We are pleased to provide you with a summary in Japanese and English of the 2020 Global Insurance Industry Year In Review, presenting recent developments in insurance industry transactions and future trends, with a particular focus on mergers and acquisitions, corporate finance, insurance-linked securities and convergence markets, and tax and regulatory developments. A link to the complete Year In Review report is provided.
- M&A: While the onset of the COVID-19 pandemic resulted in a virtual halt in P&C M&A activity in the first half of 2020, a surge of activity in the second half of the year resulted in deal-making in 2020 exceeding that of 2019. We expect market momentum to continue into 2021 and even accelerate the trend toward greater carrier consolidation, which has been evident for the past few years.
- COVID-19 and Business Interruption Policies: As a result of the restrictions imposed on businesses in 2020 to mitigate the spread of COVID-19, many businesses looked to their business interruption insurance policies for financial relief. While many such policies specifically exclude coverage for losses due to viruses, some are silent and the efforts of the plaintiff’s bar have led to significant coverage disputes in the US and UK. As these policies are litigated, the attention of lawmakers, regulators and the insurance industry has turned to how the insurance industry and the government could respond to future pandemics and general health emergencies.
- Post-Brexit: Effective the end of 2020, EU law ceased to apply to the UK, following the end of the Brexit transition period. Insurance firms have been warned by regulators that they must be ready for the changes this will bring. The future remains somewhat uncertain, however, depending on whether the UK and the EU can come to an agreement in the future about formally recognizing the “equivalency” of their respective regulatory regimes (which would make it easier for companies operating in one jurisdiction to provide services in the other).
- Technology Innovation and Insurtech: From the perspective of insurance technology and innovation, COVID-19 forced the insurance industry to increase its examination of the application of technology and innovation to provide better services and products to policyholders. Indeed we saw an acceleration of insurtech investments and collaborations in 2020 and expect that to continue in 2021.
- SPACs: The rise of special purpose acquisition corporations (“SPACs”) in 2020, with 248 SPACs raising over $83 billion, has had a profound effect on the overall US capital markets and M&A markets, including the insurance sector. Three of the new SPACs formed indicated the insurance sector as a target market and four SPACs announced or completed insurance de-SPAC transactions in which the SPAC merged with a private insurance company resulting in the merged business becoming a public company (see e.g., INSU Acquisition Corp II acquiring insurtech Metromile in a $842 million transaction). Insurance-related SPAC activity will be even greater in 2021.
- Life and Annuity Sector and Investment Managers/Funds: A notable trend during 2020 was the continued interest by asset managers and investment funds in acquiring or partnering with life and annuity carriers, and we expect this trend to continue into 2021.
- Convergence Markets: In 2020, the convergence market, which includes insurance-linked securities, sidecars, dedicated funds and collateralized reinsurance vehicles, continued the growth trends of prior years, underscoring its establishment as a key component of the global reinsurance market. The volume of new risk-linked security issuances in 2020 was the largest in the history of the market, notwithstanding the pandemic-induced financial market uncertainty and volatility.
- Regulation: Significant changes have taken place or been proposed to the US insurance regulatory framework, including revisions to the regulations governing credit for reinsurance and the rules relating to permissible investments for insurance companies. In addition, further action was taken in the US regarding the adoption of legal frameworks that would allow for the voluntary restructuring of solvent insurers, and the first insurance business transfer in the US was completed in Oklahoma. Also, certain state insurance departments (including New York) have issued guidance regarding its expectations of insurers with regard to incorporating climate change risk into their governance, enterprise risk management and business strategies.