The competition for attractive assets will intensify in the next three years as the majority of insurers (82 percent) plan to acquire, while only one-third intend to divest, according to a survey of senior insurance executives conducted by Willis Towers Watson M&A Risk Consulting in conjunction with Mergermarket.
In 2015, top-line revenue growth was the leading driver of M&A activity in the insurance sector, with 111.4 billion euros ($118.7 billion) worth of deals completed in the first three quarters of the year – nearly three times that recorded in 2014.
According to the survey, almost half of respondents made their last major acquisition in order to enhance their market position and increase customer numbers. In addition, consolidation, particularly in the U.S. and in specialty lines, spurred a rise in the number of megadeals to four (worth more than 5 billion euros, or $5.3 billion) compared to just one in 2014.
Also during 2015, there were 25 deals worth more than 500 million euros ($532.7 million), the Willis Towers Watson report noted.
Jack Gibson, global M&A leader for Willis Towers Watson M&A Risk Consulting, said: “We expect this trend to continue, although competition for the best transactions is tough. Just 4 percent of deals proceeded without competition from other potential buyers. Incumbent local insurers are fighting hard, international competitors are also trying to cherry-pick the best deals, and an increasing threat is posed by emerging players such as private equity and non-insurance investors from Asia.”
According to the survey, in the next three years the vast majority (90 percent) of insurers in emerging Asia, Central and Eastern Europe, the Middle East, Latin America and Africa are planning deals. In contrast, more than half of firms in Western Europe, North America, Australasia and Lloyd’s expect to make at least one divestment before 2018, primarily due to consolidation and efficiency drives.
The survey shows that insurers are setting higher deal criteria with respondents not willing to consider deals offering a future return on capital of less than 13.8 percent in the P&C sector and 14.2 percent in the life sector. Willis Towers Watson asserts that if insurers are to stick to these higher minimum returns on capital criteria they will need to be more selective initially, given that deal competition is expected to intensify, adding upward pressure on prices.
Survey respondents overwhelmingly indicate they expect to focus their M&A activity on core markets (80 percent), with just 8 percent not already having operations in deal-target markets. Distribution, which is already a key driver of more than a third of M&A activity, is expected to become increasingly important as insurers seek new routes to market and higher revenues.
“Reinventing distribution so it is fit for purpose in the evolving marketplace is a major challenge. Digital platforms feature strongly on insurers’ wish-lists and the desire to access and secure new technologies is a key element of many transactions,” Gibson went on to say.
About the Survey
The survey was conducted by Willis Towers Watson M&A Risk Consulting, supported by researchers from London-based Mergermarket who canvassed the opinions of 750 senior insurance executives from life, property and casualty and composite insurers, as well as reinsurers, regarding their outlook for M&A in the insurance industry, and their own company’s plans and strategy. The companies involved were split equally across the Americas, Asia and EMEA regions. Interviews were carried out in the second and third quarters of 2015.
Source: Willis Towers Watson M&A Risk Consulting
Was this article valuable?
Here are more articles you may enjoy.
Berkshire’s Jain on Cyber: ‘The Mindset Should Be You’re Not Making Money’ 
Reserve Strengthening for Casualty Lines Not Over: Moody’s 
Fannie and Freddie Hit Pause on Replacement-Value Requirements for Home Insurance 
Everton FC Buyer Accused of Fraud, Double-Pledging Assets in Lawsuit 
