The pace of M&A in the industry is not expected to slow down any time soon, James Kent the global CEO of Willis Re has predicted.
Speaking today (9 September) at the Monte Carlo Rendez-Vous, Kent said he predicts the wave of M&A the market has witnessed so far in 2018 to continue. “We don’t expect to see a slow down,” Kent said.
The executive said he anticipates M&A activity of (re)insurers to carry on at a similar pace to that witnessed so far this year as carriers continue to seek scale, diversification as well as reduced volatility.
James Vickers, the chairman of Willis Re International echoed Kent singling out diversification as a key driver of M&A activity.
Vickers said he foresees the trend for traditionally primary insurers to purchase carriers with reinsurance capabilities – as witnessed with AIG’s takeover of Validus and Axa’s acquisition of XL Group – to continue.
He said that primary carriers were increasingly coming under attack from players outside of the industry as technology disrupted traditional insurance models. “There’s a lot of disruption in personal lines,” Vickers said.
He said that primary insurers were attracted to reinsurance and specialty business as it is viewed as less susceptible to being disrupted by external players.
Andrew Newman, global head of casualty and president at Willis Re said he expected more carriers to “converge” their business models through acquisitions.
He pointed to Markel’s move to become the largest ILS fund manager by agreeing to buy Nephila, which has over $12bn assets under management as an example of this convergence.
“It’s not a case of reinsurer buying reinsurer anymore,” Newman said. “It’s not M&A in the traditional way,” he added.
The market has witnessed a plethora of M&A activity in 2018 in what has already been an extraordinary year for (re)insurance M&A.
In January, AIG announced an agreement to acquire the Lloyd’s and Bermuda (re)insurer Validus for $5.6bn, the equivalent of a high 1.8x price-to-book multiple. That deal was quickly followed by Axa’s eye-watering $15.3bn purchase of XL Group, the equivalent of an even-higher 2x price-to-book multiple.
More recently, the Bermudian (re)insurer Aspen Insurance was finally sold to Apollo Global Management for $2.6bn, equivalent of around 1.1x book, and a little less if retained dividends are factored.
Also speaking today, Aon Securities’ Paul Schultz noted that M&A transactions in 2018 compared to 2017 were up significantly and he also predicted the “elevated trend” would continue. This time last year, M&A deals were valued at around $12bn against $30bn this year.