Standard & Poor's Ratings Services said in an April 4 reportthat it expects the global insurance industry to continue consolidating in 2016,albeit at a slower rate than in 2015 when M&A activity in the sector accountedfor nearly $150 billion.
A number of factors are expected to fuel dealmaking, includingrecord-high capital in many segments, limited opportunities for organic growth,low or uncertain investment returns in domestic markets, and evolving regulationsuch as new capital requirements in Europe or the Affordable Care Act in the U.S.
S&P said new classes of buyers are emerging as a result offavorable financing conditions, ranging from corporate conglomerates to high-net-worthand sovereign wealth funds, particularly from the likes of China and Japan.
However, the agency noted that it has observed a negative biasamong acquirers since 2000 in terms of both equity returns and ratings momentum.
A study of the 50 largest transactions involving rated insurerssince 2000 shows that nearly two-thirds of the ratings on acquirers were affirmedupon deal announcement. Meanwhile, 22% were put on a negative outlook or CreditWatch,with over half of these eventually downgraded in the subsequent five years.
All of the acquirers whose ratings were placed on positive outlookor CreditWatch were eventually upgraded, according to the report.
S&P Ratings and GlobalMarket Intelligence are owned by McGraw Hill Financial Inc.