High inflation is driving operating costs up and drastically reducing profit margins for Spanish insurance companies, especially those specialising in car insurance. The sector has proved to be highly resilient in recent crises, but has been experiencing difficulties in recent months due to an increase in accidents, supply issues and the rise in repair costs.
This is why M&A transactions in the insurance sector are expected to increase in the coming months. The first to be placed on the market is the Spanish subsidiary of American company Liberty Mutual, a deal which could amount to around EUR1.4 billion.
Price rises and workforce reductions
Uncertainty is widespread. Insurance companies are gearing up for price increases in policy prices, and three leading companies have already started or announced restructuring processes to improve their efficiency and profitability. Between 2021 and 2022, Mapfre´s early retirement scheme affected almost 600 employees. At the end of 2022, Catalana Occidente began a voluntary redundancy process for up to 550 workers. On its part, Axa has just announced its intention to carry out a collective dismissal in its Spanish subsidiary.
Possible takover bid for Línea Directa
The insurance industry is highly fragmented. There are around 200 insurance companies in Spain, and policy price increases and staff cuts will not be enough for all of them. Some will have to look for new partnerships.
Leading car insurance player Línea Directa might soon join Liberty Seguros in the sale of the business. Following its flotation in April 2021, its shares have lost more than 35% of their value. This consistent downward trajectory has fired rumours concerning a possible purchase of the company by private equity firms or other insurance companies.
In order to shield itself from a possible hostile takeover bid, Línea Directa has attracted, in the last few weeks, high-profile shareholders including Candriam, owned by life insurance giant The New York Life, and the owners of pharmaceutical company Rovi. Candriam has purchased a 3% stake, whereas the López-Belmonte family has acquired 4.32%.
A global trend
The latest large transaction in the Spanish insurance sector was Mutua Madrileña´s EUR1.105 billion purchase of an 8% stake in El Corte Inglés, which turned it into its exclusive insurance provider.
Globally, insurance M&A reached a historical record in the last year. According to a recent report by Clyde & Co, there were 449 transactions globally during 2022, 31 more than during 2021. The Americas remained the most active region in 2022, with 236 mergers and acquisitions. Europe saw 127 transactions, Asia-Pacific 60, and the Middle East and Africa region 24. There were 19 large transactions amounting to more than USD1 billion, and these mega-deals are expected to increase during 2023 among large insurance players, given that mergers and acquisitions are the best way to achieve rapid growth.