EMEA-region insurers expect to sell more business units than they buy over the next three years

More insurance companies in the Europe, Middle East and Africa region view themselves as sellers of business units, as opposed to buyers, over the next three years, Towers Watson reported this week.

In a survey of senior insurance executives, conducted by Towers Watson and intelligence provider Mergermarket, 60% of respondents said they expect to divest operations before 2017, up from 20% who said the same a year ago.

Additionally, 42% said they expect to make an acquisition over the next three years, down from 69% a year ago.

“The growing focus on disposals fits with a general strategy amongst major insurers in Europe in recent years of selling non-core units and of consolidating where they have a market-leading position,” Fergal O’Shea, EMEA Life Insurance M&A Leader for Towers Watson, commented in a statement.

“In addition, we expect more acquisitions of smaller insurers to result from the increased regulatory burden, mainly from Solvency II.”

While the number of M&A transactions in the EMEA region’s insurance sector in the first half of this year was roughly on par with the same period last year, deal value dropped from 8.1 billion euros to 3.9 billion, Towers Watson said.

The drop in major transactions was attributed by survey respondents to be because of economic volatility and uncertainty in the regulatory environment.

However, 84% of respondents predicted capital inflows into the EMEA insurance sector over the next three years and strong interest from financial buyers. Within that group, more than half said they saw private equity as the most important source of capital for insurance M&A in the next three years.

“Private equity investment in the EMEA insurance sector is already at its highest level for nine years,” O’Shea noted. “A combination of insurers seeking consolidation, low interest rates, the cash generative nature of insurance businesses and the revival of initial public offering (IPO) opportunities across many parts of Europe should heighten the appeal of insurance assets to private equity investors.”