Brand Strength, Serial Acquirers to Drive Next Wave of Insurance M&As: Willis Towers Watson

November 16, 2017

Fewer insurance mergers and acquisitions (M&As) are being completed these day but those that are completed are of a higher value, according to a survey by global broker Willis Towers Watson in conjunction with M&A analysis and information firm Mergermarket.

Meanwhile, seven out of 10 respondents (68 percent) say that brand strength will be the main driver of M&A in the next three years, reflecting the transition to digital sales, which require a strong, recognizable brand.

Mergermarket surveyed 200 senior-level executives in the insurance industry.

The data show that global deal value across all sectors increased by 8.4 percent in the fist half of 2017 while volume sunk by 12.3 percent. This trend is being replicated in the insurance sector, with deal volume falling by 17.7 percent from the first half of 2016, while value has increased by 170 percent over the same period. The majority of respondents (78 percent) expect to undertake one to two purchases in the next three years, compared with 90 percent that made one or two acquisitions in the past three years.

This move toward larger insurance M&A deals and megadeals can be seen in the split of deal sizes. In 2016, there were only 14 deals worth more than $500 million. In the first half of 2017, there were already 11. This trend corresponds with the survey findings, which show that 17 percent of firms expect at least one of their acquisitions over the next three years to be a major deal compared with 8 percent that have made one such acquisition over the previous three years.

Insurance firms that have been most acquisitive in the past anticipate the most future buy-side activity. Of those firms that have made between one and two deals in the past three years, 81 percent expect to make the same number of purchases in the next three years. Of those that made between three and four deals in the past three years, 44 percent expect to make three or more deals in the next three.

“This seems to signal that insurance M&A activity will continue to be driven by serial acquirers and those that have been active in recent years, as opposed to new entrants that have sat out the past few years finally sticking their toe in the water,” said Jack Gibson, global M&A lead, Willis Towers Watson M&A Risk Consulting. “A number of companies have made large acquisitions in the past two years and have been in integration mode. Once that completes, they can turn from being internally focused back to M&A.”

The survey shows the most powerful motivation for undertaking an acquisition over the next three years will be to gain a strong brand. This reflects the impact that technology and the Internet in particular have had on the insurance industry, with the web being the primary distribution network for companies, according to the analysts.

According to Willis Towers Watson, the transition to digital sales requires a strong, recognizable brand and this can be just as important as competitive pricing, reinventing the company through a major acquisition and rebranding to reintroduce the company to consumers.

The same analysts say that lower rates of insurance among millennials also mean that insurers must work harder than ever to win business, and this increases the value of effective branding.

“M&A in the insurance industry will be driven by the need to create synergies, build brands and tackle technological advances,” said Gibson. “However, as our survey shows, companies will be searching for quality over quantity.”

Forty-two percent of the 200 insurance executives surveyed work predominantly in the life sector, 42 percent work in the property/casualty sector and 16 percent work in the health sector. The companies involved were split equally across the Americas, Asia and EMEA regions. Results were analyzed and collated by Mergermarket and Willis Towers Watson.

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