Insurers are ramping up their mergers and acquisitions activity this year, according to the “2014 Insurance Industry Outlook Survey” conducted by KPMG. The vast majority of insurers also are investing in customer programs, talent and technology to gain competitive advantage in the industry.
KPMG surveyed 95 U.S.-based senior insurance executives in February and March, and 54 percent indicated that they expect to be involved in an M&A deal as a buyer over the next year, up from 34 percent in KPMG’s 2013 survey. Of that number, 19 percent said they are “very likely” to be involved in an M&A as a buyer, up from just 10 percent last year; 35 percent said they were “somewhat likely” to take action, up from 24 percent the year before. The number of executives who said they had no plans for M&A activity dropped to 21 percent, from 41 percent in 2013.
“M&A activity is expected to ramp up in the next year as insurers leverage their strong capital positions to seek profitable growth, enter new markets and rationalize non-core operations,” said Laura Hay, national leader of KPMG’s insurance practice. “P&C insurers are acquiring companies with enhanced technology platforms to gain a competitive edge and view M&A as a crucial means to increase their distribution capacity. Meanwhile, life insurers are expanding their traditional product portfolio to include annuity and investment management capabilities to address the needs of baby boomer retirees.”
Survey respondents said the primary drivers of their M&A involvement this year are “access to new markets and geographic areas” (45 percent), “regulatory changes and pressures” (45 percent), “access to new technology and products” (37 percent); and “improved use of capital” (24 percent). In addition, 14 percent of respondents indicated that the “strategic divestiture of current assets” will take up the most time, energy and resources of management — up from 3 percent last year.
As for specific industry segments, reinsurance is the top seeker of talent, according to the KPMG survey, with 35 percent of respondents giving it No. 1 priority over the next 12 months. This fits with reinsurers’ eagerness to acquire, through M&A deals, new technology to entice younger employees, KPMG said. For the life segment, strategic acquisitions is the highest-priority investment at 45 percent. For P&C firms, marketing/customer programs and information technology top the wish list at 32 percent.
“The global regulatory landscape continues to emerge as a key deal catalyst as insurers consider the continued implementation of risk based capital and capital management initiatives,” said Ram Menon, KPMG's insurance sector lead partner for transactions and restructuring. “Initiatives like the Asset Quality Review for the banking sector in Europe are expected to result in a more rigorous assessment of whether insurance businesses are considered core or should be sold. In addition, high-growth countries like China, India and some Latin American jurisdictions, which do not have enough capacity to meet the needs of retirees, are in discussions to relax regulatory barriers to encourage foreign direct investment.”
