High inflation is driving up operating costs and drastically reducing the margins of insurers in Spain. This is particularly true for those specialising in motor insurance. The insurance sector has shown great resilience during the last crises, but in recent months it is struggling to overcome the increase in the number of claims, supply problems and rising repair costs.

For this reason, M&A operations in the insurance sector are expected to multiply in the coming months. The first to come to the market is the Spanish subsidiary of the American group Liberty Mutual, a transaction that could move around 1.4 billion euros.

Price hikes and job cuts in insurance companies

Uncertainty is widespread. To cope with the difficulties, insurers are preparing a generalised increase in the price of policies, and three leading companies have already implemented or announced workforce restructuring to improve efficiency and profitability. Between 2021 and 2022 Mapfre took early retirement for almost 600 employees. At the end of last year, Catalana Occidente initiated a process of voluntary departures for up to 550 workers. For its part, France’s Axa has just announced its intention to carry out an ERE in its Spanish subsidiary.

Possible takeover bid for Línea Directa

The insurance industry is highly fragmented. There are some 200 insurers in Spain, and policy increases and staff reductions will not be enough for all of them. Some will have to look for new partners.

The aforementioned case of Liberty Seguros may soon be joined by one of the benchmark companies in car insurance: Línea Directa. After its flotation on the stock exchange in April 2021, the company’s shares have lost more than 35% of their value. This continued decline has triggered rumours that investment funds and other insurers may be preparing a takeover bid.

To protect itself against the possibility of a hostile takeover bid, in recent weeks Línea Directa has attracted two new major shareholders to its capital structure. They are the management company Candriam, owned by the insurance company The New York Life, and the owners of the pharmaceutical company Rovi. Candriam has taken 3% of the capital, while the López-Belmonte family has taken 4.32%.

A global trend worldwide

In Spain, the latest major acquisition in the insurance sector was by Mutua Madrileña, which acquired 8% of El Corte Inglés for EUR 1.105 billion at the end of 2021, thus becoming its exclusive insurance provider.

Internationally, insurance mergers and acquisitions set an all-time record last year. A recent report by global law firm Clyde & Co puts the number of deals registered in 2022 worldwide at 449. This is 31 more than in 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, 24.

There were 19 large deals worth more than USD 1 billion, and the number of mega-deals is expected to grow among large companies in the insurance sector in 2023. Because mergers and acquisitions are the best way to grow fast.

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