More than 80% of insurers plan to acquire by 2019: Report

The competition for attractive assets will intensify in the next three years as insurers in developed markets face a wave of suitors

Insurance News


The competition for attractive assets will intensify in the next three years, as the majority of insurers (82%) plan to acquire while only one-third intend to divest, according to a survey of senior global insurance executives, conducted by Willis Towers Watson (NASDAQ: WLTW) 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 $120.5 billion worth of deals completed in the first three quarters of the year — nearly three times the amount 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 United States and specialty lines, spurred a rise in the number of megadeals to four worth more than $5.4 billion, compared to just one in 2014, and 25 deals worth more than $540 million.
“We expect this trend to continue, although competition for the best transactions is tough. Just 4% of deals proceeded without competition from other potential buyers,” said Jack Gibson, Global M&A lead, Willis Towers Watson M&A Risk Consulting. “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%) of insurers in Africa, emerging Asia, Central and Eastern Europe, Latin America and the Middle East  are planning deals. In contrast, more than half the firms in Australasia, Lloyd’s, North America and Western Europe 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% in the P&C sector and 14.2% 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 expectations that deal competition will intensify, adding upward pressure on prices.
Survey respondents overwhelmingly indicate they expect to focus their M&A activity on core markets (80%), with just 8% not already having operations in deal target markets. Distribution, which is already a key driver of more than a third of M&A activity, will likely become increasingly important as insurers seek new routes to market and higher revenues.
“Reinventing distribution channels so they’re fit for purpose in the evolving marketplace is a major challenge, especially with distribution technologies gaining in importance,” said Gibson. “Digital platforms feature strongly on insurers’ wish lists, as the desire to access and secure new technologies is a key element of many transactions.”
The survey was conducted by Willis Towers Watson M&A Risk Consulting, supported by researchers from Mergermarket canvassed the opinions of 750 senior insurance executives from life, P&C and composite insurers and reinsurers regarding their outlook for M&A in the insurance industry, as well as their own companies’ plans and strategies.

Source: Willis Towers Watson

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