LONDON—European insurers have weathered the crucible of the coronavirus pandemic and are ready to do some deals.
Last week a Canadian and Danish insurance consortium agreed to buy the U.K.’s RSA Insurance Group PLC for £7.2 billion, equivalent to $9.6 billion. And on Friday, Zurich Insurance Group AG said it is in talks to acquire MetLife Inc.’s U.S. property and casualty insurance business.
The RSA deal, which pushed up the share prices of some insurance stocks when the proposal was announced on Nov. 5, portends further mergers and acquisitions, industry participants say.
That is because the pandemic forced insurers of all stripes to take a hard look at their businesses as losses from claims piled up, bringing weaknesses into sharp relief. Some are recognizing the need for scale to cement profitability, while others are pruning units where they can’t make enough money to compete. Bankers say more deals are brewing.
Another factor that could ignite a shopping spree: the regulatory environment. The European Insurance and Occupational Pensions Authority in April urged the industry to temporarily suspend dividends and share buybacks. As a result, cash has accumulated on some companies’ balance sheets, which dilutes return on equity and is feeding the need to seek combinations.