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Global insurance M&A highest in years due to low interest rates and low growth: Moody’s Investors Service


November 10, 2015   by Canadian Underwriter


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Low interest rates and funding costs, a weak global economic environment and regulatory and other changes have contributed to the growth in mergers and acquisitions in the global insurance industry, Moody’s Investors Service said on Tuesday.

Around 50% of acquirer ratings showed no rating movement or, in a few cases, even a positive rating response to announced deals, the Moody’s report noted

The growth in M&A in the insurance industry, now at its highest level for many years, has been driven by the weak global economic environment and regulatory changes, spurring many groups to consider business sales, while low interest rates and funding costs and the desire to seek scale advantages and expand in growing markets encourage bidders, Moody’s said in its report titled Insurance – Global: Highest M&A Activity in Years Looks Set to Continue. According to the rating agency, insurance M&A reached over US$200 billion through the end of Q3 2015.

“M&A is often credit negative for the acquirer, although recent deals have led to a more mixed credit response, with the long-term benefits of franchise-changing deals often being significant,” said Simon Harris, managing director at Moody’s Global Insurance group, in a press release. Around 50% of acquirer ratings showed no rating movement or, in a few cases, even a positive rating response to announced deals, the report noted.

Harris added that Moody’s expects “M&A to halt only if interest rates rise significantly, or equity markets fall dramatically – although even the latter reduces sales prices.” He said that he expects that interest rates will remain at “historically low levels globally and that debt-funded M&A will remain attractive for some years.”

Moody’s notes that many insurance groups globally increasingly recognize the need to achieve higher scale or greater efficiency – to help manage the damaging impacts of a low-return investment environment, particularly for life insurers, or to accommodate a scenario of excess industry capacity, for example for reinsurers. Such factors are often exacerbated by regulatory changes, such as Solvency II in Europe, or changes to the healthcare regime in the United States. “This combination of factors has led many insurers or other financial institutions to consider disposals or mergers, that in many cases present ‘once in a lifetime’ opportunities for those groups with the financial capacity to make acquisitions in the current climate,” the release said.

The report noted that there has been “significant cross-border deal activity.” For example, Chinese and Japanese groups have been active in the U.S. and Europe, the Middle East and Africa, with the continued appreciation of the renminbi versus the U.S. dollar and euro providing a much stronger ability for Chinese groups to consider meaningful non-domestic acquisitions.

Although the Japanese yen has shown relative depreciation against both the U.S. dollar and euro in recent years, “the appetite of Japanese firms to seek non-domestic acquisitions to offset sluggish growth from domestic insurance operations has continued to grow,” the release concluded.


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