Gold Magazine November - December 2013, Issue 32 | Page 81

insurance

{MONEY}

A QUIET
REVOLUTION
THE STRATEGIC IMPORTANCE OF MERGERS & ACQUISITIONS TO INSURERS ACROSS THE
GLOBE IS SET TO INCREASE

A

new report has revealed that
the strategic importance
of Mergers &Acquisitions
to insurers across the globe
is set to increase. However, the report says that
transaction volumes will
not recover along the same lines as during the
last decade. Instead, the next few years will see
a ‘quiet revolution’ in global insurance M&A.
In the short to medium term, low profitability
will have a critical effect on insurance M&A.
Weak profitability is closely linked to low investment yields, and is encouraging insurers in
mature markets to seek domestic deals and to
plan international expansion. The report also
finds that technology will continue to grow in
influence in insurance deals; political risks, the
economic climate and regulatory reform will
all continue to shape the market; and Asian
and Latin American targets top the wish lists
for insurers with capital to spend.
Nick Page, transaction services partner at
PwC, said:
“The global insurance industry’s outlook is
improving. The mature economies of Europe
and North America are moving towards recovery, while the emerging markets of Asia and
Latin America continue to grow. A pick-up in
global premiums is forecast, but the industry
should not expect a return to the old ways.
Insurers are operating in a world where the
goal of long-term growth seems to be getting
further away. Instead insurers face a range of
obstacles including persistently low investment
yields, tightening regulation and overcapacity

in many markets.”
Key findings from the report include:
• Technology grows in influence
• Economics and regulation continue to
mould the market
• Smarter pricing could reduce insurers’ combined ratios by 2-3%
Global insurance M&A will continue to
generate a steady flow of midmarket
transactions, punctuated by the occasional
large-cap deal. Over time, M&A will see
insurers sort themselves into three groups:
Large international insurers with deep technical and financial resources; local and regional
firms with distribution-led strategies; and niche
players specialising in particular products or
customers.

EUROPE

GENERAL INSURANCE
In Europe, tough market conditions and rising compliance costs are putting a premium
on economies of scale. Non-core disposals by
European banks and insurers will generate
a stream of bolt-on targets for acquirers, but
many general insurers will be prevented from
making acquisitions by limited capital. Competition issues may also represent an obstacle
in the region’s more concentrated markets.
Fragmented markets are likely to see smaller
insurers merging in the search for scale.
Regional growth opportunities will also become more sought after as general insurers
facing slow growth in their home markets will

INSURERS FACE A RANGE
OF OBSTACLES INCLUDING
PERSISTENTLY LOW
INVESTMENT YIELDS,
TIGHTENING REGULATION
AND OVERCAPACITY IN MANY
MARKETS
also become increasingly alert to less mature
markets closer to home. As some Western
European insurers withdraw from Central,
Eastern and South-Eastern Europe, others
will increase their exposure to the region. As
international firms develop regional networks,
physical and cultural proximity could help to
deliver lower costs as well as higher growth.
LIFE INSURANCE
There is potential for more inbound Western
European deals. In the short term, inbound
bids to Western Europe will remain rarer than
in the last decade, when several US life insurers
used M&A to expand in Europe. Would-be
buyers could be put off by low dividends and
the complexities of European life insurance.
Low valuations