Global insurance M&A activity January through September 016
W Foreword h ere did all of th e megadeals go? I n our l a s t r ep or t on i n s ur a n ce M & A a cti v i ty, w e commen ted on th e v er y h i g h a g g r eg a te d ea l v a l ue i n 0 1 5, w i th p h r a s es s uch a s th e r etur n of th e meg a d ea l bei n g us ed to d es cr i be th e tr a n s f or ma ti on a l d ea l a cti v i ty obs er v ed i n th e p r ev i ous 1 mon th s. W e ex p l or ed th a t tr en d of s ector tr a n s f or ma ti on a s th e d r i v er of h i g h l ev el s of d ea l a cti v i ty, a n d w e s ta ted a n ex p ecta ti on th a t s uch s ector tr a n s f or ma ti on w oul d con ti n ue a n d, i n d eed, a ccel er a te. S o, h ow s h oul d w e i n ter p r et th e much l ow er a g g r eg a te deal value in the first nine months of 016? I t i s i n ter es ti n g to obs er v e th e s a me br oa d s ta ti s ti ca l tr en d p l a yi n g out i n a l l r eg i on s of th e w or l d, but f or s omew h a t d i f f er en t r ea s on s. I f th e un d er l yi n g ca us e of th e r ed ucti on i n v er y l a r g e d ea l s i s un cer ta i n ty, th en th e n a tur e of th a t un cer ta i n ty d i f f er s by r eg i on. Eur op e f a ced econ omi c a n d p ol i ti ca l un cer ta i n ty th r oug h th e p er i od a n d i n s ur er s w er e a l s o g etti n g a ccl i ma ted w i th op er a ti n g i n a S ol v en cy I I w or l d. B r ex i t w a s n ot th e on l y f a ctor i mp a cti n g bus i n es s d eci s i on s i n 0 1 6, a s th er e w a s un cer ta i n ty a n d ma r k et v ol a ti l i ty bef or e and after the referendum. Asia-Pacific similarly faced ma r k et a n d econ omi c un cer ta i n ty w i th a s l ow d ow n i n ma j or g r ow th ma r k ets, a n d un cer ta i n ty a l s o p r ev a i l ed i n th e Amer i ca s, n ot l ea s t w i th th e U S p r es i d en ti a l el ecti on. M os t of a l l, th e g l oba l M & A tr en d s i n d i ca te th e i n ter - con n ected n es s of g l oba l i n s ur a n ce M & A ma r k ets, w i th ch a n g es i n i n v es tor a p p eti te i n on e r eg i on h a v i n g a k n ock on ef f ect el s ew h er e. 1
5 Transaction highlights D eal v alue ( U S $ b) 9 9 M 016 10 M 015 11 9 % d ecr ea s e i n th e tota l v a l ue of d ea l s, comp a r ed w i th 9 M 0 1 5 0 19 1 1 5 0 % d ecr ea s e i n th e tota l v ol ume of d ea l s, comp a r ed w i th 9 M 0 1 5 Up to US$ 1b In excess of US$ 1b D eal v olume 57 N umber of deals greater th an U S $ 1 b 0 7 9 6 1 0 9 0 Number of deals Top five deals D ate T arget T arget country Acq uirer Acq uirer country V alue ( U S $ m) B H B Aug 16 United Guaranty Corp United States Arch Capital Group ermuda,5 Aug 16 Max Financial Services-Life Insurance India DFC Standard Life India,19 0 usiness Insurance Sep 16 Abbey Life United Kingdom Phoenix Group United Kingdom 1,17 Sep 16 Ascot Underwriting United Kingdom Canada Pension Plan Investment un 16 Dah Sing Life Assurance ong Kong Everwin Enterprises (H ong Kong) Canada 1,100 H ong Kong 1,00 1
9 Spotlight on Americas D eal v alue ( U S $ b) D eal v olume 09 6 71 1 50 16 1 16 Top five deals Up to US$ 1b In excess of US$ 1b Number of deals D T T V ( U S $ B B B H H H J ate arget arget country Acq uirer Acq uirer country alue m) Aug 16 United Guaranty Corp United States Arch Capital Group ermuda,5 Feb 16 CGSC North America United States &T Corp United States 500 Feb 16 ealthplan oldings United States Wipro India 60 Apr 16 CIFG olding United States Assured Guaranty United States 50 an 16 RB C General Insurance Canada Aviva Canada Canada 01 T ransaction h igh ligh ts The value of deal activity in the Americas fell in the first nine months of 016, recording j ust 1 transaction with a value greater than US$ 1b, compared with 10 in the same period in 015. While deal value was at its lowest in five years, the volume of activity only fell marginally compared with the same period in 015, depicting a reasonably active underlying deal market, primarily due to activity in the insurance brokerage space among smaller brokers being sold for undisclosed prices. There was a significant reduction in the number and size of deals by Asian investors into the North American insurance sector. Asian investment had accounted for US$ 1.9 b of Americas insurance deals in 015, making the absence of such large inbound investments a key element of the drop off in deal values. The announced acquisition of Endurance Specialty H oldings by Sompo in O ctober 016, while outside of the nine-month period of this analysis, is a timely reminder of the scale of global insurance investment flows.
Spotlight on EMEA D eal v alue ( U S $ b) D eal v olume 110 1 19 6 1 7 5 15 6 5 150 Top five deals Up to US$ 1b In excess of US$ 1b Number of deals D ate T arget T arget country Acq uirer Acq uirer country V alue ( U S $ m) J H Sep 16 Abbey Life United Kingdom Phoenix Group United Kingdom 1,17 Sep 16 Ascot Underwriting United Kingdom Canada Pension Plan Canada 1,100 Investment May 16 Axa UK-Investment & Pension business United Kingdom Phoenix Group United Kingdom 550 ul 16 Phoenix Insurance Israel Fuj ian Yango Group China 6 May 16 Pension Corporation United Kingdom Legend oldings; Reinet Fund SCA. FIS China 6 T ransaction h igh ligh ts The volume and value of M&A activity in EMEA were at their lowest level in five years. There were deals with a value greater than US$1b in the first nine months of 016, compared with five in the same period in 015, and the impact of this was compounded by lower levels of medium sized deals. The UK vote to leave the EU (B rexit), and the market uncertainty, has slowed down the momentum of deals as insurers both in the UK and across Europe reassess their strategic, business and operational models, including assessing the impact of the potential loss of passporting rights. Phoenix Group s acquisition of AX A s UK pensions and protection business for US$ 0.5b and Abbey Life for US$ 1.b are illustrative of continuing consolidation in the Life sector. A number of maj or insurers and financial institutions are disposing of businesses in order to refocus capital into future growth areas. As the pressure to sell remains, we expect further disposals and exits to follow. Arguably, European insurers continued to focus on the embedding of the Solvency II process following its adoption from 1 J anuary 016. This may have deferred potential M&A activity, although the combination of the new regulatory requirements, low investment yields and the negative impact on solvency levels of continuing market uncertainty is providing a compelling case for divesting of non-core businesses. The rapid development in digital technology is also putting pressure on management teams to focus capital on new areas, again creating a case both for selling of non-core and investing into growth businesses.
Spotlight on AsiaPac D eal v alue ( U S $ b) D eal v olume 10 7 1 6 9 5 Top five deals Up to US$ 1b In excess of US$ 1b Number of deals D ate T arget T arget country Acq uirer Acq uirer country V alue ( U S $ m) Aug 16 Max Financial Services-Life Insurance usiness India DFC Standard Life Insurance India,19 0 un 16 Dah Sing Life Assurance ong Kong Everwin Enterprises ong Kong 1,00 Mar 16 Tianping Auto Insurance China ubei iocause Pharm China 7 J J un 16 Greenstone Australia Caisse de Depot et Placement Canada 71 un 16 PT Asuransi Multi Artha Guna Indonesia Fairfax Asia Canada 16 T ransaction h igh ligh ts While the volume of M&A deals in AsiaPac was in line with the first nine months of 015, the total value of deals fell considerably in the same period in 016, going back to levels seen in years prior to 015. 015 was an exceptional year which saw a number of large deals in China, both domestically among Chinese companies as well as outbound Chinese acquisitions. In addition, there were several large deals in Taiwan, helping to bolster 015 deal value. In contrast, M&A activity in 016 was characterized by a number of smaller transactions. In the nine months to September 016, there were three deals greater than US$ 0.5b compared to eight in the same period in 015. The relative reduction in deal value in 016 has been driven primarily by the slowdown in Chinese M&A activity as acquirers digest the large acquisitions made in 015, and assess their next steps in terms of global ambition. While the Chinese economy has slowed, the slowdown in Chinese insurance M&A is likely to be temporary as Chinese companies continue to seek investment opportunities, particularly overseas, to diversify their portfolios and gaining access to profit pools in mature markets. This was exemplified by the high level of participation in the Dah Sing transaction in H ong Kong by Chinese investors. Going forward, we expect deal volume to continue to keep pace with prior years, and deal value may also pick up as larger assets come to market in developed Asia. The underlying rationale for insurance M&A in Asia has not changed, with investors keen to invest in growing markets that offer profitable products. Growth in Asian insurance markets, especially emerging Asia, remains well above the growth rates seen in other regions, and the expectation is that this will continue. Access to distribution and new capabilities will continue to be a maj or driver of M&A activity in the region. B ancassurance also remains a key theme in the region with insurers continuing to seek alternatives to growing or building expensive agency forces. Digital is a rapidly developing priority among insurers as they continue to invest significantly into building new capabilities, and some insurers may seek inorganic means to accelerate their progress.
Methodology The Global insurance M&A activity (January through September 016) publication is based on analysis of ThomsonO NE.com and Mergermarket M&A data. We included selected additional transactions that were not in the databases. Deals include transactions (announced or completed) in which the target is in the insurance sector. Deals in which less than 0% (disclosed) of the company was acquired have been excluded from this analysis. Equity investments were included. J oint ventures were not included. There is no minimum disclosed value deal threshold. US health insurance transactions have been excluded. The information and opinions contained in this document are derived from public and private sources that EY believes to be reliable and accurate but which, without further investigation, cannot be warranted as to their accuracy, completeness or correctness. This information is supplied on the condition that EY, its member firms, or any leader or employee of any thereof are not liable for any error or inaccuracy contained herein, whether negligently caused or otherwise, or for loss or damage suffered by any person due to such error, omission or inaccuracy as a result of such supply. 5
M Global insurance contacts S h aun C rawf ord G l oba l I n s ur a n ce L ea d er + 0 79 51 17 scrawford@ uk.ey.com D av id L ambert G l oba l I n s ur a n ce T r a n s a cti on s L ea d er + 0 79 51 9 dlambert@ uk.ey.com ike B rosnan Amer i ca s I n s ur a n ce T r a n s a cti on s L ea d er + 1 1 77 179 7 michael.brosnan@ ey.com T h omas K orte EM EI A I n s ur a n ce T r a n s a cti on s L ea d er + 9 9 11 15166 thomas.korte@ de.ey.com D ustin B all Asia-Pacific Insurance Transactions Leader + 5 675 dustin.ball@ hk.ey.com Acknowledgement Alice Gardiner G l oba l I n s ur a n ce T r a n s a cti on s R es i d en t F adz ay i M usanh u G l oba l I n s ur a n ce T r a n s a cti on s R es ea r ch An a l ys t EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. 016 EYGM Limited. All Rights Reserved. EYG No. 075-16Gbl EY-00000765.indd (UK) 11/16. Artwork by Creative Services Group Design. ED None