Australia and New Zealand, as well as Southeast Asia, led the region in total M&A deal volume for the period beginning in 2018 through the first half of 2022, according to an S&P Global Market Intelligence analysis.
Opportunities Down Under
Australia and New Zealand logged a notable jump in M&A activity last year when deal volume grew to 47 in 2021 from 29 a year earlier. A number of Australian banks have divested their insurance businesses due to rising claims frequencies and inflation and supply chain issues, among other factors, analysts said.
Arthur J. Gallagher & Co., which has been an active acquirer in Australia in recent years, sees plenty of opportunities in the country, Head of Mergers & Acquisitions Oliver Homer said in an email to S&P Global Market Intelligence.
Australia has a significant insurance market because of catastrophe exposures, and also because there is a large number of small and medium-sized enterprises, which creates the need for risk management and insurance advice, Homer said.
"Furthermore, Australia is culturally similar to the U.K. and the U.S., meaning that finding compatible businesses is easier than in regions where they are significantly different," the executive said.
Southeast Asia had the second-highest deal volume during the period as deal volume in the first half of 2022 equaled its total from 2020. Southeast Asia logged a year-over-year decline in deal volume in 2020 when the COVID-19 pandemic erupted.
Jefferies analyst Philip Kett said Malaysia is unique in Asia as being a net beneficiary of higher energy prices, which is supportive of insurance industry penetration and growth. Citing Swiss Re AG data, the analyst noted that Malaysian nominal premiums grew 6.6% in 2019 and 5.5% in 2020, or 5.6% in 2019 and 6.8% in 2020, when adjusted for inflation.
Isolating the life insurance premiums, growth is even higher, at 8.5% in 2019 and 7.1% in 2020, or 7.5% in 2019 and 8.8% in 2020 when adjusted for inflation, Kett said. The analyst added that while historical growth has "disappointed," he is optimistic that Malaysian insurance could surprise on the upside over the next decade.
Asian prospects
Homer said Gallagher sees M&A opportunities in the Asian market and is "actively in conversations."
The executive said the market differs from many others around the world from an M&A perspective, as there are a small number of very big businesses and a large number of very small firms, without a great deal in the midmarket space. In the U.K. and Europe, the midmarket space is much larger and drives much of the M&A activity, Homer said.
"There are also a significantly different regulatory, language and cultural landscape, which needs to be considered when undertaking M&A in Asia, particularly for firms headquartered in the U.S. and Europe," Homer added.
One insurance segment that could be poised for massive growth in Asia is accident and health, with data and analytics company GlobalData projecting the personal accident and health insurance industry in Asia-Pacific to grow to $421.9 billion in 2026 from $203.0 billion in 2020 in terms of written premiums.
Chubb Ltd. has added Cigna Corp.'s accident and health and life business in Asia, and CEO Evan Greenberg said in Chubb's latest earnings call that Asia is now a $7.5 billion region for Chubb.
S&P Global Ratings said the acquisition reinforces its view of Chubb's long-term commitment to its life insurance business, especially in Asia-Pacific markets.
"The Asia-Pacific region offers great potential for long-term growth and wealth creation," Greenberg said when the deal close was announced.