Top 10 Insurance M&A Concerns
Published March 1, 2012 5:41 PM
|
Updated March 5, 2012 2:24 PM
1 Min Read
1. Economic Uncertainty
In the United States and internationally, low growth and volatile markets have stunted investment returns and interest rate exposures. While the global economy remains in a state of uncertainty, already reluctant insurers will not be eager to spend money on M&A.
2. Regulatory Uncertainty
With both the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Patient Protection and Affordable Care Act, insurers may have increased capital requirements to worry about before 2012 closes.
3. Solvency II Directive
Insurers and subsidiaries with international business ties must also worry about the capital requirements and potential IT investments that could come as a result of this directive. However, some insurers may be prompted to use M&A as a means of achieving the preferred scale and diversity of risk that Solvency II will ask for.
Mikhail Popov
4. Valuations
Historically low valuations are creating discrepancies in value indicated by the market and what board of directors perceive their companies to be worth. So while acquirers are liking the price tags they're seeing, the feeling is not mutual for companies testing the market.
5. Alternative Use of Capital
While targets are selling below book value, potential acquirers are under pressure for quicker returns from investors. Therefore, buy-backs and increasing shareholder dividends are trumping potential M&A investments when it comes to excess capital.
unknown
6. Emerging Markets
The United States' slow premium growth market places an M&A focus on emerging market economies in Latin America and Asia. That is where some shake-ups may occur if capital requirements force the hand of financial institutions already invested in these emerging markets.
7. Catastrophes
Higher catastrophic losses of late have incurred some large hits to earnings and capital, generating concerns that the trend of increasing, unpredictable catastrophes needs to be anticipated and accounted for.
8. Capital Adequacy
Insurers concerned about potential changes to accounting methodologies and the decrease in surplus that may result, are seeking additional capital. The possibility of a higher capitalized merger partner or restructuring could see M&A come under consideration.
9. Tax Reform
In the past year, uncertainties surrounding the taxation of life insurance products, offshore reinsurance and insurance companies, as well as taxation consequences stemming from health care reform, have given pause to insurers considering M&A.
10. Lack of Accretion
Whether it be integration, M&A strategy or other internal factors, many insurance deals have failed to be accretive to earnings, according to the report. Many insurers have been dissuaded by this trend and are demanding higher discounts and internal rates of return.