How reinsurance can make M&A deals more attractive

M&A (mergers & acquisitions) deals within the global insurance landscape are marked by their intricate nature, abundant uncertainties, and often slow-moving progress.

That is because of the numerous activities and stakeholders involved at every stage of the process, including board members, analysts, regulators, and, of course, the buyers and sellers. This necessitates meticulous planning and thoughtful deliberation to effectively navigate, and close, these complex deals.   

For insurance-related M&A's, reinsurance can help streamline and simplify the process. Much of this assistance is centered on making the transactions more appealing, while minimising deal uncertainty.

There are six key phases of an M&A process — pre-transaction, preliminary, non-binding, binding, completion, and integration — where a reinsurer's support can bring about better outcomes. Addressing these phases, in part or in whole, also increases deal certainty.

For example, in the 'pre-transaction' phase, when the target company is getting ready to be sold, the company and its shareholders may want to take action to improve its valuation. The valuation is largely influenced by the risks associated with the company's portfolio. Reinsurance solutions can make the target company more attractive by carving out any underperforming portfolios and improve its affordability by extracting locked-in capital.   

The 'preliminary' phase is where discussions with investment banks and consulting firms have reached a point where the seller is ready to approach the market and gather market interest. Reinsurance can assist companies in expanding its pool of potential buyers by helping them refocus their book on sustainable and attractive risks.

As the pool of potential buyers expands, the likelihood of receiving more favourable offers increases. Those presenting the best deals will then be chosen to advance to the next phase, known as the 'non-binding' stage. At this point, a potential buyer may encounter some uncertainties; for example, the buyer may be unsure in valuing certain risks. Reinsurance can help reduce this uncertainty by providing expertise on specific markets and portfolios.   

Reinsurance can also help un-lock surplus capital that is not freely distributable or optimise the capital structure of the target portfolio by ceding capital intensive risks, thereby making the target company more attractive to potential buyers.   

Financing the acquisition under the best possible conditions is a crucial aspect of the subsequent 'binding' phase of the M&A process. A reinsurer, such as Swiss Re, can provide capital relief reinsurance applied on the target company or buyer’s portfolio, freeing up regulatory or rating agency capital. This approach aids in minimising the issuance of potential costlier debt or equity, improving the financial terms of the transaction.

Once the buyer’s bid is successful and has received approvals from the relevant regulators, the transaction then moves into the 'completion' and 'integration' phases, finalising the deal and combining the involved entities.   

Reinsurance can improve the risk or return profiles by optimising the overall risk diversification, or in ring-fencing a specific portfolio of concern, to ensure the sustainability of the target under the new ownership. This not only benefits the buyer but also facilitates the successful execution of the deal.   

At Swiss Re, we have a proven track record in closing bespoke transactions that enhance the intrinsic value of insurance companies' balance sheets and portfolios. Over the years, we have deployed over US$1 billion upfront financing to support insurance M&A's, with a total deal size exceeding US$5 billion.    

Our dedicated Transactions team of more than 150 experts draw on our global experience and local expertise to deliver carefully tailored and regulator-approved reinsurance solutions to support M&A’s. These solutions provide robust risk protection and optimise capital structures and efficiency, while minimising capital costs.  

By providing such solutions, we enable insurers—both buyers and sellers—in adapting amid changing market conditions, ultimately helping them get the best possible deal. 

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