Insurance Growth Report 2024 podcast series - Episode 1: Exploring UK & Europe’s M&A and regulatory landscape

Clyde & Co’s new Growth Report Podcast Series, hosted by Peter Hodgins, draws on this year's Insurance Growth Report, which explores the M&A landscape and regulatory issues across the insurance sector. Each episode will focus on key regions and this first instalment looks at the UK and Europe, with insights provided by Andrew Lucas, Partner in the Corporate Insurance Group in London, and Andreas Börner, a corporate and regulatory Partner in the Munich office.

Following a brief introduction from Hodgins, he hands over to Börner to provide the M&A view from Europe, shining a spotlight on the market for run offs. Lucas provides an update on the UK, focusing on FCA plans to publicly name those it is investigating. The discussion turns to Brexit and perspectives on how authorities are handling the reallocation of functions between insurance branches in the EU and the UK. And to conclude, guests consider the future and provide advice on navigating the challenges ahead. 

Providing the EU perspective, Börner raises the topic of M&A within the insurance run off market, which has become increasingly popular, covering a “broad toolbox” of transactions, and spanning insurers, MGAs, and intermediaries. As Börner explains, this trend is driven by the sheer volume of legacy business, which PwC estimates at $1trn, along with the rise of digital tools to manage insurance books, volatility, and regulations such as IFRS, which have accelerated the need to reorganise operations.

Across the Channel, Lucas outlines the FCA’s recent plans to “name and shame” companies it is investigating, calling this a “big shift in approach.”  But, while the FCA claims the move is in the interests of public transparency and deterrence, there are concerns in the government and amongst stakeholders that being marked as “…guilty until proven innocent, may cause significant damage” to businesses.

Guests broach the topic of Brexit, specifically how jurisdictions are handling insurance companies with branches and subsidiaries spanning the UK and EU. Börner explains that EIOPA Europa hasn’t taken a formal view but handed the issue over to national authorities who are “starting to challenge business models where a large part of the expertise is located outside of the European Union but used to service EU customers.” These challenges are also driving M&A activity.

In the UK, Lucas says that the PRA is taking “steps to rationalise and in some cases, even roll back regulation” including Solvency UK, with some key proposals that will impact UK third country branches. The implications are that UK branches are no longer required to calculate branch solvency capital requirement (SCR) or branch minimum capital requirement (MCR), or hold assets in the UK to cover branch SCR. He describes these as “positive and practical changes from PRA, albeit with the processes and systems required.”

To conclude, guests provide their outlook for the year and advice to clients. Börner believes we’re in a “good period for insurers,” but that firms must nonetheless be prepared for volatility, for example by putting the right digital foundations in place now. For Lucas, the positive picture is reflected on the M&A side, following “a bumper year” in 2023. However, while specialist MGAs will continue to be in demand, an “increasing scarcity of attractive investment opportunities” could mean the 2024 M&A market “may well be quieter overall.”