Insurance M&A fell in 2012 to $54bn

Insurance M&A fell in 2012 to $54bn

Global insurance sector M&A deal volume
Announcement date Deal value ($m) No.
2011 January 6,035 70
2011 February 5,763 51
2011 March 15,463 64
2011 April 3,978 54
2011 May 5,902 65
2011 June 5,526 52
2011 July 4,820 58
2011 August 1,691 56
2011 September 3,534 74
2011 October 1,771 58
2011 November 3,784 43
2011 December 9,766 79
2012 January 2,176 55
2012 February 1,828 56
2012 March 4,238 53
2012 April 3,760 60
2012 May 2,685 51
2012 June 1,592 58
2012 July 1,581 59
2012 August 3,030 61
2012 September 2,076 59
2012 October 6,608 52
2012 November 6,375 59
2012 December 18,246 75
H1 2011 42,668 356
H2 2011 25,366 368
2011 Total 68,034 724
H1 2012 16,280.00 333
H2 2012 37,917.00 365
2012 Total 54,196.00 698
Source: Dealogic
Insurance-related mergers and acquisitions (M&A) fell in 2012, but an increase in activity in the second half suggests interest in pursuing deals is increasing.

In 2012 698 M&A deals worth $54.20bn were announced, down from the 724 deals worth $68.03bn in 2011, according to data from Dealogic

However, the second half of 2012 saw a surge in deals. Some $37.92bn-worth of M&A deals were announced in the second half, up from $16.28bn in the first half of the year. This compares with 2011 figures of $42.67bn in the first half and $25.37bn in the second half.

The fourth quarter of 2012 produced the three biggest months for insurance M&A. December was by far the busiest month of 2012 for insurance M&A, with 75 deals worth $18.25bn announced, followed by October’s 52 deals worth $6.61bn and November’s 59 deals worth $6.38bn. December saw three of the five biggest deals of the year.

The biggest deal of the year was HSBC selling its 15.6% stake in Chinese insurer Ping An to Charoen Pokphand Group for $9.39bn.

This was followed by Markel announcing just before Christmas that it is to buy Bermudian insurer and reinsurer Alterra Capital for $3.23bn. The other big deal of the year in the reinsurance space was Validus buying fellow Bermudian reinsurer Flagstone Re for $624.7bn.

The year also saw some notable broking acquisitions. Onex bought US broker USI for $2.3bn while KKR bought Alliant Insurance Services for $922.5m, both in November.

The surge of M&A in the second half of 2012 suggests activity is picking up. In its Reinsurance Market Outlook released in January, Aon Benfield identified what it believes will be the five drivers of M&A in 2013.

The first driver the reinsurance broker noted was that company valuations are still under duress.

“With market valuations still under negative pressure, run-off specialists offer sellers a competitive alternative to an outright sale,” said Aon Benfield. “Historically, run-off specialists were only considered a viable alternative for impaired companies or blocks of businesses. With the average valuation of insurance and reinsurance companies continuing to trade below tangible book value, run-off specialty companies can acquire stable businesses at a premium to the prevailing market price and still generate acceptable returns by selling off the renewal rights of the most attractive premium, running off old liabilities for less than carried reserves and generating investment returns from significant asset leverage.”

The second driver is the eurozone crisis and bancassurance. Aon Benfield says that since the financial crisis European insurance groups and banking groups with insurance operations have been left with substantial levels of distressed assets, resulting in lower solvency levels and downward pressure from rating agencies.

“Further, under the proposed Basel III guidelines, capital invested in insurance subsidiaries is restricted and only 10% is available to be included as Tier 1 capital for the banking parent,” said Aon Benfield. “Although there continues to be a significant bid-ask spread between seller and buyer valuation expectations, non-core insurance businesses are being divested to raise capital.”

The third driver identified by Aon Benfield is hedge funds seeking permanent capital. Hedge funds are exploring setting up or buying insurance and reinsurance companies and managing assets under long-term investment management contracts. This interest is being driven by: hedge funds suffering unprecedented redemption in 2008 and 2009 leading them to place greater emphasis on more permanent assets under management; the typical investment portfolio of insurers and reinsurers being estimated to generate below 3% in 2013; and difficult insurance market conditions making the risk-adjusted returns from underwriting below those that are available from hedge fund investment strategies.

The fourth driver of M&A in 2013 identified by Aon Benfield is private equity, which is being attracted by the historically low valuations and improving conditions in some areas. This is making private equity more active buyers of insurers and reinsurers. There is also a continuation of interest from private equity investors for fee generating insurance assets such as retail brokers, wholesale brokers, MGAs and captive managers.

The final driver of M&A in 2013 identified by the reinsurance broker is the need for scale.

“Many small and mid-cap insurers have been managing through very tough multi-year underwriting conditions in the hope that a market hardening will compensate for many ills of the past,” said Aon Benfield. “Absent a more rapid hardening of the market, mid-to-smaller insurers are likely to merge with competitors in an effort to extract synergies and benefit from economies of scale.”

Top 20 global insurance sector M&A deals announced in 2012  
Pricing date Deal type Deal Value $ (m) Issuer Acquiror Divestor
5-Dec-12 Pending 9,385.2 Ping An Insurance (Group) Co of China Ltd (15.57% in H Shares) Charoen Pokphand Group Co Ltd - CP Group HSBC Holdings plc
19-Dec-12 Pending 3,233.0 Alterra Capital Holdings Ltd Markel Corp
26-Nov-12 Completed 2,300.0 USI Holdings Corp Onex Corp;, Employee Trust GS Capital Partners LP
19-Oct-12 Pending 2,140.0 ING Groep NV (life insurance, general insurance, pension and financial planning units in Hong Kong, Macau and Thailand) Pacific Century Group Holdings Ltd ING Groep NV
21-Dec-12 Pending 1,800.0 Aviva USA Corp Athene Holding Ltd Aviva plc
11-Oct-12 Completed 1,720.2 ING Management Holdings (Malaysia) Sdn Bhd AIA Group Ltd ING Groep NV
27-Nov-12 Pending 1,600.0 Administradora de Fondos para el Retiro Bancomer SA de CV Grupo Financiero Banorte SAB de CV (50% / 50 %);, Instituto Mexicano del Seguro Social Banco Bilbao Vizcaya Argentaria SA - BBVA
8-Oct-12 Pending 1,497.1 Administradora de Fondos de Pensiones Cuprum SA Principal Financial Group Inc Empresas Penta SA (63%)
17-Dec-12 Pending 1,350.0 Sun Life Assurance Co of Canada (US) Guggenheim Partners LLC Sun Life Financial Inc
8-Aug-12 Completed 1,068.5 Kyobo Life Insurance Co Ltd (24%) Affinity Equity Partners;, IMM Private Equity Co Ltd;, Government of Singapore Investment Corp Pte Ltd - GIC;, Baring Private Equity Partners Ltd Daewoo International Corp
20-Jan-12 Completed 992.2 TUiR WARTA SA HDI Haftpflichtverband der Deutschen Industrie VaG KBC Group NV
16-Mar-12 Completed 946.9 China United Insurance Holding Co Ltd (80%) China Insurance Protection Fund Co Ltd
7-Mar-12 Completed 937.0 Migdal Insurance & Financial Holdings Ltd (69.1345%) Shlomo Eliahu Holdings Ltd Assicurazioni Generali SpA
23-Nov-12 Completed 922.5 Alliant Insurance Services Inc KKR & Co LP Blackstone Group LP
18-Oct-12 Pending 865.0 Aba Seguros SA Ace Ltd Ally Financial Inc
18-Dec-12 Pending 800.2 Aseval Consultora de Pensiones y Seguros SL (50%) Banco Financiero y de Ahorros SA - BFA Aviva plc
14-Feb-12 Completed 759.4 Hartford Financial Services Group Inc (8.4221%) Paulson & Co Inc
31-May-12 Completed 663.0 SRLC America Holding Corp (Majority%) Prudential plc Swiss Reinsurance Co Ltd - Swiss Re
4-Jul-12 Completed 627.6 Pension Insurance Corp Holdings LLP (Stake%) Reinet Investments SCA Pension Corp LLP
30-Aug-12 Completed 624.7 Flagstone Reinsurance Holdings SA Validus Holdings Ltd Lightyear Capital LLC;, Trilantic Capital Partners
Source: Dealogic

Top advisers for insurance M&A - 2012 
Pos. Advisers Deal value at announcement ($m) No. % share
1 Goldman Sachs 18,503 29 34.2
2 Morgan Stanley 13,140 16 24.3
3 HSBC 13,037 9 24.1
4 JPMorgan 10,498 16 19.4
5 Bank of America Merrill Lynch 6,129 5 11.3
6 Deutsche Bank 5,772 12 10.7
7 Lazard 5,491 9 10.1
8 Citi 4,938 6 9.1
9 Evercore Partners Inc 3,323 9 6.1
10 Barclays 2,613 4 4.8
Subtotal 42,036 67 77.7
Total 54,132 698 100.0
Source: Dealogic

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