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 face a range of obstacles including persistently low investment yields, tightening regulation and over capacity in many markets.
As insurers adapt their business models to this new environment, the strategic importance of M&A will only increase. However transaction volumes are not expected to recover along the same lines as during the last decade. We have six predictions for the next three to five years for global insurance M&A:
1) Increasing inbound European M&A
Europe will see comparatively little inbound M&A in the short term, but as the significance of long-term trends in insurance become clearer the region will see increasing inbound investment. Insurers from Asia-Pacific, the Middle East and other developing markets will acquire European businesses in search of greater expertise.
2) Greater strategic complexity
Changing patterns of M&A will increasingly see different types of bidder – global insurers, regional and local firms, private equity funds, sovereign investors and others – competing for the same target. Understanding other bidders’ goals, priorities, assumptions, hurdle rates and obstacles will become more important to successful M&A.
3) Growing influence of technology
Technology will play an increasingly important role in insurance deal-making. Insurers will acquire technological Expertise, in part as a defensive strategy against disruptive new entrants. Communication or social networking companies could also use M&A to acquire an insurance vehicle and combine it with their high levels of customer insight and trust.
4) Importance of liability transfers
Insurance will remain a sector where the desire to transfer liabilities on and off balance sheet generates alternatives to ‘traditional’ M&A transactions. These include IPOs and asset swaps, but also major reinsurance agreements which effectively shift large blocks of assets and liabilities between counterparties, without necessarily involving the sale of purchase of a legal entity.
5) Need for boldness and creativity
International groups looking for growth will need to strike a better balance between the need for short-term stability and the benefits of long-term expansion. As well as a willingness to take bold decisions, foreign insurers hoping to expand in emerging markets will increasingly need to build relationships, think creatively and work with a wider range of stakeholders.
6) Persistent political risks
Insurers contemplating inorganic expansion should remember that political risks are not confined to the banking industry. In the medium to long term political effects on insurance M&A might include the sale or break up of nationalised insurers, intervention in systemically important insurers, restrictions on the sale of insurance assets or greater protectionism.
|Jan Muyldermans||Philip Ide|
|Tel. +32 2 7107423||Tel. +32 2 7109509|