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Bermudians on the M&A radar for 2019: Deloitte

US-based insurers that have benefited from reduced corporate tax rates under new US tax rules may be poised to buy some Bermudian companies that are not faring as well under the law in the coming year, according to Deloitte.

Meanwhile, more European companies might try to grow their US presence through acquisitions to offset limited organic growth opportunities, the firm predicted in its annual insurance M&A report, released on Monday.

However, Deloitte said Japanese players are more likely to dominate M&A internationally in 2019, as the current environment sees relatively high market valuations, and Japanese players tend to take a longer view in return models.

2018 in review

The number of deals in the P&C sector increased by 15 percent from the previous year as 2018 aggregate deal value more than quadrupled year on year, from $8.2bn in 2017 to $34.1bn, according to Deloitte.

The increase is attributed partially to the need for P&C companies to “increase growth in the low-to-no rate adjustment environment and the desire to diversify into niche markets”, the report noted.

From 2017 to 2018 the deal multiple decreased as buyers, while still willing to pay a premium to book, “appeared to be cognisant of the ROI [return on investment] that would need to be presented to stakeholders in a challenging environment,” Deloitte said.


The P&C sector had eight deals in excess of $1bn in 2018, of which four were above $2bn. In comparison, during 2017 only two deals in excess of $1bn were announced, and none over $2bn.

“While investors might have been more aware of their ROI, some also chose to swing for the fences and execute on transformative deals”, the report stated.

In 2018, brokers experienced the most active year for deals on record, with 594 transactions in total, Deloitte noted.

Aggregate deal value increased by more than 50 percent since 2017, although this was predominantly driven by the Marsh and McLennan Companies transaction with JLT.

Average broker deal value increased by 26 percent from 2017 to $245mn. Acrisure announced the most acquisitions – 69, followed by Hub with 49 and AJ Gallagher on 43.

Looking ahead

The consulting firm's 2018 insurance M&A outlook noted that, as InsurTechs change the relationship between insurers and customers, middle-market personal lines and small commercial insurers will look to consolidate and form alliances to increase their scale.

Small- to medium-sized enterprises are increasingly creating upstream holding companies that would allow more flexibility in the way they use capital to buy other companies and invest in InsurTechs.

In 2019, smaller, high-performing specialty businesses that provide bolt-on opportunities are likely to sell at a premium, the report explained.


Insurance companies’ appetite for InsurTech investments should remain strong in 2019, as “many would prefer to buy rather than build industry-disrupting capabilities to drive market growth and improve long-term financial performance”, according to Deloitte.

Deloitte predicted that private equity buyers will to continue their pursuit of insurance acquisitions in 2019, with reinsurance specifically of interest due to its “good yield, better interest rates, and relative safety”.

The firm also warned that insurance activity could be impacted by frothy valuations, noting that some currently high valuations are a result of US tax reform as “a lower corporate tax rate provides higher after-tax earnings and, therefore, higher valuations”.

“A scarcity of good acquisition targets may drive up valuations, as may rising interest rates that improve asset yields,” the report noted.

Deloitte pointed out that relatively rich valuations generally feed deals.

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