Insurers engaging in M&A outperform competitors in terms of share price

Insurers engaging in M&A are increasingly outperforming their competitors in terms of share price development, according to Willis Towers Watson's Insurance M&A Tracker report, in conjunction with Cass Business School and Mergermarket.

Since 2008, four times as many insurers are outperforming their competitors in terms of share price following major acquisitions.

One of the factors driving this outperformance is the significant number of deals in the life insurance sector where firms have acquired specialist blocks of business from peers, and then have been able to add value through their expertise and experience running such assets.

“The book goes to a firm that is able to focus on it and increase value through the way in which they manage it. In effect, the same block of business is worth more under the new owner than the old one,” said Fergal O’Shea, EMEA life insurance M&A leader at Willis Towers Watson.

“Expanding into new territories was another key factor driving outperformance among acquirers, with a lot of companies increasing their presence in emerging markets across Eastern Europe, South America and Asia.”

The report, which analyses all deals with a value of more than $50 million since 2008, found that insurers making acquisitions delivered significantly better share price performance than their peers in the 12 months surrounding the deal.

The pattern has steadily become more pronounced recently. On average, acquirers have outperformed their insurance sub-sector index by 3.7 percentage points since 2008, but in 2015 alone acquirers have been outperforming their sub-index by an average of 12.5 percentage points.

Acquirers have traded at 1.1 percentage points higher than their index from six months before announcement to one day after, during the last three years. However, in the six months after the deal was announced, the shares outperformed with a further 7.4 percentage points.

“While our figures show that these deals ultimately pay dividends, it takes time to garner results. This lack of immediate reward coupled with the uncertainty on day one around a big deal are among the reasons why investors have been slow to acknowledge the benefits of M&A in the insurance sector,” O’Shea said.

“While there is always genuine risk and uncertainty around a deal, a certain amount of this could be assuaged if companies communicated the benefits of a deal more robustly,” O’Shea added.

“Insurers need a solid deal rationale that’s well explained and then well executed. Both parts are essential if you are to convince shareholders.”