|Global insurance sector M&A deal volume|
|Announcement date||Deal value ($m)||No.|
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|
|Top advisers for insurance M&A - 2012|
|Pos.||Advisers||Deal value at announcement ($m)||No.||% share|
|5||Bank of America Merrill Lynch||6,129||5||11.3|
|9||Evercore Partners Inc||3,323||9||6.1|