As stakeholders seek to make productive use of excess capital and counter stagnant organic growth prospects, M&A could become an increasingly viable means to those ends. US insurers may see growing interest from buyers looking to broaden their global footprint and increase scale, allowing US sellers to divest non-core assets.
In addition, more insurers around the world are likely to be on the lookout to invest in and acquire InsurTechs to bolster their own capabilities and import a more innovative culture.
To fund investments for growth, insurers may consider unlocking capital that supports non-core assets or legacy liabilities. These transactions may be outright divestitures to free up funds, or an attempt to “clean up” underperforming parts of the business ahead of a sale to increase valuation and remove drag from non-core or run-off business.
For further consideration
Brexit spurs insurer adaptation even before separation terms are finalized
Brexit’s long-term impact on insurers doing business in the EU is still uncertain, partly because the details of the post-Brexit world remain unknown. Many companies have already taken steps to adapt, even as negotiations continue between the EU and the UK on separation terms.
The March 2019 Brexit deadline may not allow enough time for some insurers to fully transition their EU operations, but they need to set alternative plans in motion nonetheless. Among the significant issues still to be resolved are the free movement of talent between the EU and UK, as well as passporting rights, which allow companies based in one EU country to do business in all.
Some insurers already have or will soon need to relocate or bi-locate their offices, staking their ground within one of the remaining member EU states by opening up or even acquiring a new base in another EU jurisdiction, or utilizing alternative structures to enable them to continue easily serving the EU market.f Companies planning to enter the EU market that had intended having the UK as their base will also have to reconsider their options.
Fundamental decisions around target operating models, governance structures, and capital and liquidity requirements should be made as early as possible, as precursors to necessary discussions with regulators. Insurers without advanced contingency plans should be accelerating assessments of their options, while those with strategies already determined need to decide on an implementation schedule, especially involving the hiring and transfer of key talent.
As this situation plays out, there could be a renewed focus on the UK insurance market’s unique relationship with the United States, which was established long before the EU came into existence. The UK in general, and Lloyd’s in particular, is a key supplier of coverage for US risks, especially in the excess and surplus lines and specialty markets, and Brexit won’t change that.
f Reuters, “Factbox: Impact on Insurers From Britain’s Vote to Leave the EU,” New York Times, September 11, 2017.