While the global insurance sector saw an uptick in M&As in the second half of 2017, breaking a two-year lull, the picture in Europe was markedly different – suggesting that Brexit is continuing to act as a brake to business.
The volume of insurance M&A deals in Europe fell 22% to 118 in 2017, down from 151 the previous year, a report from law firm Clyde & Co reveals. By contrast, globally the second half of the year saw the first rise in M&A transaction numbers since 2015.
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The European slowdown can be attributed to Brexit, says the firm. Insurance businesses within Europe have had their time and attention taken up by preparing for the UK’s departure, with many setting up new subsidiaries to navigate passporting rights. Those outside the region are likely to have held off on new deals due to the uncertainty surrounding the outcome of any deal made.
“Anyone looking into the European market, whether from the US, Asia, or other parts of the world, to extend their underwriting platform by way of acquisition, would have been made more nervous because of Brexit,” Andrew Holderness, Clyde & Co’s global head of corporate insurance, told Insurance Business.
“Within Europe itself, there is enough that needs doing in terms of sorting out one’s own domestic challenges with Brexit to put M&A further down the agenda,” he said.
And by now, almost all firms have woken up to the fact that they need some kind of solution in place in order to do business the day after Brexit.
“We can hope and we can pray that Theresa May will pull as many rabbits out of the hat as are needed to make it business-as-usual, but none of us can guarantee, or are prepared to bet, that that is going to happen,” Holderness said.
However, as Brexit preparations are completed, there is expected to be an increase in M&A deals, according to the lawyer.
The report also identified insurtech as one of the mainstream drivers for growth in the insurance sector.
“Traditional insurers and reinsurers are looking to digital solutions to help them boost their top-line, develop new products, enhance their distribution strategies, win new customers or build customer loyalty and drive efficiencies,” it said.
According to Holderness, looking ahead insurance businesses will be focused on innovation both at the front-end, where customers will see the more immediate benefits, and within back-office functions, where automation will drive a change in processes.