suggests: “While market conditions may well continue to accommodate deals of this magnitude, we expect to see continued consolidation among small and medium-sized and less well-diversified reinsurers.”
The report notes that this is due to “competition continuing to drive down reinsurance pricing, and a heavier claims burdens (due to the increased incidence of natural disasters over the past few years) are placing pressure on smaller reinsurers to combine, in order to better handle market pressures through increased economies of scale”.
At the Captive Insurance Companies Association (CICA) 2019 conference, John Prescott, managing partner, Johnson Lambert and Company, suggested that poorly executed succession planning is a primary driving force behind the increase in M&A activity.