The figures were included in the company's annual Insurance Growth Report. M&A activity was particularly strong in the second half of the year (H2), with Clyde & Co identifying 221 deals globally – an increase from 197 in the same period in 2020.
M&A activity in the Americas accounted for more than half of the global annual total, accounting for 224 deals in 2021. This represented a 17% annual increase over 2020, with a particular focus on the United States, where a total of 180 M&As occurred last year – the highest levels of deals for the country since 2015.
Europe also saw a 21% increase in M&A activity year on year. This was boosted by 74 deals in the second half of 2021, up from 51 in the first half (H1).
In contrast, M&A activity fell significantly in the Asia-Pacific and Middle East and Africa (MEA) regions. Asia-Pacific saw a 44% drop in transactions, from 75 in 2020 to 42 in 2021, while MEA saw a 47% drop, from 32 transactions in 2020 to 17 in 2021.
"As expected, the volume of insurance M&A activity worldwide picked up significantly in 2021," said Ivor Edwards, Head of Clyde & Co's European Corporate Insurance Group. Despite the pandemic's continued influence on the economic and political landscape, investor sentiment improved in most regions as re/insurers rode the wave of rising prices across all product lines to generate healthy top-line growth.
"Indications that market hardening is slowing in certain classes, combined with the pressure of rising costs, means that for those businesses looking to expand, the decision of whether to grow through acquisition or by building out existing operations has never been more important."
In 2021, a variety of transactions were common, including a greater number of'mega-deals.'
Clyde & Co also discovered that there was a rebound in the number of large M&A transactions in 2021, with 25'mega-deals' worth more than US$1 billion reported for the year, compared to just 20 mega-deals in 2020. This included Regent Bidco's $9.2 billion acquisition of RAS Insurance Group, which was completed in June 2021.
Smaller niche acquisitions, on the other hand, remain common around the world as firms seek to strengthen their core offerings, while run-off markets in the US, Europe, and the Middle East remain active.
"The legacy market remains a popular choice for non-core asset divestment, whether from P&C carriers and banks selling off life insurance divisions or the spin-off of underperforming classes of business or subsidiaries due to market conditions," said Peter Hodgins, Clyde & Co Partner in Dubai. "We've had more conversations with international run-off specialists about accessing the market in this region in the last 12 months than ever before." This year will see much more discussion with regulators and increased activity for run-off purposes."
M&A activity is expected to remain high throughout 2022.
Clyde & Co also predicted that the M&A market would remain buoyant in 2022, as the world moved past the coronavirus pandemic. It anticipates that completed M&As will exceed 200 in H2 2022, and will exceed 220 in the second half of the year.
"We are likely to see insurers and reinsurers positioning themselves for a more growth-oriented environment in the coming year, albeit with some regional variations," said Joyce Chan, Clyde & Co Partner in Hong Kong. Despite continued interest from strategic buyers and private equity, there will be a continued scarcity of suitable acquisition targets in markets such as Europe and Asia."
In addition, Chan stated that the Middle East and North Africa, in particular, should expect a burgeoning M&A market in 2022, and that as more mature insurtechs in the US seek acquisition targets, others will seek opportunities to establish or expand their foothold in the insurance market.
Accelerating innovation has been a driving force behind mergers and acquisitions.
According to Clyde & Co, the pandemic has been a key driver of mergers and acquisitions and other investments by insurers and reinsurers, with accelerated innovation motivating more companies to buy, fund, or partner with tech firms for greater competitive advantages.
Insurtech firms, particularly in the United States, have seen significant growth, with some now reaching the stage of maturity that allows them to consider making their own acquisitions.
"The successful insurtechs are at a point where, for various reasons, they want to have that 'full stack' insurance business, rather than simply being MGAs that sell policies on behalf of other carriers," said Vikram Sidhu, Clyde & Co Partner in New York. These businesses want to expand and take control of their destiny."
Clyde & Co reported that, in addition to M&As, the same innovation has encouraged insurers and reinsurers to begin exploring other business models for expansion beyond M&A. This includes a greater emphasis on greater digitization, which is a key trend for many insurance companies. This includes a shift to remote work, an increase in the use of online platforms, and the use of automation, data analytics, and modeling.
“Developing ecosystems will be an important growth strategy for re/insurers in the year ahead: identifying key services that dovetail with their insurance products and integrating those into their customer journey,” added Eva-Maria Barbosa, Clyde & Co Partner for Munich. "Any insurer who finds the right partners and builds ecosystems that can be seamlessly connected with a bank or another distribution partner will be in a much better position in five years than those who simply experiment in this area."