M&A TRENDS IN THE INSURANCE INDUSTRY

M&A TRENDS IN THE INSURANCE INDUSTRY

Consolidation is on the rise in the insurance industry, with significant M&A activity over the past few years at all levels in the industry. George Kennedy, Partner, amalgamates the figures.

IN BRIEF

The rate of consolidation of professional services across the world has increased significantly in recent years. Irish insurance brokers have lagged behind this global trend. However, we have begun to see a shift toward consolidation as well as increased private equity investment in the Irish insurance industry, which investment is encouraging growth through acquisitions.

CONSOLIDATION

In recent years, consolidation has been a prominent feature of the global insurance-broking industry. 2017 and 2018 saw a very active period of brokerage consolidation globally, including AXA’s $15.1 billion acquisition of XL Catlin in 2018 and the $5.7 billion consolidation of Marsh & McLennan and JLT Group announced in 2019.

Recent deals suggest that large insurance groups are also seeking to expand into the Irish market. Already this year, Aston Lark acquired Robertson Low and PIB Group acquired Optis Insurance. In addition, technology has prompted further M&A activity with many insurers taking stakes in “insurtech” start-ups. In 2018 Irish based Exaxe, which provides cloud-based technology solutions to the insurance industry, was acquired in a deal valued at up to €11.6 million by US company Majesco.

This has created a backdrop for firms to seek consolidation in order to achieve operational efficiencies and maintain profitability through economies of scale. As a result this consolidation is no longer exclusive to larger companies but is occurring across all different sizes of brokers. There are also signs of consolidation activity among underwriters in Ireland, including Blue Insurance being acquired in 2018 by Zurich Insurance for up to €70m.

According to a 2018 PwC CEO Pulse Survey, 6.25% of Irish insurance leaders believe that a merger or acquisition will be their greatest opportunity for growth over the next three years .

PRIVATE EQUITY INVESTMENT

Insurance brokers have also become appealing to private equity firms. This is due to their profitability, asset-light business models, consistent cash conversion rates, durable client relationships and the fact they present buy-and-build strategic opportunities in a fragmented market. These investments can facilitate the increase in consolidation by introducing additional capital.

Recent examples include the 2017 management buyout of Arachas (backed by Sovereign Capital Partners) and the subsequent acquisitions by Arachas of Capital Cover Group, Kidd Insurances and Covercentre . These acquisitions have allowed Arachas to expand its services and reinforce its position in the Irish insurance market.

CONCLUSION

Consolidation is on the rise in the insurance industry, with significant M&A activity over the past few years at all levels in the industry. The insurance market has also become very attractive for private equity firms, adding further fuel to that activity. You can expect to see increased M&A activity and opportunities for private equity investment in the Irish insurance industry in the coming months and years.

For further information please contact George or one of our corporate and commercial team members.