Our Insurance Growth Report mid-year update explores the drivers of insurance M&A globally in the first half of 2018. Here, we take a look at activity in the Americas, and what the key drivers of future deal activity in the region will be.

M&A in the global insurance industry rose in the first half of 2018 with 186 completed deals worldwide, up from 180 in the second half of 2017. This marks the second consecutive six-month period of modest increases in the volume of transactions since the low point in 2017 that followed two years of steady decline.

Activity in the Americas continues to rise with 97 deals so far this year, compared to 90 in the preceding six months. We anticipate that the same factors that have kept M&A deal activity chugging along at a rapid pace in the Americas for the past 12 months or so should sustain deal activity into the coming 6-12 months.

However, more of a "buyer's market" is emerging in US M&A deals. Potential buyers are refusing to accept the especially high valuations that sellers have demanded recently. Instead of preventing deals, this shift is likely to delay deals as parties negotiate more aggressively over pricing.

Key drivers of dealmaking to watch in 2018 are:

  • Shift in reinsurance market fundamentals: The fundamental shifts in the reinsurance marketplace, including due to the ongoing and persistent competition and pressure from ILS, means that reinsurance M&A has remained robust, as evidenced by announcements of takeovers of Bermudan reinsurers such as AXA's move on XL Catlin and AIG's tie-up with Validus, with an expectation of more M&A to follow. It is proving increasingly difficult to remain relevant as a large reinsurance-focused company and as a result Bermudan businesses continue to be put up for sale or look to diversify by acquiring new underwriting assets themselves.
  • Economic outlook: In the US 'positive' factors such as strong economic growth (e.g., 4.1% annualized GDP growth during the second quarter of 2018) and lower federal corporate tax rates as well as 'negative' factors such as relentless competition and pricing pressure in many lines continue to motivate M&A deals in the insurance sector.
  • Technology: Interest in insurtechs and technology as a growth driver has further accelerated, a trend that is set to continue with technology companies being targeted and looking to acquire insurance assets themselves. We expect technology leaders such as Amazon and Google to increasingly challenge established insurance models and add further pressure on traditional insurers.

For more information on insurance M&A activity in H1 2018 on a global scale, read our full Insurance Growth Report mid-year update here.

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