Driven by the need to transform business and operating models, the vast majority of insurance companies worldwide are planning M&A activity in 2017, according to a new report by KPMG International.
KPMG surveyed 200 global insurance decision-makers and found that 84% of companies are looking to make between one and three acquisitions this year, while 94% plan at least one divestiture. Two-thirds of insurers are also expecting to undertake a cross-border acquisition this year.
For 33% of insurers, transforming their business model is the primary driver of acquisitions in 2017. An equal percentage cited enhancing and transforming their existing operating model as the motivators for deal activity.
“Insurers are clearly hungry for good M&A opportunities,” said Ram Menon, global lead partner, insurance deal advisory with KPMG in the US. “They are focused on transforming their business and operating models, and even with geopolitical uncertainties, they are aggressively looking at deals that can help meet their objectives.”
However, Menon also cautioned insurers against making transactions which are merely opportunistic, as KPMG discovered that 37% of insurers have a still largely reactive approach to deal making.
“If you are using M&A to effectively transform your business, you can't just jump at opportunistic deals, you need to be much more strategic,” Menon said. “Insurance organisations need to make investments that deliver on the longer-term strategy for the organisation. And that is where the big challenges will lie.”
“You must also be prepared to analyse your capabilities in the areas of due diligence and targeting in order to understand how to extract maximum value over the medium term and how the target’s capabilities complement your own,” added Matthew Smith, global strategy group, insurance sector lead, KPMG in the UK.
Smith said the key to M&A success is to “align financial, business and operating models so that you can achieve clarity about the markets and geographies you wish to play in and how you will win.”
According to the study, the US is the top country destination for acquisitions, followed by China. By region, Asia Pacific dominates the list, with 47% of insurers looking for acquisitions, more than twice the percentage for North America. Western Europe is seen as having the biggest opportunity for divestiture.
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