Last month I attended another NGIN event, this time in partnership with Deloitte. The event presented an opportunity to reflect upon 2016 and look at predictions for the London Market going forward in 2017. The evening was comprised of three discussions, each looking at a different dimension of the insurance market from a financial view-point.
A reflection on M&A activity in 2016 (Will Geer & Joe Brassington)
First was a presentation by two partners from Deloitte’s Mergers and Acquisitions team. Will Geer began by describing a process that’s been dubbed as “the vicious circle” of the current insurance and reinsurance landscape. This referred to an overall observation that the market in 2016 represented a continuation of the long-standing trends of macro and market-level pressures since the financial crisis. The takeaway conclusions of this insight weren’t too peachy: there is an ever greater downward pressure on reinsurer returns coupled with the fact that organic growth in mature markets continues to be very challenging.
Joe Brassington then looked at the market’s response to this downward pressure. One of the key observations was that there has been a fundamental change in approach to mergers; that is, the reasons why individuals have been doing deals, how insurers are doing deals, and in some areas, the price that insurers are willing to pay for deals. So it turns out that 2015 was a record year for M&A, both in terms of deal volume and deal value. Given this circumstance, it was presumed that 2016 would be a tumultuous year.
In fact, in 2016, deal volume and value was at its lowest in the last 5 years. Why? The explanation is that 2016 was impacted by a broader macroeconomic uncertainty that has shaken confidence in the market. Yet the M&A team firmly believe that 2016 was a “blip” and that volume is going to return this year. It’ll be interesting to see if they get it right, given that the predictions for 2016 were off the mark.
Current challenges facing the market (Laura Scarpa)
The next speaker was Laura Scarpa. We were told that she does a lot of work in helping a number of firms to negotiate Brexit, so I was interested in what her presentation would reveal. It was no surprise to learn that political risk is at the forefront in 2016/2017. Laura specifically drew attention to the great deal of anti-globalisation and anti-immigration sentiment we’ve seen in the past year. In the London market this is, of course, absolutely central to the political climate.
In the media there’s been a great deal of hype about how the market will react and whether these moves will be predictable or simply reflexive. It was reassuring to hear that, despite such an unpredictable economic and political environment, many companies are already planning ahead and making strategic decisions to bypass the Brexit blow. No one’s waiting on government to make official announcements – shareholders need to be reassured. To this end, there was a lot of discussion about the process of setting up a European subsidiary so that business can still be written in Europe.
The future of insurance and innovation (Emma Logan)
Last up was Emma Logan. The audience seemed to engage most with her presentation, partly – I think – because it was less dense in economic jargon, and as we know, technology is such a prickly topic in the current market. Emma has led large-scale transformation programmes for clients and advises Executive teams in what the future will hold for insurance. She began presentation by reiterating that the industry is now “ripe for disruption” and mentioned a number of – what she referred to as – “exponential technologies” that are already doing so.
Out of several innovations that were mentioned, as a research analyst, I thought that Big Data was perhaps the most interesting in its ability to help us better assess risk. But second is how the Internet of Things (IoT) will allow insurers to innovate personalised risks. And this is already happening. For example, the new partnership between Hiscox and Neos, an IoT provider, who are offering a connected home that reduces premiums.
Overall the event was excellent. I left feeling thoroughly engaged and felt that each speaker delivered a very high-level discussion of the insurance market. It was particularly enlightening to get an exclusive angle from a macroeconomic perspective. This was the quality I’d been hoping to find in an NGIN event.
Chantal d’Offay, Research Analyst at Gracechurch Consulting