Wrapping Up the Deals: 2021 European Insurance M&A Barometer

Executive Summary

Welcome to FTI Consulting’s inaugural European Insurance M&A Barometer Report, highlighting insurance deal activity across the region in 2021. Our report shines a light on the key trends in the insurance M&A market, its most notable transactions and the players to watch.

While COVID-19’s successive waves created market fears during 2021, the situation also led to an environment with significant liquidity and fiscal stimulus, and record low interest rates. On balance, we believe this has resulted in significant tailwinds, fuelling above-average returns for both private and public financial markets. For the European insurance industry, several factors emphasise the need for insurance businesses to focus on trading profitability: these include regulatory requirements such as Solvency II and the introduction of IFRS 17, inflation (including wage inflation), the imminent rising tide of interest rates, operational resilience challenges (including cyber resilience) and environmental, social and governance (ESG) agendas.

Potentially, this scenario could lead to a further wave of consolidation in Europe as small insurers struggle to meet capital requirements and bear increased regulatory reporting and compliance costs. More generally, a constant feature of business these days is the need to review options to exit non-core businesses through restructurings, divestitures or other transaction activity.

After many years of soft market conditions, the property and casualty insurance industry has been experiencing a hard market as a consequence of COVID-19 losses, catastrophe exposures and social inflation. This sector has therefore attracted private capital, especially given the prospect of high teens returns in the post-COVID environment.

The M&A landscape in the life insurance sector has remained challenging as low interest rates and pressures on premium revenues have impacted on profitability, balance sheets and growth prospects, compressing valuations. Life insurers across Europe have started to follow their UK and North American counterparts in responding to these challenges by disposing of capital-intensive legacy books of business, thereby releasing trapped capital. Disposals will also alleviate stranded fixed costs associated with legacy administrative systems, helping to offset pressure on profitability.

Private equity (PE) fundraising in Europe hit its highest-ever level in the last 24 months, driven in part by COVID-19 economic response measures and also by the prospect of higher returns on private equities than public markets. More money in the market and a limited number of attractive assets has meant that the competition for quality assets is fierce. This causes not only concern over inflated asset prices but also intensity in acquisition processes.

Consequently, PE appetite for insurance assets has remained high, which has led to a greater deal size capacity and more transactional funding. This supports increased deal activity at new annual record levels for valuation multiples in hotly contested sectors such as insurance distribution.

With existing quality insurance businesses trading at high valuations, the trend for new players to enter the (re)insurance market – often backed by an established management team with a proven track record capable of attracting significant financial backing – looks set to continue.

In this context, this inaugural report reviews insurance deal activity across the UK & Ireland and continental Europe, leveraging the results of our recent research.

We would be pleased to hear from you if you’d like a more in-depth analysis of these results or to find out how FTI Consulting can help your company acquire or dispose of insurance businesses while expanding its geographic footprint in Europe.

To download the full report, please click here.