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Mergers and acquisitions should continue on a strong pace in 2019 as insurance industry players continue to optimize structure and portfolios as the business remains overcapitalized, according to a report Wednesday from Chicago-based law firm Mayer Brown LLP.
“Insurers will continue to look to restructure their platforms as they look to improve the efficiency of their core operating capabilities,” Mayer Brown said.
Technology will also be a deal drive as established insurance industry players seek investments in insurtech business, though the deal value for this activity is likely to be comparatively small, the law firm said.
Adoption and implementation of new technologies such as artificial intelligence will face challenges such as regulatory matters, the report said.
“State insurance regulators, while generally receptive to the benefits that can be derived from increased use of AI by insurance companies, are sensitive to the potential risks and negative effects,” Mayer Brown said.
Although both 2017 and 2018 saw substantial catastrophe losses, in 2018 to the tune of some $80 billion, the insurance industry is “overcapitalized, driven in part by the influx of capital into alternative vehicles,” Mayer Brown said.
This end of the business continued to grow in 2018, “underscoring its establishment as a key component of the global insurance market,” Mayer Brown said.
The insurance-linked securities sector saw innovations in 2018 including the first catastrophe bond to provide reinsurance for the National Flood Insurance Program, which is administered by the Federal Emergency Management Agency and mortgage insurance-linked securities issued by a number of sponsors including Arch Capital Group, through its special purpose insurer, Bellemeade Re Ltd., which were issued with a 10-year term, significantly longer than property catastrophe ILS deals, Mayer Brown noted.
With a strong finish to the year from a number of very active buyers as well as some first-time acquirers, the 2018 agency acquisition count reached a new high of 626 transactions in the U.S. and Canada, an increase from the 611 transactions reported in 2017.