Insurance merger deals expected to accelerate
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Insurance merger and acquisition activity should continue to speed up this year, according to a report issued Tuesday by Deloitte L.L.P.
In its report, “2015 Insurance M&A Outlook: Continuing Acceleration,” New York-based Deloitte says that factors such as a 2015 interest rate hike, an uncertain regulatory environment and historic levels of capital could all drive insurance M&A activity.
High capital reserve levels, intense price competition and stagnant organic growth will continue to depress insurance companies' return on investment, according to the report. As a result, strategic buyers are expected “to turn to M&A to build out capabilities and markets.”
The report also noted that financial buyers may seek cash-flow businesses “that aren't highly capital-intensive and aren't necessarily correlated to the stock market.” Foreign buyers should become more active in the U.S., and private equity firms will try to both buy and sell assets.
Deloitte cautions, though, that buyers will be prudent and selective in their acquisitions.
“Today's is a more cautious M&A environment than it was seven or eight years ago, when there were always a few companies that had cash reserves and when the right opportunity at the right price came along, they would buy it.”
“The key to long-term sustainability and fundamental success in a more risk-aware M&A environment is being able to walk away from a deal unless it ticks all the boxes,” said the report. “The link between business strategy and M&A strategy will become increasingly important and visible in 2015.”
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