德勤-2018年保险业并购展望（英文版）-2018-24页-2mb

Summary of Deloitte's 2018 Insurance M&A Outlook

Core Content

This document provides an overview of the 2017 insurance M&A landscape and outlines the key trends and drivers expected to influence the 2018 market. It highlights the evolving M&A environment, the impact of macroeconomic and regulatory factors, and the strategic implications for insurance companies.

2017 M&A Review

• Deal Volume and Value:

  • 2017 M&A activity started slowly but picked up in the second half, with a 50% increase in insurer transactions and a 25% increase in broker transactions compared to the first half.
  • Total number of deals increased by 12% (from 554 to 621), but aggregate deal value decreased by 30% (from $29.0 billion to $20.2 billion).
  • No deals reached the $5 billion threshold, and only two exceeded $2.5 billion.

• Deal Multiples:

  • Average deal value for insurer transactions increased by 11% (from $380 million to $422 million).
  • Broker deals saw a 53% increase in average value (from $127 million to $194 million).
  • P/BV (Price-to-Book Value) multiples for underwriters increased to 1.47x in 2017, while for L&H and P&C, they were 0.99x and 2.08x, respectively.

• Notable Deals:

  • KKR and Caisse de dépôt et placement du Québec's $4.3 billion acquisition of USI Insurance Services.
  • Assurant's $2.5 billion acquisition of The Warranty Group.
  • CF Corporation's $1.8 billion acquisition of Fidelity & Guaranty Life.
  • Intact Financial Corporation's $1.7 billion purchase of OneBeacon Insurance Group.
  • AIG's $5.56 billion acquisition of Validus Holdings Ltd. in January 2018.
  • Lincoln Financial Group's $3.3 billion acquisition of Liberty Life Assurance Company of Boston.

• Market Influences:

  • Investor and consumer confidence was high.
  • US and global economies were improving.
  • US tax reform was signed into law.
  • Interest rates were favorable.
  • Organic growth was limited.
  • Available capital remained high.

• Challenges:

  • Uncertainty around regulatory changes and tax reform.
  • Foreign buyers, especially Chinese, faced increased scrutiny.
  • P/BV valuations were considered rich, making ROI demonstration difficult.
  • US dollar depreciation made US insurance assets more attractive to non-US buyers.

2018 Outlook

• Expected Trends:

  • Deal Volume and Value: Likely to remain consistent with 2011-2017 levels, with a focus on smaller deals (under $2 billion).
  • Strategic M&A: Companies will use M&A to achieve growth, enhance ROE, and address talent and technology gaps.
  • InsurTech Investments: Continued emphasis on acquiring or partnering with InsurTech firms to improve digital capabilities.
  • Modularization: Insurance companies will increasingly focus on specific parts of the value chain, such as distribution, underwriting, and capital sourcing.

• Key Drivers:

  • Modularization of the Insurance Value Chain: Companies are rethinking their roles in the value chain, with a focus on specialization.
  • Tax Reform: The reduction of the corporate tax rate to 21% and changes in international tax rules may increase the attractiveness of the US market for foreign investors.
  • Valuations: Continued high valuations may challenge ROI demonstration, but also signal strong market confidence.
  • Emergence of New Buyer Types: Sovereign wealth funds, pension funds, and non-control investors are becoming more active.
  • Foreign Investment: Increased interest from foreign buyers, especially in the US market.
  • InsurTech: Strategic importance of digital technologies continues to grow.
  • Divesting Noncore Businesses: Companies are likely to sell noncore assets to focus on core operations.

Key Trends and Opportunities

• Life and Health (L&H):

  • Expected to continue growth through acquisition due to limited organic growth.
  • Transaction volume may remain muted due to limited supply and constraints.

• Property and Casualty (P&C):

  • M&A activity will focus on small-to-medium-size specialty carriers.
  • Catastrophes in 2017 may impact income statements but not significantly raise rates or improve margins.

• Insurance Brokers:

  • Broker deal volume set a record in 2017 (537 transactions), driven by the KKR/USI deal.
  • Continued interest in acquiring digital MGAs to expand distribution capabilities.

• Reinsurance:

  • Faces uncertainty over rate increases despite 2017 being a costly year for catastrophes.
  • The reinsurance market may see increased M&A due to the need to enhance profitability.

• Run-off Transactions:

  • Increasingly active and impactful as companies transfer long-tail liabilities.
  • New investors with expertise in run-off business models are enhancing the market.

• Tax Reform Implications:

  • May stimulate M&A by improving the US market's attractiveness to foreign investors.
  • Creates additional capital for strategic deployment, including acquisitions.

Conclusion

The 2018 insurance M&A landscape is expected to remain active and dynamic, with a focus on smaller deals and strategic acquisitions. Companies will continue to explore ways to enhance ROE, address talent and technology gaps, and leverage new capital sources. The combination of favorable economic conditions, tax reform, and evolving industry dynamics will shape the M&A environment, offering both opportunities and challenges for insurance executives.