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Let’s make a deal: Insurance sector primed for mergers in 2017

Posted On: Mar. 15, 2017 2:23 PM CST

A year of deal-making in the insurance industry is ahead for 2017, a new report released Wednesday by KPMG International predicts.

According to the report called “The New Deal: Driving Insurance Transformation with Strategy-aligned M&A,” 84% of insurance companies plan to make between one and three acquisitions in 2017, while 94% plan at least one divestiture.

The United States is the top national destination for acquisitions, with almost a quarter of the 200 respondents expecting M&A activity, followed by China at 12%. On a regional basis, however, insurers are more focused on potential acquisitions in Asia-Pacific, with 47% of respondents seeing acquisition opportunities, followed by North America at 21%, according to the report. 

“This is a bit of a short-term/long-term strategy,” said Ram Menon, global lead partner of the insurance deal advisory practice KPMG in the United States in New York. “With the largest market share in the global insurance industry, the U.S. continues to provide a great opportunity for acquirers and investors looking for global diversification of risks and earnings and those seeking fast access to traditional and innovative operating capabilities. Asia, on the other hand, represents an emerging mass market where insurers can find varied long-term strategic growth opportunities.”

Western Europe is seen as the region with the most assets up for sale, led by the United Kingdom, Italy and Spain, with 48% of respondents selecting it as a divestiture opportunity for their companies. One survey respondent attributed this primarily to the impact of the E.U.’s Solvency II directive outlining a risk-based capital regime for insurers and reinsurers in Europe. There also continues to be ongoing concerns about the prospects for economic recovery in the region, according to the report. 

The report found that 33% of survey respondents attributed the M&A activity to a desire to transform the business model while another 33% want to enhance the existing business model. 

Poor business performance by particular units was cited as the primary motivator for divestitures by 38% of respondents while 19% cited a desire to sell off non-core assets as the number one reason to divest, according to the report. 

KPMG commissioned the Mergermarket Group to interview 200 insurance M&A decision-makers for the report.