Insurance M&A activity on the rise: Towers Watson

Merger and acquisition activity in the North American insurance market looks to be on the rise over the next few years, according to a new survey from professional services firm Towers Watson.

In a survey of insurance executives, 85% said they expect to see an increase in the volume of M&A over the next one to three years, Towers Watson said.

“Insurance M&A activity slackened to an unnaturally low level in most parts of the world after the 2008 financial crisis,” Jack Gibson, Towers Watson’s global lead for insurance M&A noted in a press release.

“But lately we’ve seen a strong trend toward accelerated activity that has featured bold, transformative moves into new geographies, product lines and distribution systems. Many of these recent deals have been well received by both buyers and sellers, bringing significant value, attractive platforms and superior talent to the marketplace.”

Sixty-four percent in the survey reported seeking “an opportunistic purchase,” and 55% said they were interested in “bolt-on acquisitions within an existing geography and segment,” according to Towers Watson.

Almost half (47%) said they would focus on expansion into new markets, and the same percentage said they “would pursue acquisitions to improve access to new customer segments, distribution capabilities, product expertise, or other technical or operational capabilities.”

Other factors seen as driving the growth in M&A include  difficulties of organic growth given the challenging economic times (57%) and general economies of scale (54%), according to the survey.

However, insurers also noted “the price expectation gap between buyers and sellers (55%) and limited availability of viable opportunities (52%)” as challenges for M&A.

“Each insurer has its own philosophy about acquisitions, but there are a few parameters all acquirers should observe,” Gibson said.

“Foremost, insurers need a clear M&A strategy developed in advance that aligns with their broader corporate strategy. Those that do are most likely to find a strategic fit that makes sense from both a near- and longer-term perspective.

“Beyond financial considerations, it is vital for insurers to carefully consider integration and cultural issues in advance, not after the deal is announced, as some deals that are strategically and financially attractive may not be good organizational fits. It is also important that insurers continually evaluate assumptions during the due diligence period to confirm the transaction still makes as much sense at the time the offer is made as it did earlier in the process.”

In terms of the most attractive regions to do business, those surveyed indicated North America (87%), Asia Pacific (70%) and Latin America (67%), Towers Watson said.

“The majority of insurers plan to initiate steps to undertake a variety of capital-linked activities over the next three years, such as debt issuance (68%) and other capital-raising exercises (50%). Only 22% said regulatory environment-related concerns have impacted their M&A activity during the last three years.”