Regulatory pressures slow down regional M&A
M&A in the Middle East continues to bump along at a low level, according to Clyde & Co, in a report titled ‘Insurance M&A Growth Report 2020’. The report states that although there was anticipation that new regulatory requirements to increase capital in jurisdictions and pressure from regulators across the region would translate into a flow of deals as businesses moved to consolidate, this has yet to materialise. One significant exception to this trend was the recent announcement of the merger of MetLife AIG ANB Cooperative Insurance Company with Walaa Cooperative Insurance Company in Saudi Arabia.
In terms of foreign investment, Bupa’s acquisition of Acibadem Sigorta, the second largest health insurer in Turkey, was one of a handful of completed inbound deals.
The more prevalent trend has been multinationals continuing to close parts of their operations in the region as pressures at home force them to divest underperforming assets and refocus on their core businesses. Looking ahead, the backdrop of a mixed economic outlook and political tension in Iran and Qatar will continue to act as a brake on deal activity.
Saudi Arabia, the UAE and Egypt have sufficient scale to be attractive to inbound investors, while other markets are either too competitive or lack sufficient population size to generate an adequate return on equity.
In Africa, 2019 saw sporadic consolidation in some markets and a small number of cross-border deals. The most notable of these was Prudential’s acquisition of a majority stake in Group Beneficial, a leading life insurer in Cameroon, Côte d’Ivoire and Togo. However, while there are clear opportunities in markets including Nigeria and Kenya, on- going political instability is deterring potential investors.
In South Africa, the continent’s leading insurance market, the Solvency II-style capital requirements that came into force in mid-2018 have undoubtedly increased pressure on some insurers, but have yet to lead to any significant deal activity. This could be set to change with the introduction of new Group Supervision rules that will demand new board and licensing requirements, leading some insurers to consider whether to spin out certain businesses.
On the broker side, recent and upcoming changes in the insurance regulatory landscape, combined with continuing digitalisation, will shake up traditional distribution channels, leading to a decline in the number of traditional insurance intermediaries.
“M&A on the carrier side is likely to remain muted through 2020. However, intermediaries in markets including Saudi Arabia and the UAE will need to get to grips with rapidly changing regulations – coupled with much tougher enforcement – which will impact the cost of doing business. We expect an increase in deals will follow,” stated Peter Hodgins, partner at Clyde & Co’s Dubai office.
