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Industry sees a big year of mergers and acquisitions

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The volume of merger and acquisition activity in the insurance industry more than quadrupled in 2015, to $194.9 billion from $43.8 billion in 2014, with additional major activity expected, particularly in the property/casualty sector, according to a study issued Wednesday.

There were 24 transactions valued at $1 billion or more in 2015, compared to nine in 2014 in the property/casualty, life and health sectors, with M&A activity also distinguished by the prevalence of strategic rather than financial buyers, according to the study by Hartford, Connecticut-based investment management firm Conning & Co. The number of transactions was relatively unchanged at 183, however.

Among property/casualty insurers the aggregate value of M&A deals increased to $39.6 billion in 2015 from $6.7 billion in 2014, driven by several large transactions, including Ace Ltd. and Chubb Corp.'s deal, according to the executive summary of the report, “Global Insurer Mergers & Acquisitions in 2015, The Big Bang.”

“Key themes in the year included the desirability of specialty and Lloyd's targets, large acquisitions by Japanese and Chinese buyers, reinsurance consolidation, and combinations in sectors facing strong external challenges, such as crop insurance and medical professional liability,” said the study.

The report predicts continued M&A activity. “The recurring themes of consolidation, product and geographic diversification suggest that more insurers will seek partners to keep up with large competitors,” the report says.

In the health insurance and managed care sector, the $100.8 billion of aggregate transaction volume, which accounted for more than half of the year's $195 billion in global activity, compared with just $33 millionof disclosed deal value in 2014, said the report. The number of transactions also increased to 22 in 2015 from 13 in 2014.

The transactions were stimulated by implementation of the Affordable Care Act, said the report. “Growth in government-subsidized programs, such as Medicaid and Medicare Advantage, accompanied by the retreat of traditional employer-based plans in favor of high-deductible plans and exchanges, generated pressure to acquire Medicaid and Medicare providers and build scale to generate efficiencies,” according to the report.

In 2016, “with so many of the largest insurers having entered into transactions in 2015, it is likely that activity in 2016 will involve combinations among second-tier players,” the study says.