Takeover fever grips insurance as Amlin heads to Japan for £3.5bn

M&A activity in the sector bursts through £100bn mark and more deals are expected

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The UK insurer Amlin has been sold to Japanese rival Mitsui Sumitomo for £3.5bn, propelling global merger and acquisition activity in the insurance industry past the $100bn mark for the  year to date.

The knockout 670p-a-share offer from the Tokyo-based company – a 36 per cent premium on Monday’s closing share price – underscores a frenzy of activity in the sector and the emergence of Japanese corporates as a new force in global M&A.

Amlin, which sponsors the Formula E championship, follows in the footsteps of other Lloyd’s of London agencies such as Canopius, Catlin and Brit Insurance, which have all been acquired by overseas players in the past two years.

Other high-profile deals in the sector – such as the £5.6bn takeover of RSA Insurance by Zurich, and the £5.5bn acquisition of Friends Life by Aviva –have driven UK-targeted insurance M&A to $20.1bn (£13bn) so far this year, Dealogic figures show. 

The increase is in line with a recent surge in overall British M&A, with deal volumes rising to their highest level since the financial crisis.

While takeovers in the insurance sector have failed to keep pace with the strength of activity at the turn of the century – when $25.6bn worth of UK-related insurance deals had been unveiled by this point in the year – analysts are predicting that the final quarter of 2015 could help set a new benchmark for activity.

“There’s a possibility all the remaining UK-listed Lloyd’s of London members will get bought eventually,” said Shore Capital analyst Eamonn Flanagan. “There’s surplus capital in the industry due to the lack of catastrophes in recent years, which is pushing premiums down. If companies are unable to write business then they may have to do M&A to grow.” 

Alongside an increase in pharmaceuticals deals, a key driver of this year’s general M&A boom has been Japanese corporates splashing the cash, with takeovers of British-based companies amounting to $11.6bn in the year so far, trouncing the previous record of $4bn set in 2006.

Large buyouts such as Nikkei’s £844m takeover of the Financial Times and the £1bn acquisition of Domino Printing Sciences by Brother Industries have bolstered the figures. However, with 25 in-bound takeovers by Japanese companies in the UK so far this year ,overall activity is riding high.

The increase in raiders from Tokyo in part reflects the decisive economic policies of Prime Minister Shinzo Abe, whose attempt to drive higher levels of growth at home has led to a push for corporates to seek out further fortunes abroad. “Abe is very keen on encouraging outbound investment. There’s definitely a move by the government to help companies buy abroad,” a British-based M&A banker said.

With the remaining independent Lloyd’s insurers being led by executives well versed in capital markets, and a wall of money in Japan ready to go to work, the sector could be in for a rush of deals sooner than expected.

“We have known Mitsui Sumitomo for years and years and years ,and we had strategic discussions over a long period,” said Amlin’s chief executive Charles Philipps. “But this only accelerated very recently.”