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Insurance Industry

M&A Activity Moving Offshore

The historic domination by the U.S. for M&A activity in the insurance industry has slipped.
By: | September 30, 2014 • 5 min read

As with many other aspects of economic activity, mergers and acquisitions are moving offshore.


The historic domination of the United States in terms of the overall share of M&A activity in the insurance industry has slipped, as Europe moved into the front-runner position in the volume of transactions completed, according to the latest report from international law firm Clyde & Co.

The United States’ dominion in M&As is “an entirely natural consequence given the size and maturity of the world’s largest re/insurance market,” the report noted.

However, in the last 12 months, there has been a reversal. From July 2013 to June 2014, there were 139 transactions in Europe, up from 123, while in the U.S., there was a drop from 113 to 97.

Mergers_DougMaagDoug Maag, a New York-based partner of the firm, said: “Contributing factors to this downward trend in the U.S. appear to include differing buyer/seller perceptions of company value, ongoing regulatory uncertainty, the uncertain economic outlook, and some company’s preference to reinvest excess capital into the business or to satisfy shareholders with stock buybacks and dividends”

The reversal may not be a long-term trend, Maag said.

“It remains to be seen whether Europe will retain that lead, of course, particularly given regional challenges posed by unrest in Ukraine and sanctions against Russia,” he said.

Regulatory Concerns

The U.S. has its own set of challenges, Maag said.

“Questions continue about the durability of the global economic recovery,” he said. “Private-sector uncertainty is a natural byproduct of the political logjam in Washington, which has now persisted for a very long time.”

Also, some insurers have to worry about the prospect of being designated as a Systematically Important Financial Institution (SIFI), he said.

“Large insurance companies that do not qualify for SIFI designation now may, by virtue of an acquisition, change their profile in a way that causes them to become so designated,” Maag said. “If that happens, the insurer becomes subject to heightened levels of supervision and regulation, and possibly to enhanced capital requirements.”

But on the positive side, it could all change, and quickly, Maag said.

“With a single quarter of particularly bright economic indicators or a meaningful breakthrough in the political logjam, risk appetite could return with a vengeance,” he said. “I do think this will happen but the question is when.”

“GDP growth is particularly critical in stimulating or dampening M&A,” Maag said. “The consistent rise in the U.S. stock markets over the last 12 months may lead firms to conclude that valuations are back at levels at which they would consider sale, and, therefore, increase the number of management teams willing to consider an offer,” he said.

The faster than expected growth in U.S. GDP in the second quarter of 2014 may also signal a return to a macro-economic environment that could stimulate expansion through M&A, he said.

Looking for Returns

Probably the most powerful trigger for M&A activity in the coming year is the excess capital overhanging the sector, said Andrew Holderness, global head of corporate insurance for London-based Clyde & Co.

“In the absence of a catastrophic event causing significant balance sheet damage, and with rates having trended downward steadily over the last couple of years, re/insurers have become even more active in their search for alternative strategies.” — Andrew Holderness, global head of corporate insurance, Clyde & Co.

“Shareholders are looking for decent returns on their investments and, if management cannot deliver this operationally then there will be pressure either to return it or deploy it elsewhere,” said Holderness.


“The key challenge is for those companies that cannot demonstrate underwriting excellence or are unable to scale up and move into different markets to acquire new business,” he said.

“In the absence of a catastrophic event causing significant balance sheet damage, and with rates having trended downward steadily over the last couple of years, re/insurers have become even more active in their search for alternative strategies.”

In addition, Holderness said, size appears to be becoming increasingly important — with balance sheet strength seen as being critical to clients, he said.

“If this is the case, then strategic mergers and acquisitions will be driven by the desire to reach optimal scale and relevance,” he said.

Regional Highlights

Here are highlights of region-by-region reports, based on data supplied by Thomson Reuters financial services.

­­­• Asia Pacific

In the last few years, in contrast to other regions around the world, the volume of M&A activity in the insurance industry sector in Asia Pacific has remained comparatively steady.

This pattern continued from July 2013 to June 2014, with an uptick in deals in the second six months. Overall, across the 12-month period, the number of transactions reached 60, compared to 66 in the previous year and the region accounted for 18 percent of deals on a global basis.

“Government liberalization moves will drive M&A activity in India,” said Vineet Anjela in Clyde & Co.’s New Delhi office.

“Interest in M&A in Indonesia is set to rise,” said Ian Stewart of the firm’s Singapore office. “This is a stand-out market in a region that offers promising growth.”

Dean Carrigan of the firm’s Sydney office noted: “We expect some consolidation in Australia to take place between small independent broking groups.”

• Middle East and Africa

The Middle East and Africa span a range of markets at different stages of development both economically and in terms of the insurance industry.

Overall, the number of insurance industry M&A transactions has risen to 17 in the period from June 2013 to July 2013, compared to 7 in the prior year.

However, while activity in the Gulf Cooperative Council (GCC) has been limited, emerging economies such as Turkey and Morocco have seen a number of deals, and a significant spike in transactions elsewhere in Africa suggests that the insurance industry could be waking up to the continent’s huge potential.


“We are seeing a surge of interest from overseas in starting up reinsurance operations in the Dubai International Financial Centre,” said Dubai-based Wayne Jones of Clyde & Co.

• Latin America

The last year has seen a range of economic and political factors impacting a number of countries in Latin America, many of which could have acted as a brake on M&A activity.

Despite this, the region has seen a spate of deals from July 2013 to June 2014. There were 16 transactions in the period across the region, compared to 20 in the previous 12 months.

“We are seeing Latin America playing with the scale, expertise and ambition to look beyond their national borders for opportunities,” said Sao Paulo-based Stirling Leech of Clyde & Co. “A number of U.S.-based insurers, in particular, are looking to establish or strengthen a presence in the region.”

• Bermuda

While the overall volume of deal activity has not increased sharply this year, it is likely the market is reaching a tipping point at which more M&A activity will occur, Clyde & Co. said.

Steve Yahn is a freelance writer based in Croton-on-Hudson, NY. He has more than 40 years of financial reporting and editing experience. He can be reached at
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Safety Trends

Latino Workers Dying on the Job at Higher Rates

New data from the U.S. Bureau of Labor Statistics reveals that workplace fatalities involving Latinos increased by 7 percent in 2013, while for other racial and ethnic groups, the rate has gone down.
By: | September 29, 2014 • 2 min read
Topics: Safety | Workers' Comp
Latino worker

The 4,405 occupational fatalities last year represent a decrease from 2012’s figures. However, workplace deaths among Hispanic or Latino workers was the highest in five years.

The statistics come from the Bureau of Labor Statistics’ annual count of workplace fatalities. The numbers are preliminary and may be revised later.

The preliminary total of fatal work injuries in 2013 translates to a rate of 3.2 per 100,000 full-time equivalent workers compared to a final rate of 3.4 in 2012. Several findings stand out from the overall positive results.

“The number of fatal work injuries among firefighters was considerably higher in 2013, rising from 18 in 2012 to 53 in 2013,” according to the BLS. “The large increase resulted from a few major incidents in which multiple fatalities were recorded, including the Yarnell Hill wildfires in Arizona which claimed the lives of 19 firefighters.”

The 797 occupational deaths among Hispanic or Latino workers represented an increase of 7 percent since 2012 and was the highest total since 2008. The number of fatalities among all other major racial/ethnic groups was lower.


In the private sector, there were 3,929 deaths last year — the lowest total since the census began in 1992. Self-employed workers saw 16 percent fewer fatalities in 2013 — 892 compared with 1,057 in 2012. That preliminary total also represents the lowest annual total since the series began in 2012.

However, the number increased for contractors, up to 734 from 715 in 2012. That group represented 17 percent of all occupational fatalities last year.

In terms of the ages of workers, fatalities decreased among workers younger than 16 — falling from 19 in 2012 to just 5 in 2013. Most other age groups also reported lower death rates with the exception of workers 25-34, which were higher.

Seventeen states and the District of Columbia had more fatal injuries in 2013, 30 states had fewer, and three states saw no change between the two years.

The report included the additional findings:

Violence accounted for 1 out of every 6 fatalities, the second highest type of incident after transportation. Workplace homicides decreased by 16 percent while suicides were up 8 percent.

Transportation-related fatalities accounted for 1,740 of the deaths with most being roadway incidents involving motorized land vehicles.

Falls, trips, and slips took 699 workers’ lives in 2013. The number was marginally lower than in 2012 but still represented 16 percent of the total.

Nancy Grover is co-Chair of the National Workers’ Compensation and Disability Conference and Editor of Workers' Compensation Report, a publication of our parent company, LRP Publications. She can be reached at
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Sponsored: Liberty International Underwriters

A New Dawn in Civil Construction Underwriting

Civil construction projects provide utility and also help define who we are. So when it comes to managing project risk, it's critical to get it right.
By: | September 15, 2014 • 5 min read

Pennsylvania school children know the tunnels on the Pennsylvania Turnpike by name — Blue Mountain, Kittatinny, Tuscarora, and Allegheny.

San Francisco owes much of its allure to the Golden Gate Bridge. The Delaware Memorial Bridge commemorates our fallen soldiers.

Our public sector infrastructure is much more than its function as a path for trucks and automobiles. It is part of our national and regional identity.

Yet it’s widely known that much of our infrastructure is inadequate. Given the number of structures designated as substandard, the task ahead is substantial.

The Civil Construction projects that can meet these challenges, however, carry a unique set of risks compared to other forms of construction.

SponsoredContent_LIU“The bottom line is that there is always risk in a Civil Construction project. If the parties involved don’t understand what risk they carry, then the chances are there are going to be some problems, and the insurers would ideally like to understand the potential for these problems in advance.”
– Paul Hampshire, Vice President – Civil Construction, LIU

The good news is that recent developments in construction standards and risk management techniques provide a solid foundation for the type and risk allocation of Civil Construction projects they are underwriting. Carriers need to be able to adequately assess the client and design and construction teams that are involved.

For Builder’s Risk Programs, a successful approach prioritizes a focus on four key factors. These factors are looked at not only during the underwriting phase of the project but also in the all-important site construction phase, under the umbrella of a Risk Management Program, or RMP.

Four key factors

Four key factors that LIU focuses on in underwriting and providing risk management services on a Civil Construction project include:

1. Resource knowledge and experience: When creating a coverage plan, carriers work to understand who is delivering the project and how well suited key staff members are to addressing the project’s technical and management challenges. Research has shown that the knowledge and experience of those key players, combined with their ability to communicate effectively, is a big factor in the project’s success.

“We look to understand who is delivering a project, their expertise and experience in delivering projects of similar technical complexity in similar working conditions, even down to looking at the resumés of people in key positions,” said Paul Hampshire, Houston-based Vice President with Liberty International Underwriters.

2. Ground conditions and water: Soil and rock composition, the influence of ground and surface water, and foundation stability are key additional considerations in the construction of bridges, tunnels, and transit systems. If a suitable level of relevant ground (geotechnical) investigation and study has not been undertaken, or the results of such work not clearly interpreted, then it’s a red flag to underwriters, who would then question whether the project risk profile has been adequately evaluated and risks clearly and transparently allocated via suitable contract conditions.

SponsoredContent_LIU“As we all know, ground is very rarely a homogenous element within Civil Construction projects,” LIU’s Hampshire said.

“It tends to vary from any proposed geotechnical baseline specification with the consequential potential for changes in behavior during construction. We need to understand who has assessed the condition of the ground, its behavior and design parameters when compared with a particular method of construction, and all importantly, who has been allocated the ground risk in a project and the upfront mechanisms for contractual ground risk sharing, if applicable,” he said.

Knowing how much water is associated with the in-situ ground conditions as well as the intensity, distribution and adequate accommodation (both in the temporary as well as in the permanent project configurations) of rainfall for a site location and topography are also key. Tunneling projects, for example, can be hampered by the presence of too much or unforeseen quantities of groundwater.

“In major tunneling infrastructure projects, the influence of in-situ groundwater pressures and /or water inflows is a major factor when considering the choice of excavation method and sequence as well as tunnel lining design requirements,” LIU’s Hampshire said.

According to a recent article in Risk & Insurance, tunneling under a body of water is one of the most challenging risk engineering feats. Adequate drainage layouts and their installation sequence for highway projects and, in particular, the protection of sub-grade works are also important. “But under all circumstances, we need to understand how the water conditions have been evaluated,” Hampshire said.

3. Technical Challenges: This risk factor encompasses the assessment of the technical novelty or prototypical nature of the project (or more often, specific elements of it) and how well the previously demonstrated experience of both the design and construction teams aligns with the project’s technical requirements and the form of contract determined for the project. The client can choose the team, but savvy underwriters will conduct their own assessment to see how well-suited the team is to technical demands of the project.

4. Evaluation of Time and Cost: With limited information generally provided, we need to be able to verify as best as possible the adequacy of both the time and cost elements of the project. Our belief is simply that projects that are insufficient in either one or both of these elements potentially pose an increased risk, as the construction consortium tries to compensate for these deficiencies during construction.

Small diameter Tunnel Boring Machine designed for mixed ground conditions and water pressures in excess of 2.5 bar.

New standards

In the 1990s and early years of this millennium, a series of high-profile tunnel failures across the globe resulted in major losses for Civil Construction underwriters and their insureds.

In the early 2000s, both the tunnel and insurance industries worked together to create new standards for high-risk tunneling projects.

A Code of Practice for the Risk Management of Tunnel Works (TCoP) is increasingly relied on by project managers and underwriters to define the best practices in tunnel construction projects. This process ideally starts at project inception (conceptual design stage or equivalent) and continues to the hand-over of the completed project.

LIU’s Hampshire said alongside TCoP, the project-specific Geotechnical Baseline Report and its interpretation and reference within the project contract conditions gives the underwriter greater clarity as to who recognizes and carries the ground risk and how it’s allocated.

“The bottom line is that there is always risk in a Civil Construction project,” Hampshire said. “Is the risk transparently allocated or is it buried? If the parties involved don’t understand what risk they carry, then the chances are there are going to be some problems, and the insurers would ideally like to understand the potential for these problems in advance,” Hampshire said.

Paul Hampshire can be reached at

To learn more about how Liberty International Underwriters can help you conduct a Civil Construction risk assessment before your next project, contact your broker.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.

LIU is part of the Global Specialty Division of Liberty Mutual Insurance.
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