'Opportunistic' M&A deals, underwriting agency growth predicted

Some “opportunistic” merger and acquisition (M&A) deals may come into play as insurers in Australia review their strategic plans while the local underwriting agency sector is expected to develop further as demand for specialist risk services grows, Clyde & Co says in a new report.

The global law firm’s Insurance Growth Report 2023 says ongoing economic uncertainties and the Russia-Ukraine war continue to have spill-over effects on insurance businesses, muting investor appetite and causing greater complexity around war and cyber risk exposures.

But there are still pockets of growth opportunities including in Australia, according to the report.

Asia-Pacific deals involving acquirors from the Americas went up 18% last year from 5% in 2021. Target markets included Australia and India, each of which accounted for 25% of deals into the region, followed by Malaysia with 19%.

The report says a significant proportion of these deals involved market exits by multinational players and the purchase of their assets by competitors.

“We are seeing opportunistic M&A activity in Australia,” Clyde & Co Sydney-based Partner Avryl Lattin told insuranceNEWS.com.au.

“After divestment by banks of their life insurance businesses, we have seen similar divestment by banks of general insurance businesses.”

She says as integration proceeds this year, there may be a rise in run-off transactions for certain lines of business that are not going to fit within the longer term strategic plan of certain insurers.

The insurance broker space remains highly competitive too for acquisitions with a number of international brokers looking for strategic opportunities to expand their business in Australia.

Early this month giant UK independent broker Ardonagh Group completed its acquisition of Australian insurance investment and distribution business Envest, which owns broking network Aviso.

The law firm is upbeat on the underwriting agency space too. The report says the distribution model is still proving popular in the London and Lloyd’s market and Australia, especially where insurers want to penetrate further into markets where they lack the appropriate depth or breadth of underwriting expertise.

“They continue to offer entry to the insurance market with relatively limited capital,” Ms Lattin said.

“We are continuing to see a lot of innovation from them in the use of technology, the development of new business lines and engagement with customers. As underwriting agencies find success in the Australian market they will be targets for acquisition.”