Blog: Six reasons 2015 will be the biggest year yet for insurer M&A


I have to admit I am prone to the odd football analogy and the news yesterday that Ace is to acquire Chubb in a £18.1bn mega deal has certainly given me more scope to plough this furrow given that it happened on the day the transfer window opened (1 July).

Because it seems no coincidence that just as the door has opened on what may again prove to be the most lucrative transfer window ever, the insurance market is getting on with the task of turning 2015 into the biggest year yet for M&A deals. Especially as only the day before Ace surprised the market with its move, Willis made a £11.4bn play for Towers Watson.

Like with football, the money changing hands is no longer the preserve of players within a few countries, because in parallel with the beautiful game there are major players in Asia who are paying significant sums to win out and buy in demand assets.

So are my six reasons 2015 is going to be the biggest year for insurance M&A ever...

1) Momentum from Q4 2014

Despite early predictions 2014 was going to be a bumper M&A year, it mostly disappointed until the last quarter when things when a bit crazy. Renaissance Re acquired Platinum Underwriters in a £1.2bn deal; Aviva agreed a £5.6bn deal with Friends Life and XL agreed to buy Catlin for £2.7bn. On the broking side Willis took out Miller, Howden bought RK Harrison; whilst French insurer Covea agreed to buy niche high net worth specialist Sterling. As such things were definitely warming up as the market welcomed in the new year.

2) The battle for Partner Re - £7.3bn plus

The new year got off to a good start when Axis Capital and Partner Re agreed terms on a £7.3bn merger to create one of the largest reinsurers in the world. If agreed it was revealed the merger would create a reinsurer with over £6.4bn in premiums, £9bn in captial and cash/invested assets of £21.1bn.

However, as with many of these deals a spanner has been thrown in works in the shape of Partner Re's largest shareholder EXOR, that has put forward its own bid and has sent a letter to shareholders suggesting they reject the Axis deal at a special general meeting on 24 July.

3) Fairfax acquiring Brit - £1.22bn

This deal brought the attention back to the Lloyd's market, with Shore Capital analyst Eamonn Flanagan singling out who could be next on the M&A carousel: "[With Lancashire, Amlin, Novae, Hiscox and Beazley] you've got five quoted companies you can bid for and in doing so you're going to get a toehold into the best insurance market in the world."

And whilst questions remained about how pricey the likes of Hiscox and Beazley might be, Novae was tipped to be taken out within 12 months and China Re, Korea Re, Arig and Qatar Re mentioned as players with interest in EC3.

4) Tokio Marine acquiring HCC - £4.8bn

As proven by the Covea deal for Sterling and this week's move by Ace for Chubb, specialist insurance groups are very much in vogue.

On announcing its deal with HCC Tsuyoshi Nagano, president of Tokio Marine, said: "In line with the strategy to expand our International business, the acquisition enables Tokio Marine to build a more diversified and highly profitable global portfolio with low volatility, taking into account the nature of HCC's businesses which are largely non-correlated, have limited catastrophe exposure and are less dependent on property & casualty market cycles."

5) The US healthcare changes - £34.5bn plus

The US health market is currently abuzz with M&A fever in light of new rules and legislation that has come in with Obamacare, especially withy regards buying individual policies.

Anthem has already had a £34.5bn offer for Cigna rebuffed; whilst United Health has been linked with a counter offer or a deal for Aetna, which itself has been linked with Humana. Confused? Hopefully the picture will become clearer by the end of the year.

6) This week's splurge - £29.5bn

Which brings us straight up to date with Willis' £11.4bn deal for Towers Watson and Ace's £18.1bn move for Chubb.

Both have surprised the market, but analysts have initially seen more sense in the broking deal.

Lloyds Banking Group insurance and commercial banking global head Bill Cooper said "[The Towers deal] puts Willis in a similar place to Aon and Marsh as regards to having an advisory consultancy business. They are all slightly different but, in that respect, it diversifies the business strongly."

On the other hand, with regards the Ace deal one market source questioned whether its chairman and CEO Evan Greenberg's ego had played a part in the deal: "[Greenberg] told us when he left AIG that he would back and bigger than ever, and now he is."

Looking ahead...

Whatever now happens with Ace-Chubb and Willis-Towers Watson, many insurance share prices were notably up this week, with the likes of RBC Capital noting the Chubb and HCC deals at 1.7 and 1.9 x 2015 book value, meant acquirers were paying a premium for "high quality businesses", recommending Hiscox as a buy.

Bringing things full circle it seems a bit ironic that Hiscox investors now look set to benefit from Chubb being acquired, having rebuffed the insurer's attempts to buy it in 2001.

Whether they are party to the 2015 merger frenzy is still long odds, but there are certainly going to be more surprises as the year builds to become the biggest year yet for M&A.

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