Insurance Executives See Jump in Acquisitions Ahead

March 27, 2014

After a slowdown following the 2008 financial crisis, the volume of insurance mergers and acquisitions should increase over the next one to three years, according to North American insurance executives.

A sizable 86 percent of those executives participating in a Towers Watson survey said they expect to see an increase in insurance M&A activity, with  78 percent saying they are actively considering acquisitions themselves.

Insurers surveyed said they believe the most significant factors to fuel further activity will be strategic intention to expand into new geographies/sectors (58 percent), difficulties of organic growth given the challenging economic times (57 percent) and general economies of scale (54 percent).

They cited the price expectation gap between buyers and sellers (55 percent) and limited availability of viable opportunities (52 percent) as the major impediments to activity.

Insurers that are considering acquisitions cited several different areas of focus, with 64 percent seeking an opportunistic purchase (one where the right deal comes along) and 55 percent interested in bolt-on acquisitions within an existing geography and segment.

Nearly half (47 percent) of respondents said they would focus on expansions into new markets, with the same percentage indicating they would pursue acquisitions to improve access to new customer segments, distribution capabilities, product expertise, or other technical or operational capabilities.

“Insurance M&A activity slackened to an unnaturally low level in most parts of the world after the 2008 financial crisis,” said Jack Gibson, Towers Watson’s global lead for insurance M&A. “But lately we’ve seen a strong trend toward accelerated activity that has featured bold, transformative moves into new geographies, product lines and distribution systems. Many of these recent deals have been well received by both buyers and sellers, bringing significant value, attractive platforms and superior talent to the marketplace.”

Other key findings of the survey included:

• When asked to rank the most attractive regions to do business, insurers chose North America (87 percent), Asia Pacific (70 percent) and Latin America (67 percent).

• The majority of insurers plan to initiate steps to undertake a variety of capital-linked activities over the next three years, such as debt issuance (68 percent) and other capital-raising exercises (50 percent).

• Only 22 percent of respondents said regulatory environment-related concerns have impacted their M&A activity during the last three years.

Gibson had a few recommendations for insurers considering acquisitions:

• Insurers need to develop a clear M&A strategy that aligns with their broader corporate strategy.

• Insurers must carefully consider integration and cultural issues in advance—not after the deal is announced—as some deals that are strategically and financially attractive may not be good organizational fits.

• Insurers should continually evaluate assumptions during the due diligence period to confirm the transaction still makes as much sense at the time the offer is made as it did earlier in the process.

Source: Towers Watson
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Latest Comments

  • March 27, 2014 at 3:18 pm
    Jerry Shafran says:
    A slightly different twist to the regulatory issue. An acquiring company may be held responsible for past regulatory sins of the acquired. These sins may or may not be know... read more
  • March 27, 2014 at 1:34 pm
    Larry Cappleman says:
    What happened to the concern for Financial Entities growing "Too Large to Fail"? M&A activity can only make them larger which seems to run counter to the opinion of our R... read more
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