We tend to only think of insurance when storms rage, cars crash - or large global insurance conglomerates like AXA announce $15.3B acquisitions of XL Group. For many of us, both storms and billion-dollar deals hit with force in March.
These hits should come as no surprise, however. As we discussed in our recent Merrill Insight Insurance Sector Webinar Playback, macro and market factors are combining to create a shakeup in what’s previously been a stable, conservative and cash-heavy sector.
Here are some of the key takeaways from our webinar and live-audience polling.
Bermuda Bonanza. In a sector known for tax haven arbitrage, US tax reform will perform an outsized role in driving insurance M&A as large conglomerates look to take advantage of a newly evened playing field and buy up remaining independent Bermuda-based insurers. XL Group was just snapped up by AXA and AIG announced the $5.6B acquisition of Validus earlier this year. The question likely on many insurance professionals’ minds – what’s left and for how much?
Transparency is King. Though thought of as a secretive industry, insurance is also highly regulated. As a result, offshore and private equity buyers should be prepared to disclose ownership interests to a higher degree than they’re used to in many cases. As China Oceanwide has discovered with its pending acquisition of Genworth Financial, China-based companies also will likely be subject to higher scrutiny in the US through CFIUS and other US regulatory bodies.
Merrill Corporation crunched the numbers to see what kind of impact these additional regulatory hurdles might have on deal duration times and saw that in 2016 global insurance deals took at least nine months longer on average to complete than non-insurance processes.
*Final 2017 average still pending. Proprietary Merrill data based on a three-year moving average.
Outsized Opportunity. One person’s disaster is another’s opportunity. Ongoing catastrophes, technology disruption and a flood of investment are changing the rules of the game.
China-based Ant Financial, for example, plans to soon implement an AI-based car insurance system, according to reports. Meanwhile, Amazon, Berkshire Hathaway and JP Morgan recently announced a new healthcare partnership, and the insurance technology space is one of the hottest areas in fintech, CB Insights says.