Competition among buyers is expected to intensify in the insurance industry, with 83% of companies saying they plan to acquire another firm over the next three years.
A survey of senior insurance executives conducted by Willis Towers Watson M&A Risk Consulting in conjunction with Mergermarket suggests that the trend in mergers and acquisitions will continue in 2016. Top-line revenue growth was the leading driver of activity in the industry last year, with more than $168 billion (CDN) worth of deals completed in the first three quarters of 2015; this is nearly three times the amount recorded in 2014.
Over the next three years 90% of insurers in emerging Asia, Central and Eastern Europe, the Middle East, Latin America and Africa are planning deals. On the other hand, the poll revealed that more than half of the insurance companies in Western Europe, North America, and Australasia expect to make at least one divestment before 2018, primarily due to consolidation and efficiency drives.
In the life insurance sector, executives indicated that they would not be willing to consider deals with a future return on capital of less than 14.2%. Willis Towers Watson says that if insurers are going to stick with this kind of purchase criteria, the increased competition will raise prices and force them to be more selective.
Distribution in particular is expected to gain importance in M&A activity as insurers try to find new ways to market their products and increase revenues. “Reinventing distribution so it is fit for purpose in the evolving marketplace is a major challenge,” comments Jack Gibson, global M&A leader for Willis Towers Watson M&A Risk Consulting. “Digital platforms feature strongly on insurers’ wish-lists and the desire to access and secure new technologies is a key element of many transactions.”