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Insurers in developed markets face wave of suitors in M&A surge

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Global M&A activity in the insurance sector hit new highs in 2015, with EUR129.3 billion (USD143.5 billion) worth of transactions announced during the year, according to Towers Watson’s latest Insurance M&A Annual Report.

The reports says that this surge reflects a number of macro themes, including the continued availability both of cash on balance sheets and affordable capital in a post-financial crisis environment. Underlying these, there are some emerging themes that have been identified from our survey results:
 
The drive for top-line growth. Almost half of the insurers doing deals were seeking to enhance their market position and increase customer numbers – top-line growth has been the key driver of deals, as well as the most important metric in M&A pricing. It is also the prime challenge post- acquisition, with insurers focused on customer retention and satisfaction. While it may come as a surprise that insurers have been turning away from value and return metrics, there is no doubt that, for many rms, achieving organic growth has become increasingly dif cult in crowded and competitive markets. M&A provides a new source of revenues.
 
A wave of consolidation, particularly in the US and speciality lines, has spurred a rise in the number of megadeals. Looking forward, four in ve insurers expect to focus their M&A activity on core markets. However, competition for the best transactions is tough. Incumbent local insurers are ghting hard, international competitors are also trying to cherry-pick the best deals, and an increasing threat is posed by emerging players such as private equity and non-insurance investors from Asia.
 
Asia is rising. The Asian market is expected to be a centre of M&A activity over the next three years – more than half of the respondents to this survey see it as the marketplace where activity will rise most signi cantly. This re ects the fact that in 2015 the value of deals with an Asian target was four times as high as 2014, at EUR19.1 billion (USD21.2 billion), while the value of deals with an Asian acquirer was nearly ve times as high, at EUR43.3 billion (USD48.1 billion). At a global level, Asian competitors and new non-insurance investors are key players in deals in the developed markets of Western Europe and North America.
 
Insurers seek modern distribution options and innovative technology. Distribution is a key driver of more than a third of M&A activity, as insurers seek new routes to market and begin to reinvent distribution models such as bancassurance. Digital platforms feature strongly on insurers’ wish-lists and the desire to access and secure new technologies is a key element of many transactions.
 
There is much to learn from both M&A failures and successes. Deals that failed to complete amid challenges such as disagreement over price, competition, regulatory concern and economic volatility provide lessons for both regular and more occasional dealmakers. The evidence shows that even serial acquirers are not always sufficiently reactive about what deals actually deliver post-completion or how best to measure success.
 

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