M&A insurance market 'to be slow in 2023'
Broker says the outbreak of war in Ukraine as well as the economic downturn led to a reduction in M&A activity in 2022, creating more competition between insurers for business
A turnaround is ‘not yet on the horizon’ broker Gallagher says as it cautions against comparisons with the boom in 2021
Activity in the merger & acquisition (M&A) insurance market is expected to decelerate in 2023 following a post-pandemic boom.
Gallagher Specialty said the beginning of the year was likely to be slow for M&A activity adding a turnaround is "not yet on the horizon".
The broker added that 2021 had effectively housed two-years’ worth of deals because of the hiatus in 2020 caused by the pandemic and cautioned against comparing future performance against this boom year.
In Europe, M&A insurers faced greater competition in 2022 compared to 2021 as the outbreak of war in Ukraine as well as the economic downturn led to a reduction in M&A activity.
This was exacerbated by the boom in 2021, which led many insurers to capitalise on hardening rates by entering new markets and expanding their services to make up for a lack of capacity.
Premium rates have largely remained stable, only dropping towards the end of the year, but Gallagher added it was difficult to see future rate increases given the increasing competition and future economic outlook.
Western Europe saw average premium rates fall from 1.35% in 2021 to 1.1% in 2022, while southern Europe saw rates fall from 1.55% to 1.35% over the same period.
In the UK average premium rates fell to slightly less than 0.9% in in 2022, compared with 1% in 2021.
Retentions also continued to drop, the broker said, with “tipping to nil” retention options no longer unusual.
In the UK, average retention as a percentage of enterprise value dropped to less than 3% in 2022, down from a high of 6% in 2019.
The story was similar in the US, with rates falling up to 50% in some industries and retentions decreasing between 10% and 20% in 2022.
While 2021 saw a record 60,000 deals announced in the US, by the second half of 2022 requests for representation and warranties (R&W) insurance were down by half – with most deals announced in 2021 having been completed by March 2022, Gallagher said.
However, the broker said there were still opportunities within the M&A market, highlighting, for example, the downturn in the value of sterling against the US dollar had made acquisitions of UK firms by US buyers more attractive.
“Insurers have kept agile and commercial, while also appreciating they need to differentiate themselves into new areas to say on top of trends and cater to client needs,” Gallagher said in its report.
