The need for growth is driving significant consolidation across the industry.
The UK market is very competitive and remains at the forefront of deal activity across the European insurance sector due to its liquid markets and industry expertise. This competition has led to premium deflation.
To counter this, leading players are turning to M&A to drive growth and returns. We are seeing a lot of bolt-on activity as adding non-standard insurance to portfolios acts as a natural defence against falling premiums elsewhere. Established players are also keen to acquire start-ups which offer exciting new technologies.
France is another market that has seen significant consolidation, leading to increased concentration of activity among the top five players which have well over a third of total turnover in the market.
Similar trends are also being seen in Ireland where the industry generates c. €32bn in premium income. Given the huge structural changes across the wider insurance industry, organic growth among the existing players in the mature Irish market remains a challenge. As such, consolidation driven growth strategies continue to underpin corporate activity in the market, and this is borne out in the level of local and international corporate acquisitions.
In Portugal M&A activity continues to be driven by slightly different reasons, chiefly the restructuring of banks. For instance, Tranquilidade completed the acquisition of Açoreana from the remains of the collapsed bank Banif, while Novo Banco has put the life insurance company GNB Vida up for sale.
In the insurance brokerage segment the Portuguese market has also seen continued internationalisation and consolidation. Last year MDS bought 35% of Filhet-Allard España, creating a new strategic partnership for the Spanish and Latin American markets, while MDS acquired 45% of IT company FlexBen.
Consolidators are seeking to create more value through a number of different means:
- Operational synergies – These can be achieved through cost reductions, often back office or property footprint
- Underwriter benefits – Size brings bulk buying benefits and access to products not open to all, driving volumes and margins
- Cross-selling through the client base – Brokers can be narrow in focus and miss the cross-selling opportunity
- Geographical spread – Some markets and sectors are effectively ex-growth, albeit producing steady revenues and profits, but others provide great opportunities
- Niche lines – These often have significantly higher premiums and are very desirable. Acquiring a niche player gives instant access to this and brings underwriting experience and data that is needed – something that can act as a barrier to start-ups
- Technology – Most insurance brokers are still old-fashioned in their outlook and not tech savvy, something that acquisitions can help change
- Scale – Organic growth is hard to find in a market such as the UK which is liquid and very competitive. M&A is easier than organic growth hence the self-perpetuating cycle of transactions
- Distribution – M&A can be driven by innovative distribution models that are cheaper and more effective
Recent trade deal highlights
- Aviva sold its 50% shareholding in life insurance joint venture Antarius to Sogecap, a subsidiary of Société Générale, for c. €500m.
- Allied World Assurance Company Holdings was acquired by Fairfax Financial Holdings.
- Delta Lloyd Group was acquired by the NN Group.
- Hastings Group sold a 30% stake to RMI Holdings, a South African strategic insurance investment company.
- Abbey Life Assurance was sold by Deutsche Bank to the Phoenix Group.
- Ascot Underwriting was acquired by Canada Pensions Plan Investment Board.
- Patris Investimentos listed on the Alternext exchange in Lisbon, raising €2.7m.
Clearwater International advises Nexus Underwriting Management Ltd on raising development capital
Clearwater International has advised specialty Managing General Agent (MGA) Nexus Underwriting Management Ltd (Nexus) on raising growth capital to support further M&A activity.
Founded in October 2008, Nexus is a specialty MGA and “virtual” insurance company, concentrating on niche classes of business such as Trade Credit; Accident and Health; Financial Lines and Travel amongst many others.
Now the largest and most profitable independent specialty MGA in the UK market, the business will deliver £200m (c. €227m) GWP (gross written premium) in 2018, operate in 8 countries and will be supported by over 30 underwriting partners worldwide.
Recent private equity deal highlights
- French PE house Serena Capital launched an €80m fund, Serena Data Ventures, a vehicle specifically dedicated to big data and AI investments. The new fund will invest between €500,000 and €3m in investments.
- Sovereign Capital backed the management buy-out of Arachas Corporate Brokers, a leading Irish insurance brokerage. Sovereign plans to grow and develop the business further through a buy-and-build strategy. Other businesses backed by Sovereign in the sector include Kindertons and Cordium.
- The management of CFC, the largest independent Managing General Agent (MGA) in the UK, acquired the business with Vitruvian Partners. The investment from Vitruvian will enable CFC to invest further in building its portfolio of emerging and specialty risk products, expand its global distribution base, and develop its industry-leading technology platform.
- Inflexion completed the €46m buyout of MyPolicy, one of the UK’s leading telematics insurance brokers. MyPolicy provides broking, product design, pricing and monitoring of telematics motor insurance policies for first time drivers and other niches in the UK.
- PIB has made a number of investments since The Carlyle Group took a significant equity stake in the business. Acquisitions have included TFP Schemes, Channel Insurance Brokers, Cooke & Mason, and Fish Insurance.
- Global Risk Partners, the specialist investment vehicle for brokers and MGAs, has made a number of acquisitions. It acquired Higos Insurance Services, Marshall Wooldridge and Green Insurance Group.
- France-based Apax Partners acquired a majority stake in the secondary buyout of French insurance broker Cipres Assurances from TA Associates.