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I. Review of M&A Activity in 2015
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Security Act of 1974. If finalized in their proposed form, the regulations could transform the way financial services firms, including insurance companies, market and sell their products and services. This transformation could lead to M&A activity as industry participants adjust to the implementation of the regulations. We discuss these proposed regulations in Section VI.G.3 below.
Internationally, the effectiveness of Solvency II as of January 1, 2016 will have an impact on the European insurance industry, and we expect that, over time, the Solvency II dynamic could spark M&A activity in relevant markets. We discuss this dynamic and its potential effect on the M&A market in Section I.B.4 below. The potential implementation of international group capital standards, a topic we discuss in Section VI.E below, could also be a regulatory driver of M&A activity in the coming years.
b. Changes in Technology
Another potential driver of M&A activity in the sector over the longer term could be the extent to which technology and data and predictive analytics are changing the operation of insurance businesses. While for many years commentators have speculated about the effects of these developments on the industry, only recently has the industry begun to undergo significant changes as a result of these factors. Distribution models increasingly rely on direct-to-consumer marketing and technology-based solutions, and further changes to the market could be expected in this regard in the coming years. Technological advancements in other areas of the economy and manufacturing could also fundamentally alter insurance products that have been a staple of the industry for several decades.
Notably, in 2015, Alphabet launched “Google Compare” for auto insurance, which seeks to serve as an online marketplace where individuals can shop for car insurance from multiple carriers using a single digital form. Also grabbing headlines in 2015 was the creation of startup company Figo Pet Insurance, which allows customers to use cloud technology to acquire a pet insurance policy issued by an affiliate of Markel Corporation and automates
the policyholder experience over the Internet. Automobile insurers have also developed similar applications to enhance the policyholder experience using the Internet and smartphone applications.
Some commentators have speculated that these developments will significantly change the industry, while others have suggested that prognostications regarding the impact of technology on the insurance industry may be overblown. It is too early to tell exactly how significantly or how fast developments such as these will alter the insurance industry or lead to M&A activity in future periods, but we will certainly be watching these trends as they continue to develop.
B. Market Trends – Europe
1. The Return to Large Deal-Making
After several years of a quieter M&A market in Europe, 2015 saw a return to growth in deal-making, including several blockbuster transactions involving both U.K. life businesses and specialty Lloyd’s businesses, an up-turn in broker M&A, and divestments of assets by several insurers which have led to opportunities for other market participants.
Most notably, U.K.-based Aviva plc completed its £5.6 billion all-share acquisition of Friends Life Group Limited in April 2015. This transaction was structured as a court- sanctioned scheme of arrangement under Guernsey law, requiring approval by Friends Life’s shareholders holding at least 75% of the outstanding share capital and, under the UKLA class tests applicable due to the London Stock Exchange listing of Aviva’s shares, the approval of shareholders holding at least a majority of Aviva’s outstanding share capital. As a result of the merger, the combined group has 16 million customers in the U.K. and has realized certain operational synergies.
The combination of U.K. life and savings businesses could help to position the larger groups to address customer needs following new pension rules in the U.K, which have significantly affected the sector. Under the new rules, policyholders no longer are required to use pension lump
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review